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Problem - Cole England operates Herbal Medical Center in Sacramento, California, as a sole proprietorship. The distribution of marijuana for medical purposes is legal in California, as follows:
Medical patients and their designated primary caregivers may legally possess and cultivate (but not distribute or sell) marijuana under Health and Safety Code 11362.5 (Prop 215) if they have a physician's recommendation or approval.
This is Cole's first year of business operations. All of his patients have signed statements indicating that he is their designated primary caregiver. He also has on file physicians' recommendations for all marijuana that was provided to his patients. Tax information for this year is as follows:
Revenues $200,000
Cost of goods sold 120,000
Other expenses 50,000
Cole reported $30,000 of net income on Schedule C this year for Herbal Medical Center. Is this position appropriate?
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