Risky. Unknown if it qualifies. Only states where it is legal, and even there it is very risky.
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Is it safe to invest in the cannabis industry when it comes to OZs?
What are the legal issues when it comes to the IRS accepting the cannabis business as an acceptable operating business? Where is it best geographically to invest in this industry?
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The IRS is of the position that cannabis businesses are not entitled to the benefits of OZ legislation, where cannabis itself is not recognized as legal activity under federal law. Also, as to farming, it is difficult within the OZ rules. The proposed regulations make clear that unimproved land within a QZ acquired by purchase generally is not required to be substantially improved. However, a Qualified Opportunity Fund may not rely on the foregoing proposed rule if unimproved land is purchased with intent not to improve the land by more than an insubstantial amount within 30 months after the date of purchase. Also, if the fund does not invest new capital into, or increase any economic activity or output of, that unimproved land, the general anti-abuse rule could be applied to treat the acquisition of the unimproved land as an acquisition of non-qualifying property. This could apply to farm land.
I have been advising clients that it is safe. The statute does not prohibit investment in cannabis, and I speculate cannabis will be federally legal by the time the 10-year benefit accrues.
I would seek legal counsel. There are a lot of doubts and questions as to the treatment of cannabis business within the zones. And it definitely may vary from state to state.
Cannabis investments generally should be treated like all other investment. The OZ benefits are for investors; the anti-cannabis tax rules are on the business. A cannabis OZ investment generally should get all of the OZ benefits, but the underlying business will be subject to the same rules that apply to cannabis businesses outside a zone.
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