Now that Cannabis is going to be legal on the Federal level, compelling new opportunities will emerge for Cannabis businesses that are currently growing or buying flower for any business model – wholesaling or retailing THC or CBD flower or creating Cannabis products. Just about any Cannabis business from family farms to major producers can benefit from a set of obscure but economically important IRS regulations on tenant/sharecropper farming.
The incredibly high economic yield of Cannabis per acre has attracted large numbers of both independent and corporate growers to this flourishing business sector, and although I completely recognize the need for mass growing under lights I also remain dedicated to the vision of Cannabis that many of us shared when I wrote the first Cultivators Handbook of Marijuana in 1969.
I think that in the very understandable rush for scale and profit the vast potential of Cannabis to provide a sustainable living for communities of people has been overlooked. I hope that now, fifty years into the Cannabis revolution, the time may have come and events may have evolved enough to allow us reach back to our roots and rediscover the hopeful, creative, altruistic side of Cannabis. Ironically, we can do this by taking an obscure but completely viable set of Federal tax laws and applying them in new ways to the potential of Cannabis for community-building. CBD growers will be able to implement the strategies I will describe immediately; THC growers will have to wait for Federal legalization.
The tax laws I’m talking about can be applied as written, with no modifications or interpretations needed, and could allow Cannabis businesses of any size – you would not have to be big corporate Cannabis – to set up and run small communities of Tenant Farmer/Sharecroppers to grow premium sun-grown Cannabis for their wholesale/retail operations or for Cannabis product production in a way that provides a decent income and a community of livable housing for the people doing the growing, and lower costs, significant tax breaks, valuable economic incentives, and an opportunity to be part of a truly sustainable solution to homelessness for the Cannabis business community.
But come on – Tenant Sharecroppers! Everybody knows that sharecroppers and tenant farmers are poor, ignorant people living in rural squalor exploited by ruthless landowners who work them like slaves – right? That’s how it has been for generations – right?
Well, in a remarkable twist of fate, the same special IRS regulations that incentivize landowners across the American South to virtually enslave sharecroppers and tenant farmers can be used to benefit thousands of homeless people, maybe tens of thousands, by creating sustainable, productive communities centered around small scale, high-value organic Cannabis farming. This will have to wait for Federal Cannabis legalization, since the plan depends on applying standard but obscure IRS farm expense deductions to the Cannabis operations in innovative new ways, but legalization is coming very soon and there’s no reason not to be ready to go when this model becomes legally viable.
And OK, I know that the history around this part of American life is so bad that it is counter-intuitive and counter-historical to imagine that the Tenant Farming/Sharecropper model could be used in new, positive ways – but that is exactly what I think can be done in the areas of affordable urban and rural housing.
In fact, the terrible reputation of this area of American life is probably why nobody seems to have looked closely at the tax laws that support it to see if there was another way to use them.
I think there is, and here’s my proposal.
First – what if it were possible to build a sustainable, fully-accessible housing community where the residents paid no rent, had good-paying jobs appropriate for their capabilities, and received utilities, insurance, day care, and other basic living needs at little or no cost? What if the residents of this community paid no Federal income tax on the rent and other benefits provided to them, and if the crop-shares they received were also not taxable? What if each tenant/sharecropper was also empowered to have their own garden plot where they grew for a max number of medical patients to generate their own cash income?
This is all possible.
What if it were also possible for the developer of this self-operating, self-sustaining community to produce Cannabis flower for their retail/wholesale/product production operations at sustainably low cost with the added benefit of large tax deductions against their other business income as well as personal income well above anything they are currently experiencing.
It is possible.
In fact, I think that when all is said and done, a Cannabis retailer with a tenant/sharecropper community of growers could produce their own organic premium Cannabis at near net zero cost while building and supporting communities that will give homeless families stability, safety and a secure future. The economic yield per acre of Cannabis flower is so high that when that income stream is re-purposed from generating profit margins to (1) provide low-cost Cannabis to the owner and (2) finance a sustainable community of growers, then a community of 20-30 families could easily be supported by working 2-3 acres. I think that the communities could be designed with full transitional services for homeless people becoming integrated into becoming growers including support and counseling, and would attract the support of numerous non-profits to help make the community a sustainable socially and economically viable entity.
I see no reason why there couldn’t be enough such operations in every state to provide homes and work for everyone needing them growing high-quality sun-grown Cannabis flower for the market, which is plenty big enough to guarantee sales for any amount that any number of these communities could grow. Even if every homeless person in America were given a home and a job growing Cannabis flower for the rest of us, there would still be a need for a huge amount of commercial production. The demand is that big, and of course it is growing.
Furthermore, if the flower grown by these communities were being retailed it could bring premium prices, competing effectively with light-grown Cannabis, and because of the lower cost structure of these Tenant/Sharecropper community operations it would be higher margin. Whether the flower was used internally or was sold, costs would be low and controllable because in outdoor growing operations labor replaces technology and energy and the cost of labor in these tenant/sharecrop communities would be 100% sustainable and predictable, replacing the high and unpredictable costs of technology and energy in commercial operations. Its the incredibly high economic yield of Cannabis per acre that has attracted both independent and corporate growers to this space, and although I completely recognize the need for mass growing under lights I also remain dedicated to the vision I had of Cannabis when I wrote Cultivators Handbook of Marijuana in 1969. I think that in the rush for scale and profit the vast potential of Cannabis to provide a sustainable living for communities of people has been overlooked.
The Relevant IRS Provisions
The Tenant Farming & Sharecropping laws define a relationship between employer and employee that is unique – under these laws, the landowner is able to deduct the fair market value of the housing, utilities, insurance and other benefits they provide to a tenant farmer/sharecropper.
The key here is that the landowner (the Cannabis business owner/landowner) can deduct the FAIR MARKET VALUE of the housing and benefits they provide to their tenants, not their actual cost in providing them. So if the 3/2 modular home the landowner supplies the tenant costs the landowner $350/month but the fair market value of a 3/2 home in the area is $2000/month, then that’s the landowner’s deduction. Same with vehicles, tools and other benefits – the fair market value of what the landowner provides the tenant/sharecropper.
But there’s the kicker. That tenant/sharecropper doesn’t have to report the value of that free housing and their other benefits as income. All that really is free of tax liability. There is no other employer/employee relationship with this configuration under IRS law.
Under any other circumstances, if an employee is given free housing they owe tax as if it were salary or wages paid in cash, and the same is true of all other employer-provided benefits like meals, insurance, utilities, or transportation. Tenant Farmer/Sharecroppers are the only group exempt from owing income taxes on these employer-provided benefits.
Here is the exact language from IRS Publication 225:
“You can deduct the costs of maintaining houses and their furnishings for tenants or hired help as farm business expenses. These costs include repairs, utilities, insurance, and depreciation. The value of a dwelling you furnish to a tenant under the usual tenant-farmer arrangement isn’t taxable income to the tenant.”
“The cost of boarding farm labor is a deductible labor cost. Other deductible costs you incur for farm labor include health insurance, workers’ compensation insurance, and other benefits.”
There are a number of related provisions, easily browsed in Pub. 225. All are equally clear. So after careful reading of the entire set of tax provisions affecting this relationship here are what I believe are the main benefits of this model.
For Community Residents
- Affordable (or free) long-term quality housing
- Affordable (or free) utilities, insurance, adult/child day care, other benefits
- Stable, desirable, long-term, accessible employment
- Possible path to home ownership
- Community involvement in oversight of housing, benefits & employment
For The Cannabis Retailer
- Sustainable low-cost organic Cannabis flower production
- Dependable highly-motivated workforce
- Farm management can be self-sustaining
- New business/personal tax benefits and tax-advantaged revenue streams
- New kinds of business tax credits potentially available (example: Work Opportunity Tax Credit; Farm Fuel Tax Credit).
For The Overall Community
- Replace homelessness with new high-quality affordable housing with good, co-located jobs
- Improve community-wide social & financial metrics
- Reduce community-wide social & financial costs
- Flexible model allows high or low-density, urban/suburban/rural development
Even applying Tenant Farming & Sharecropping tax provisions to indoor Cannabis production under lights by employing a community of affordable housing residents as the workforce might seem like a stretch, but when you read the IRS language their applicability is pretty clear. That could enable this concept to be applied in urban infill Cannabis grows with tenant sharecroppers living in on-site modular housing.
As I said earlier, Tenant Farming & Sharecropping both have horrible connotations of poverty, racism, and exploitation. Both Tenant Farming & Sharecropping have been embedded in some form in agricultural tax & property ownership laws since the American colonies. As an exploitative agricultural model both have been around at least as far back as Medieval European peasants living in cottages and working on the King’s lands for a share.
This awful reputation for inhumanity is well-deserved, and is undoubtedly what has kept the positive potential of the Tenant Farming/Sharecropping tax laws hidden so well for so long, in spite of intensive searches in every field and profession for every possible usable tax provision.
There is no question that this Tenant/Sharecrop Cannabis Farm model could be abused, especially by corporate Cannabis with their unthinking accountant/attorney-driven predatory models, and could end in virtually enslaving homeless people seeking refuge and a job, but as long as local governments have appropriate regulatory and financial oversight of these kinds of communities, and as long as the residents of the affordable housing communities themselves and the advocacy groups that represent them have a solid role in governance, such abuse can be mitigated if not completely avoided.
Meanwhile if this model is in the hands of independent, non-corporate Cannabis businesses with a sense of the kind of humanity that can arise from creating communities of sustainable flower production, then maybe the promise of this beautiful gift of the Earth can intrinsically be realized in ways that sustain rather than exploit life.