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Estate Tax Planning for Cannabusiness Owners

Current tax law allows for the transfer of wealth in ways that can minimize the impact on estate taxes, but what does that really mean? Specifically, it means that, right now, the lifetime federal estate and gift tax basic exclusion or “exemption” is $12.06 million per individual ($24.12 million per couple) in 2022 and will increase to $12.92 million per individual ($25.84 million per couple) in 2023. Thus, an individual or couple can transfer assets totaling $12.06 million and $24.12 million, respectively, in 2022 without paying any estate or gift tax, which can amount to 40% of the transferred fair market value.

Since, under current law, this exemption is scheduled to revert to 2017 levels in 2026 (i.e., $5.5 million per individual and $11.0 million for couples), now is the time to take advantage of this opportunity. A change in the U.S. government’s leadership in 2024 could put the amount and timeline of the current exemption at risk and diminish the ability to transfer the wealth tax free. Unlike other restrictive cannabis tax situations, cannabis business owners are not precluded from taking advantage of this estate tax planning technique.

As seen in the graph below, public company stock prices are down more than 50% in the last year for the Global Cannabis Stock Index, and private cannabis companies are expected to have a similar valuation trajectory.

global cannabis stock index

New Cannabis Ventures: Global Cannabis Stock Index

Given this information, what makes the current valuation environment favorable for estate planning and wealth transfer for cannabusiness owners? It is a unique opportunity for more assets to be transferred and less of the exemption to be utilized based on depressed valuations of cannabusinesses. In other words, if you are looking to transfer wealth with the least amount of tax consequences, now is the time.

For more information on cannabusiness estate tax planning, please contact Jennifer Cohen at Citrin Cooperman’s Cannabis Advisory Services team is here to help you focus on what counts.

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