StateHouse Holdings Inc. Reaches Landmark Tax Settlement with IRS, Records $15.8 Million Accounting Gain

StateHouse Holdings Inc. (CSE: STHZ; OTCQX: STHZF), the California-based vertically integrated cannabis operator, has successfully negotiated a Partial Payment Installment Agreement with the Internal Revenue Service to settle a multi-year federal tax dispute affecting its subsidiary Patients Mutual Assistance Collective Corporation (PMACC). The resolution addresses accumulated tax liabilities spanning from 2007 through 2012, plus the 2020 fiscal year.

Tax Settlement Details and Financial Impact

The IRS originally asserted federal tax obligations of approximately $22.1 million against PMACC. Through the newly finalized agreement, StateHouse will satisfy this obligation by making monthly installment payments of $50,000, extending over an anticipated 116-month period beginning August 2022. This payment structure reduces the company’s total cash outflow to approximately $5.8 million—a substantial reduction from the original claim.

The settlement generates significant accounting benefits for StateHouse. Since the company maintained a balance sheet provision of approximately $21.6 million as of March 31, 2022, the revised liability framework permits a positive non-cash accounting adjustment of roughly $15.8 million. This adjustment reverses previously accrued amounts and is expected to appear in the company’s second quarter 2022 financial statements. Additionally, the agreement allows reclassification of most related liabilities from current to non-current status, materially improving the company’s short-term balance sheet position.

Payment Structure and Future Reviews

The IRS has structured the agreement with built-in flexibility. Every two years, the agency will review PMACC’s financial capacity, with monthly payments potentially adjusting upward or downward accordingly. StateHouse management does not anticipate material increases from these biennial assessments, suggesting confidence in the subsidiary’s operational stability.

The 280E Tax Code Challenge

At the core of this dispute lies IRC Section 280E, a provision prohibiting cannabis businesses from deducting ordinary business expenses. The specific disagreement centered on PMACC’s allocation of certain operating costs to cost of goods sold across multiple corporate tax returns. PMACC emerged as one of the earliest cannabis enterprises to formally challenge this allocation methodology, and the company pursued the matter through U.S. Tax Court litigation.

In November 2018, the Tax Court ruled against PMACC, determining that the contested expense allocations constituted deductions barred under Section 280E. Rather than face indefinite litigation costs, StateHouse pursued settlement discussions with the IRS, culminating in this installment agreement framework.

Industry Significance and Competitive Positioning

StateHouse Chief Executive Officer Ed Schmults characterized the settlement as transformative for the company and the broader regulated cannabis sector. “Resolving this longstanding obligation provides significant clarity for investors on a critical issue and strengthens our competitive position,” Schmults stated. He further emphasized that the resolution demonstrates effective management of complex federal taxation challenges until potential legislative reform addresses the punitive tax treatment of state-licensed cannabis operators.

Schmults also highlighted the broader policy implications, noting that Section 280E creates substantial burdens on legal cannabis enterprises while inadvertently supporting illicit market competitors that operate outside the regulated framework. He suggested that federal reform would promote tax fairness for compliant operators while strengthening overall tax collection capacity.

Company Operations and Market Presence

StateHouse operates as one of California’s most established cannabis enterprises, holding licenses across retail, brands, distribution, cultivation, nursery operations, and manufacturing. The company received one of the first six medical cannabis licenses issued in the United States. Current operations include 14 dispensary locations across Northern and Southern California plus one Oregon location, distribution infrastructure in San Jose and Los Angeles, and integrated cultivation and production facilities in Salinas and Greenfield, California.

Forward-Looking Statements and Risk Considerations

This settlement agreement does not eliminate legal risks associated with cannabis operations in the United States. Cannabis remains classified as a Schedule I controlled substance under federal law, creating ongoing tension between state-legal compliance and federal criminal prohibitions. While federal enforcement policies have generally trended toward non-prosecution of state-compliant operators, no such policy provides legal protection against potential federal proceedings. StateHouse securities are not registered under U.S. federal securities laws and cannot be offered to U.S. persons except through exempt offerings.