StateHouse Holdings Inc. (CSE: STHZ) (OTCQX: STHZF) reported that it reached a Partial Payment Installment Agreement with the Internal Revenue Service related to the federal tax returns of its wholly-owned subsidiary Patients Mutual Assistance Collective Corporation for the 2007 to 2012 fiscal years and the 2020 fiscal year. Formerly known as Harborside and one of the earliest medical marijuana dispensaries to exist, the company had waged a fight about cannabis company taxation. The plan was met with investor cheers as the stock jumped 18% on the news of the resolution.
Unfortunately, StateHouse lost that battle. Back in February of 2021, the United States Tax Court ruled in favor of the Commissioner of Internal Revenue. The company said it owed approximately $22.1 million in federal taxes. StateHouse said it has reached an agreement for the payments to pay its tax bill 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. StateHouse has said all along that it set aside tax money in case the judgment went against them and had roughly $21.6 million as of March 31, 2022.
The company said in a statement, “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.”
“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.”
In addition, the Agreement allows the company said it will recategorize the majority of the related liability as a non-current liability, materially reducing the short-term obligations on its balance sheet.