Cannabis cannot be added to the sin businesses by regulation as a matter of administrative law. This change can only come from Congress.
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Could it be an oversight that will be rectified by lawmakers that the cannabis industry was not part of the so-called "sin" businesses?
With the treatment of cannabis businesses by Section 280E on one hand and by I.R.C. §1400Z-2 on the other, how likely do you think it is that the next round of regulations will add cannabis to the list of sin businesses?
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My speculation is that they will not address this. However, I would likely expect some other guidance blessing the growing, processing, etc., of hemp, but also to disallow the growth of, and sale of THC products for QOZ purposes. The end result is to be determined of which only government officials might have a crystal ball into the eventual decision. If you are risk adverse, don't do hemp/cannabis until IRS and Treasury bless it.
Not likely.
Cannabis is excluded from sin businesses because Congress referred to a list created in 1986, before cannabis would have been considered a business. I think it is unlikely to be added to the list of sin businesses as this would take an affirmative vote by Congress, but stranger things have happened.
It is expected that a next round of regulations will address abuses and provide the consequences for the abuses. As to the cannabis industry, you will find different opinions. It is the IRS' position that it does not qualify given the federal status of the industry.
I believe it would require a legislative act to add cannabis to the prohibited list. Of more concern is that somehow cannabis gets added to something in the anti-abuse regulations. I think that is a 50/50 proposition. Many are full speed ahead planning with cannabis and others are more cautious. I think having real property developed owned by a QOF and rented to a cannabis business outside the QOF may be the way to go, but if fully disclosed as to future risks, there is nothing prohibiting a cannabis business as a QZOB currently.
As in many things, Congress simply appropriated a list in another section of the Code. Here, they incorporated Section 144(c)(6)(8), which provides a list of facilities that cannot be financed with tax-exempt bonds, rather than write a new list for Opportunity Zones. Section 144(c)(6)(B) was written many years ago, before cannabis was thought to be even possibly legal. All things considered, with a code section that was intended to get into the code with as little fuss as possible, it's not surprising that the Congress just said, "and don't build a facility described in Section 144(c)(6)(B)" without also adding "OR a facility connected with a cannabis business." Once they opened that rabbit hole, they'd have to think about all other kinds of businesses that their constituents might also find morally wrong as well. And, while we're at it, the president might have asked them to add back in "golf courses," which are on the list of sin businesses. To my thinking, what is surprising is that this administration didn't simply direct the IRS to write a regulation that said that QOFs couldn't invest, directly or indirectly, in a business that is illegal under federal law. That would seem to pick up cannabis (at least under current federal law), with relatively little fuss.
The list of sin businesses reference another code section and did not instead recreate the list of businesses. As such, I do not expect that the revised guidance will be able to expressly point to the cannabis industry. Treasury Secretary Steven Mnuchin has publicly stated that he would not suggest OZ businesses invest in the cannabis industry, but it remains to be seen how this will be regulated.
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