The Cannabis Angel Tax Credit Program (the “Program”) was established by law (Section 113(14) of Public Act 21-1) to provide Qualified Connecticut Businesses (aka approved social equity licensees) with the ability to receive investments from accredited investors. These accredited investors are eligible to receive a 25% tax credit against the state income tax when they invest at least $25,000 in a Qualified Connecticut Business.
Investors are only able to invest up to $2,000,000. Therefore, the max tax credit is $500,000. The credit must be claimed in the taxable year where the investment was made and may not be sold, assigned, or transferred. In total, the Program offers tax credits of $5,000,000 for $20,000,000 worth of investments. Below, please see a chart outlining the investment vs. tax credit supported by the Program. It is important to note that there is an annual limit to the amount of Connecticut Angel Tax Credits to be issued in a fiscal year.
Angel investors must apply (application here) and be approved as an angel investor before making any investments in order to receive the tax credit. Only investments made post-approval (meaning post-provisional license) qualify for the tax credit. This means that the $3 million application fee for cultivators located in disproportionately impacted areas is not an eligible investment.
To receive the tax credit, the angel investor and the “Qualified Business” must complete the Connecticut Angel Tax Credit Voucher Application after making the investment.
Certain groups/individuals are not eligible to invest. Those ineligible include:
- Venture capitalists
- Savings and loan associations
- Trust company
- Insurance companies and similar entities whose business activities include venture capital investments
- People who control 50% or more of the qualified business receiving the investment
To qualify as a Qualified Cannabis Business, you must:
- Be a qualified social equity applicant that has been granted a license or provisional license;
- To be a qualified social equity applicant, the business must be at least 65% owned by an individual or individuals who had an average household income of less than 300% of the state median household income over the three tax years immediately preceding the application and either was a resident of a disproportionately impacted area for at least 5 of the 10 years immediately preceding the date of such application; or was a resident of a disproportionately impacted area for at least 9 years prior to turning 18.
- Note, this means Equity Joint Ventures (that are only 50% owned by a social equity applicant) are ineligible.
- Have gross revenues of less than $1 million in the past tax year;
- Have 0-25 employees, with at least 75% Connecticut residents on staff;
- Submit a business plan;
- This must include a description of the business and the management, product, market, and financial plan of the business.
- Be primarily owned by the management team and their families; and
- Have received less than $2 million in eligible investments from angel investors.
You can request an application to be a Qualified Cannabis Business here. Additionally, there is a nonrefundable $250 application fee. The turnaround time for approval is 10-15 days. Upon approval, you will receive an e-mail confirmation and be listed on the Qualified Cannabis Business List.
At the time of this article, only one Qualified Cannabis Business has been approved and added to the Qualified Cannabis Business List, found here.
This incentive is a win-win for investors and cannabis social equity businesses.
Originally published at the Jd Supra Platform