Cannabis investors should take advantage of this annual opportunity – New Cannabis Ventures
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As the end of the year approaches, now is a great time for investors to take action to reduce their short-term tax liability. For cannabis investors, this is especially important this year given the strong acceleration in the sector at the start of the year, followed by falling prices. Those who have recorded gains on the upside but have not recorded losses may have to pay large taxes in early 2022. In addition, more diversified investors with gains from other parts of the market may find themselves in the market. this position. Fortunately, it is not too late to act.
To illustrate what many of our readers may be facing this year, let’s use an example. Suppose an investor bought 1,000 shares of Tilray on December 16 at $ 9.50 after the announcement of the Tilray / Aphria merger. This hypothetical investor didn’t come all the way up, but let’s say she sold $ 29.50 on February 8, realizing a short-term gain of $ 20,000. If this is the only trade she has done, then she will pay tax on the gain at her marginal tax rate. Assuming 24%, this tax will be $ 4,800.
In our example, however, she took most of her proceeds of $ 29,500 and on the same day bought 800 shares of Green Thumb Industries at $ 34, which she continues to hold with an unrealized loss, with the share at $ 20.64, around $ 10,700. By selling all of her GTI, she could reduce her capital gains taxes by more than 50%.
This process of harvesting unrealized losses to reduce a short-term tax liability can be difficult for investors because it is difficult to admit failure. Plus, no one wants to sell what could be the lowest. For this reason, we wanted to share some ideas on how investors in the cannabis industry can take advantage of an abundance of opportunities to realize losses this year.
In order to recognize a loss for tax purposes, an investor must not redeem the same security within 30 days, otherwise it is considered a no-effect sale, unless the investor has elected to use back-to-back accounting. market value. A similar title can be redeemed, however, and this is what we encourage our readers to consider. In our example of the investor now holding GTI, she has a number of options. GTI has four other peers in the same market cap range, and it can simply replace it with one of them. Another idea is that GTI represents 10.8% of the AdvisorShares Pure US Cannabis (MSOS) ETF, and it can sell GTI and buy MSOS and probably have relatively similar performance. To get an idea of how close all of these elements are, here is the performance since the end of the first quarter:
This same concept can be applied to other parts of the market. For example, selling a Canadian limited partnership to buy another limited partnership or an ETF with limited partnerships or selling a side share like GrowGeneration to buy one like Hydrofarm (or vice versa) can be a way to stay invested while by reaping the precious tax loss. Many readers who focus solely on the cannabis industry may not have gains but just losses given the market downturn this year. Investors in the United States can deduct up to $ 3,000 each year in capital losses and can carry over excess losses into the future. Therefore, selling at a loss some cannabis stocks can reduce income tax to some extent, even if there are no gains to be offset. The same idea discussed above applies, as there is no need to exit the market. Instead, one has to stay out of the sold stock for 30 days and then can buy it back. For our American readers, the last date to post losses is 12/31, while our Canadian readers will need to do so by 29th.
This content has been prepared for informational purposes only, and is not intended to provide, and should not be relied upon, any tax, legal or accounting advice. You should consult your own tax, legal and accounting advisers before committing to any transaction.
Lowell Farms award-winning pre-rolls started it all. Since then, the company formed by the combination of Indus Holdings and Lowell has been laser focused on scaling up the fragmented California market as a vertically integrated cannabis company. Lowell Farms is driving growth by expanding its brand licensing agreements to now three states, Illinois, Massachusetts and Michigan, and leveraging its new mining services business. Lowell appears to be in a position to see better results in California as third-quarter price weakness eases and the company’s services division expands.
Get up to speed by visiting the Lowell Farms investor dashboard that we maintain on their behalf as a client of New Cannabis Ventures. Click the blue Follow Company button to stay updated on their progress.
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Alain and Joël
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