By Chelsea McDougall (http://www.labelsandlabeling.com/author/chelsea-mcdougall) Some call it the ‘G..
24 February 2018
Some call it the ‘Green Rush.’ Others liken it to the Wild West. Experts say it’s growing faster than the dot-com era in the early 2000s. Call it what you will, the legal cannabis market is growing by an unprecedented rate and is presenting a tremendous opportunity for the label and packaging industry.
In the US, eight states (Alaska, California, Colorado, Oregon, Massachusetts, Maine, Nevada and Washington) and Washington, DC have fully legalized cannabis to be sold and taxed in dispensaries for recreational use. Another 22 states and Washington, DC have active legal markets in the form of legalization for medical or scientific purposes.
Elsewhere in North America, the Canadian government is expected to legalize recreational marijuana for the entire country by July 2018, and Mexican President Enrique Peña Nieto recently signed a decree opening the door for medical cannabis legalization.
All this points to an industry that is accelerating faster than any other in recent memory, and the payoff could be huge for label and packaging suppliers.
Arcview Market Research has studied the legal marijuana market and its growth opportunities. According to its reports, the legal cannabis market reached $6.7bn USD in US, Canada, and Mexico as these countries have expanded their legal marijuana market.
At a 34 percent growth rate, this industry is growing larger and faster than the dot-com era (see boxout), and the market will reach $22.6bn USD by 2021, according to the Arcview’s most recent ‘State of the Legal Marijuana Markets’ report.
‘Very few consumer industry categories reach $5 billion USD in annual spending and then post anything like 25 percent compound annual growth across the following five years,’ Arcview’s report states.
A wide market
The products for this market are plentiful. There’s the flower – or the traditional marijuana ‘bud’ – but also cannabis-infused edibles and beverages, cannabis lotions, oils, topicals, capsules, tinctures, vape pens and pre-rolled cigarettes. Additionally, dispensaries sell all the accouterments to indulge – pipes, pre-rolled cigarettes, cigarette paper and more. Not to mention the products for medicinal marijuana. The list of legal cannabis and auxiliary products and services is practically endless: all products that require a label and need packaging guidance. Converters prepared to enter this developing market could be at the forefront of this so-called ‘Green Rush’.
Packaging could play a key role in guiding an industry that looks to shed its stoner image as it moves toward wider adoption. As these companies evolve, they’re looking for their labels and packaging to represent a grown-up image. High-end dynamic packaging is in demand.
‘Now [marijuana companies] have a prime product that will reside on shelves,’ says Gary Paulin, Lightning Labels director of sales and client services. ‘Consumers are going to walk into a dispensary and expect the products to look high-end. Recreational legalization has been a real game changer, it puts the prime label front and center.’
Lightning Labels, a label converter based in Denver, Colorado, has been at the front lines of this evolving market. Paulin continues: ‘You have an industry that’s grown out of the shadows. But it’s grown up, and now it deserves to be taken seriously. These companies are putting more thought into branding and realizing that the brand is so much more than a logo. A brand is who you are.’
The industry, while profitable, has a unique set of challenges.
In the US, branding is met with roadblocks. Even though there are active legal markets in 30 states, marijuana still remains a federally illegal substance. The office responsible for registering trademarks – US Patent and Trademark Office – is a federal office, and therefore will not trademark marijuana retailers or marijuana products. This means brands are effectively left open to counterfeiters and trademark infringement.
And while the future of US cannabis legalization under the Trump administration is unclear, repeal of federal prohibition would ‘fuel explosive growth,’ Arcview notes in its report.
Digital flexible packaging converter ePac, based in Middleton, Wisconsin, has seen greater interest in this arena since opening a second location in Boulder, Colorado. Carl Joachim, ePac’s chief marketer, has lovingly compared the emerging legal market to ‘the Wild Wild West’.
‘I’m referring to the level of maturity of the industry,’ says Joachim. ‘From the standpoint of the income opportunity the industry promises to deliver: there are many companies vying for market position, and a few larger entities beginning to emerge. While new entities are formed and licenses are obtained, in many states lawmakers are still defining the regulations that are needed to govern the industry, while enabling an infrastructure to support growth.’
As states iron out the rules guiding this new industry, oft-changing regulations can lead to headaches for label and packaging converters, according to both Joachim and Paulin, as they require changes to the packaging. However, digital technology lends itself well to this industry, as there are many smaller, boutique brands, with short runs and frequent artwork changes.
‘Often there are new state regulations that deal with how the product needs to be marked,’ Joachim explained. ‘These are simple changes we can easily make, without the need for additional plate fees. Our customers often drive other changes once they understand how we can help them create great packaging with eye-popping graphics.’
Although today acceptance for legal cannabis is hugely popular (polls show that 80 percent of Americans approve legal access to medical cannabis, Arcview says), for years it’s been an industry that’s operated in the black market, so it’s reasonable that some businesses would be apprehensive about jumping in.
At Lightning Labels there were few misgivings. ‘To choose not to participate in it because you may not agree with it, that’s now seen as somewhat foolish,’ he continues. ‘Our attitude is: legal is legal. It’s a huge vertical that we don’t even know the potential of long term. We’re going to be active in it, and we’re going to be transparent. We’re not doing this is the shadows. It’s an exciting business to be a part of.’
By Peter Nevell, Partner – Tax Only individuals, and not companies or trusts, can have a hobby or a privat..
31 January 2018
By Peter Nevell, Partner – Tax
Only individuals, and not companies or trusts, can have a hobby or a private recreational pursuit.
The pursuit of a hobby by an individual may be to supplement wages, create income after having lost a job, test the waters for a new commercial venture or simply follow a passion. The pursuit of a hobby is not the same as carrying on a business for taxation purposes, which means that money derived from a hobby is not income and therefore is not assessable. Conversely, hobby expenditure is not tax deductible.
There is a risk for individuals conducting profitable hobbies that the Commissioner of Taxation will regard them as carrying on business operations.
A hobbyist is not entitled to an ABN and cannot register for GST because private recreational activities, pursuits or hobbies are specifically excluded from the definition of an enterprise.
The Queensland Supreme Court in 1985 concluded that an individual was in the business of primary production after he acquired and used one purebred female angora goat for the purposes of breeding and selling the kids. Afterwards, the Commissioner withdrew his long-standing guidelines on what quantity and land areas were considered necessary for the carrying on of a business operation.
These days there is significant economic activity conducted by taxpayers in cyberspace and for those that conduct such an activity there needs to be a word of caution. For instance, on its website, the Australian Taxation Office (ATO) states that if a taxpayer ‘sets up a shop on an online trading or auction site, you are likely to be carrying on a business – especially if you paid fees to operate the shop.’
The distinction between a hobby and a business is determined by the ordinary meaning of those words as determined by the Courts, although the Income Tax Assessment Act 1997 defines ‘business’ non- exhaustively as ‘including any profession, trade, employment, vocation or calling, but not occupation as an employee.’
Court cases over the years have established the circumstances that generally need to be present before a business is regarded as being operated by a taxpayer. A summary of these business indicators from a primary production perspective is found in the Commissioner’s ruling TR 97/11 which analyses an individual’s activity based on whether:
No one indicator is decisive, and analysis of the indicators must be considered in combination. The conclusion is drawn from the general impression gained during the analysis.An individual can carry on a business of a limited nature which is preparatory to or in preparation for carrying on another business on a larger scale.As losses are frequently encountered by startup businesses, it is recommended that a business plan, incorporating cash flow projections and assumptions, be prepared on a realistic basis.
Because of the difficulty involved in determining whether an individual is carrying on a business or a hobby, and the sheer number of individuals making losses from these activities, parliament introduced Division 35 of ITAA 1997 (non-commercial loss rules) during 2000.
Division 35 outlines that a loss made by an individual (including an individual in a general law partnership) from a business operation will not be deductible in the income year in which it arises unless the following conditions are satisfied;
And, if the exception rule doesn’t apply, one of the following tests is satisfied:
If one of the preceding four tests is not satisfied, you may apply to the ATO for the Commissioner to exercise his discretion.
For the Commissioner to exercise his discretion favorably, it is important that the individual demonstrates that the business activity will, more than likely, satisfy one of the tests or produce a tax profit and outline the period within which a commercially viable business would do so. A business plan and cash flow forecast are necessary, as well as supporting evidence from an independent source. Appropriate independent sources include industry bodies or relevant professional associations, government agencies, or other taxpayers conducting successful comparable businesses.
Any loss denied as a tax deduction will be deferred to future income years and offset against the assessable income from the “non-commercial” business activity.
As a concluding point, once an individual’s activities move from being a hobby to carrying on business, the small business capital gains tax concessions potentially become available. This concession can exempt from tax some or all of a capital gain from the disposal of a capital asset that is used in the individual’s business operations.
Given the complexity of these rules, we recommend that you discuss your specific circumstances with your Crowe Horwath tax adviser.
We all know the global economy is changing at a rapid rate, and as business owners we need not only stay abreast of ..
31 January 2018
We all know the global economy is changing at a rapid rate, and as business owners we need not only stay abreast of changes but, be open to them. Drawing from key points made in a recent talk by David Lindberg Head of Commercial Banking, Westpac, I highlight in this article, six areas of the economy where a lot of the action is happening.
1.SERVICES AND AGRICULTURE
The industries driving the Australian economy over the coming 10-20 years will be Services and Agriculture.
Services contribute about 75% of Australia’s Gross Domestic Product (GDP*), employing about 85% of the Australian workforce. Services include such things as education and tourism, financial services, energy and mining-related services, environmental services and financial technology (Fintech).
The services sector contributes more to total productivity growth in the economy than does the goods sector. How? While productivity grows more slowly in the services sector, as the services sector is so much larger than the goods sector, the services sector contributes more.
An efficient services sector is critical to trade and economic growth.
*(GDP– the total amount of goods and services we produce as a nation)
Australian farmers produce food for more than 80 million people per annum and with the emerging Middle Class in Asia, agriculture stands as one of Australia’s major exports.
The value of Australia’s agricultural sector is tipped to peak at $63.8 billion this financial year. The total value of Australia’s farm exports is expected to reach a new record of $48.7 billion, $1 billion higher than in 2016. This growth was driven by significant increased crop production with record harvests enjoyed in every state in Australia.
The future of economic success for Australia depends on these two industries.
As the Chinese get richer at an astonishing rate their demand for our goods and services will grow too. We will therefore see a growing trend away from buying from China, to selling to China.
Some interesting statistics:
The Chinese are consuming at an unprecedented rate as demonstrated by the following stats from the world’s biggest online shopping giant, Alibaba, owned by Chinese billionaire Jack Ma:
The 2015 China-Australia Free Trade Agreement (ChAFTA) increases the ease of doing business with China. This coupled with Australian innovation, an established services & agricultural sector and our proximity to China, places Australia ahead of nations such as the US, Canada and Euro Union, to get much of this export action.
To read more:
Therefore, we need to do more for less, and automation will be key. 57% of jobs will be automated by 2025, so we will be seeing a massive change in the work people do. Fields where social interaction is fundamental will be those in demand, also those in the creative landscape, such as Health and Education services.
The relationship between big and small business is changing and should continue to do so. Small and Mid-Size business (SME) employ half the Australian workforce and generate 57% of GDP. This sector is growing at twice the rate of big business.
We are seeing a growing trend of big business outsourcing services to small business. The reason for this is that most of the innovation and new ideas come from smaller organisations who are much more agile and nimble than their bigger counterparts. The new economy will rely on the relationship between big and small business, and all parties need to adjust to this new relationship.
For business owners to attract and keep the best talent, they need to offer a workplace that is intrinsically fun. Research shows that the millennials (those born roughly between 1985 and 2004) have quite different drivers than those generations before them.
This is what they are looking for:
For the millennials, the notion of “work/life balance” does not resonate. It suggests that work is boring and “life” happens after the work is done. Merging the two is what concerns them.
Robotics is upon us and we will see more over the coming five years and beyond in all facets of society. Artificial Intelligence (A.I) will sweep across every business and is already being used. This will include the likes of driverless cars, medical advances and fraud prevention to name a few. Recent research found that 70 % of Americans couldn’t tell the difference between the voice on the phone between a real person and one driven by A.I.
Experts and thought leaders are divided as to whether this will bring positive or negative changes to work and society at large, but for sure we need to be watching this space.
These six drivers of change are upon us and bring challenges and opportunities alike for our business community. Embracing these changes and seeking out opportunity to benefit from these will be key to your success.
ABOUT THE AUTHOR
Marian Taggart-Holland is the director of Ecolease, an independent commercial broker, specialising in equipment finance to the Sign, Print, Display and Graphics Industry and member of the Visual Impact Suppliers Association.
Printing Impressions in the US has released its forecast for the future of printing for the coming year. It’s ..
16 January 2018
Printing Impressions in the US has released its forecast for the future of printing for the coming year. It’s an interesting breakdown of key markets. Although it is US centric, it should provide some insight for Australian print professionals and business. Click on the link for the PDf and … enjoy the read.
Invoicing is a critical activity for all businesses but it can be a frustrating drain on time and resources. Many busine..
12 December 2017
Invoicing is a critical activity for all businesses but it can be a frustrating drain on time and resources. Many businesses still create and issue invoices by hand; even when they’re sent by email, a number of time-consuming manual processes are involved. If time spent on the invoicing function can be slashed, small businesses will instead be able to devote it to revenue generating activities. That said, NEOPOST have released a fantastic eBook that will help you and your business improve your invoicing options. Click here for the eBook.
The Australian Taxation Office (ATO) has recently released Taxation Ruling 2017/D6, setting out the ATO’s upda..
18 October 2017
The Australian Taxation Office (ATO) has recently released Taxation Ruling 2017/D6, setting out the ATO’s updated guidelines regarding when an employee can claim a tax deduction for their travel expenses and the Fringe Benefits Tax (FBT) implications of these expenses.
According to the ruling, an employee can claim a tax deduction for travel expenses incurred in earning their salary or wage, or if the expense is work-related. However, what exactly constitutes an expense “incurred in earning income”, and what is considered “work-related”?
Normally, the factors looked at when determining if a travel expense is tax deductible include:
Travel expenses that are typically tax deductible include transport, accommodation, meals and incidentals paid for by the employee during a work-related trip. Travel costs where the employee is travelling to a site or alternative workplace are also included.
Travel expenses that are typically not tax deductible include;
These principles hold true in the ATO’s current draft ruling. The draft ruling does not provide new ground for tax deductions, but rather provides better and clearer guidance in the context of the modern workplace environment.
In particular, the ruling deals with fly-in-fly-out (FIFO) workers, as well as addressing the more transient nature of modern workplaces, such as where an employee is required to work in two different locations (i.e. two days a week in one location and the rest of the week in a second location).
For FIFO workers, the draft ruling states that in certain circumstances fly-in and fly-out travel may be deductible, and therefore is not subject to FBT if the employee is being paid for that travel time and is under the employer’s direction and control whilst travelling. However, if the employee is not paid for that travel time, and is not subject to the employer’s direction whilst travelling, these expenses will not be tax deductible and if paid by the employer, may be subject to Fringe Benefits Tax. The ruling provides a number of examples that can assist in determining any associated travel expenses of the employee and therefore whether the trip itself would be FBT exempt for the employer.
In certain circumstances employees who are required to work in two different locations (called “co-existing work locations” in the draft ruling), may claim their travel expenses between these locations (including accommodation, meals and incidentals) as tax deductible. Consideration must still of course be given to whether there is a private and therefore non-deductible portion to these travel expenses.
The ruling introduces a term “special needs travel,” which supports the potential for travel expenses to be deductible. These workers are generally FIFO workers, but this term could also extend to others were the demands under their employment include; a requirement for them to work remotely, travel is part of their employment activity, to continuously change work locations or to work away from home.
The draft ruling provides eighteen examples of various travel expenses and working arrangements, the tax deductibility available on those expense and the associated FBT impact. Not all scenarios will be covered by these examples, however when read in context, can provide guidance for assessing one’s unique circumstances.
Importantly, the ruling is still only a draft, but we expect that many of the concepts and examples to remain in the final ruling.
For more information about this draft ruling, or to get advice around Fringe Benefits Tax or travel expenses, contact your financial adviser.
This article was written by Courtney Van Zyl (Manager Tax Advisory) & David Hall (Associate Partner Tax Advisory).
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