R&D Tax Credits for Digitally Transforming the Cannabis Industry

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Expert Opinion
December 3, 2021

In 2020, the term “digital transformation” likely became a part of your vocabulary whether intentional or not. Given the nature of the COVID-19 pandemic, companies were forced to innovate and subsequently adopt various technologies to remain operational during an unprecedented time. However, the traditional interpretation of digital transformation now goes far beyond the use of video calls and shared calendars. Today, a company’s digital transformation takes on various forms, including but not limited to: 

  • Analytical software tools 
  • Building management systems
  • Customized enterprise resource planning (“ERP”) 
  • Data analytics
  • Inventory management systems 
  • Point-of-Sale (“POS”) systems
  • System automation 

It is undeniable that countless industries adopted technology and underwent a digital transformation in some form or another. However, the recreational cannabis industry remained uniquely positioned to integrate such technologies. As of 2021, the recreational cannabis industry remains under a decade old. As such, the ability to adopt and subsequently integrate various technology is far less complex due to the infancy of the marketplace itself.  

Although the recreational cannabis industry remains legally nuanced due to federal and State jurisdictional differences, software companies undertaking development efforts for the industry likely meet qualification requirements that permit the ability to claim lucrative tax credits. More specifically, the potential tax credits outlined under § 41 of the Internal Revenue Code (“R&D Tax Credit”) should not be discounted.  

Over the past year alone, we have encountered software companies engaged in complex developmental efforts to support the recreational cannabis industry. For example, one company recently partnered with designed and developed a customized ERP system that contained capabilities related to cannabis-specific regulatory requirements, seed-to-sale tracking mechanisms, and cultivation management. Through initial discussions, the company was under the impression they were not permitted to claim federal tax credits due to the nature of their business. However, the nature of the company’s development efforts is derived from developing unique and innovative software—not cannabis itself. As such, qualification for the R&D Tax Credit should not be dismissed out of hand.  

As the recreational cannabis industry continues to undergo rapid innovation—your company’s supportive development efforts should not be understated.  

With tax professionals with expertise in a variety of industries, let Ayming USA evaluate your fact and circumstances to determine eligibility for worthwhile tax incentives.  

Learn about maximizing your incentives from the cannabis industry

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