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CT's angel investor tax credit could be key to financing marijuana businesses – Hartford Business

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Financing a cannabis business is no easy task, especially since traditional banks have largely shunned the industry due to the fact the federal government still considers marijuana an illegal drug. 
That means many cannabis businesses that form in the state in the coming years to cater to the new recreational market will have to rely on private investors to get off the ground.
Connecticut’s new adult-use law allows investors in marijuana companies to access the state’s angel investor tax credit. 
Robert Lickwar, a partner in accounting and consulting firm UHY Advisors’ Farmington office, recently participated in a Q&A with Hartford Business Journal to discuss how prospective cannabis investors can take advantage of the tax credit program, and the impact it may have on the market. 
Here’s what he had to say: 
Can you explain how the angel investor tax credit works for cannabis business investors in Connecticut? 
 
Lickwar: Cannabis businesses must apply for and receive approval from Connecticut Innovations Inc. (CI) in order to receive credit-eligible investments. 
 
The angel investor tax credit program provides personal income tax credits to angel investors (i.e., investors who the U.S. Securities and Exchange Commission considers ‘accredited investors’) who make qualifying cash investments in eligible Connecticut businesses. 
 
This law extends the tax credit program to eligible cannabis establishments for which social equity applicants have been granted a license or provisional license (i.e., cannabis businesses). 
 
To qualify for a credit, a cannabis business must have had annual gross revenues of less than $1 million in the most recent income year; have fewer than 25 employees, not less than 75% of whom reside in Connecticut; be primarily owned by the management of the business and their families; and have received less than $2 million in cash investments eligible for the tax credits. 
 
The credit percentage is 40% of the amount invested, with a minimum investment of $25,000. The credit maximum per investor is $500,000, and it can reduce personal income tax liability to zero. 
Unused credits can be carried forward, but are not transferable.

How does this tax credit (as far as the percentage investors can write off) compare to other Connecticut tax credits? 
Lickwar: The credit percentage for other eligible angel investor credits is limited to 25% of the investment, and only $5 million in credits per fiscal year are allocable to these businesses. 
The recent legislation allocates $15 million per fiscal year for cannabis businesses, but unlike some different Connecticut tax credits, does not allow for transferability. 
Angel investors will also need to apply to Connecticut Innovations.
 
Do you think the tax credit is enough to quell investor concerns, and lead them to invest in a growing cannabis company? 
 
Lickwar: This is yet to be seen. The credit is a nice incentive for the investor for sure, but other issues such as federal reaction to the business and general industry will still weigh on investors’ minds. 
 
The credit should prove an efficient way to raise capital for social equity applicants, but will not be the sole motivating factor for investing in such businesses. 
 
One item to be aware of is the $2 million limit on investments in any given business, which may indicate that credits in this space will be quickly gobbled up.
 
What should investors thinking about seeding a cannabis company know about the tax credit, and investing in the cannabis space in general? 
 
Lickwar: They should be cognizant of all factors they consider when making any other investment. This would include management of the company, business plans for the company, business forecasts, and federal and state developments affecting the industry.
 
Are you seeing a lot of interest among prospective investors in seeding cannabis companies in Connecticut? 
 
Lickwar: I am seeing some interest, but I expect to see much more once licenses are granted.
Stay on top of the emerging Connecticut Cannabis market with news and perspective from our reporting team in this weekly newsletter. Delivered every Thursday at 10 am.
Hartford Business Journal provides the top coverage of news, trends, data, politics and personalities of the area’s business community. Get the news and information you need from the award-winning writers at HBJ. Don’t miss out – subscribe today.
Delivering Vital Marketplace Content and Context to Senior Decision Makers Throughout Greater Hartford and the State … All Year Long!
Stay on top of the emerging Connecticut Cannabis market with news and perspective from our reporting team in this weekly newsletter. Delivered every Thursday at 10 am.
Hartford Business Journal provides the top coverage of news, trends, data, politics and personalities of the area’s business community. Get the news and information you need from the award-winning writers at HBJ. Don’t miss out – subscribe today.
Delivering Vital Marketplace Content and Context to Senior Decision Makers Throughout Greater Hartford and the State … All Year Long!
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