Note this sentence…
is pleased to announce that it has reached a Partial Payment Installment Agreement (the “Agreement”) with the Internal Revenue Service (“IRS”) related to the federal tax returns of its wholly-owned subsidiary Patients Mutual Assistance Collective Corporation (“PMACC”) for the 2007 to 2012 fiscal years and the 2020 fiscal year.
Agreement to result in positive non-cash accounting adjustment of approximately $15.8 million –
OAKLAND, Calif. and TORONTO, July 28, 2022 /PRNewswire/ – StateHouse Holdings Inc. (“StateHouse” or the “Company”) (CSE: STHZ) (OTCQX: STHZF), a California-focused, vertically integrated cannabis enterprise, is pleased to announce that it has reached a Partial Payment Installment Agreement (the “Agreement”) with the Internal Revenue Service (“IRS”) related to the federal tax returns of its wholly-owned subsidiary Patients Mutual Assistance Collective Corporation (“PMACC”) for the 2007 to 2012 fiscal years and the 2020 fiscal year.
At issue were federal taxes owed of approximately $22.1 million. Under the Agreement, StateHouse is resolving this liability through the payment of approximately $5.8 million, to be made through $50,000 per-month payments over an expected period of 116 months, beginning in August 2022. The monthly payment amount is subject to IRS review every two years. With each review, the payments may adjust up or down depending on PMACC’s ability to pay at that time. The Company does not anticipate that these biennial reviews will result in a material increase to the payment plan.
The Company has maintained a provision on its balance sheet related to the taxes owed. This provision was approximately $21.6 million as at March 31, 2022 (the “Provision”). Given that the Provision is significantly higher than the anticipated repayments under the Agreement, the Company expects to record a positive non-cash accounting adjustment of approximately $15.8 million to reverse previous accruals in its financial results relating to the Provision. It is anticipated that the adjustment will be reflected in the Company’s financial results for the second quarter ended June 30, 2022.
In addition, the Agreement allows the Company to recategorize the majority of the related liability as a non-current liability, materially reducing the short-term obligations on its balance sheet.
“This is a landmark agreement for our Company,” said Ed Schmults, StateHouse Chief Executive Officer. “By resolving this longstanding 280E obligation, and more recent federal tax obligations, in a satisfactory manner, StateHouse has demonstrated its leadership in the U.S. cannabis sector. This result provides significant clarity for investors on an issue of critical importance, and puts StateHouse in a much stronger competitive position. It is an important step on our path to building a flagship California cannabis company.”
“We are grateful to the IRS for working with us to resolve this issue,” Mr. Schmults continued. “The federal tax burden on legal cannabis businesses is highly punitive and very difficult to navigate while trying to achieve profitability. The Agreement demonstrates that we can successfully manage the challenging taxation issues arising from the IRS 280E Tax Code, until there is reform at the federal level. We believe the case for this reform is very strong, as it would create tax fairness for legal cannabis businesses and significantly weaken the illicit market, which would result in stronger tax collections for the federal government over the long term.”
The Agreement primarily relates to PMACC’s allocation of certain expenses to cost of goods sold in certain of its corporate tax returns. PMACC, a wholly owned subsidiary of Harborside Inc. prior to Harborside’s name change to StateHouse, was among the first cannabis companies to challenge the federal tax rule against such allocations and the historic litigation was closely followed by the industry in the hope that the U.S. Tax Court (the “Court”) would find in favor of the Company and the resolution would pave the way for future tax relief for state licensed operators. On November 29, 2018, the Court disallowed these allocations, holding that they were instead deductions barred by the IRS 280E Tax Code.
StateHouse, a vertically integrated enterprise with cannabis licenses covering retail, major brands, distribution, cultivation, nursery and manufacturing, is one of the oldest and most respected cannabis companies in California. The Company was awarded one of the first six medical cannabis licenses granted in the United States. Today, the Company operates 14 dispensaries covering Northern and Southern California and one in Oregon, distribution facilities in San Jose and Los Angeles, California and integrated cultivation/production facilities in Salinas and Greenfield, California. StateHouse is a publicly listed company, currently trading on the Canadian Securities Exchange (“CSE”) under the ticker symbol “STHZ” and the OTCQX under the ticker symbol “STHZF”. The Company continues to play an instrumental role in making cannabis safe and accessible to a broad and diverse community of California and Oregon consumers.