Cannabis Rescheduling Will Give Industry The Tax Break It Needs

July 23, 2024

According to Martin Martinez, a partner at Marcum’s Tax & Business Services division in Houston and a member of the firm’s National Tax Office, tax breaks allow you to claim deductions for essential business expenses, including rent, salaries, utility bills, and marketing costs.

Earlier in 2024, the DEA announced that it was planning to reclassify cannabis from Schedule I to Schedule III under the Controlled Substances Act (CSA).

This is a huge deal for the industry as it will not only ease up on federal prosecution on possession but also open the door to more financial opportunities for businesses. One of the biggest impacts will be taxes.

Currently cannabis businesses are shackled by Section 280E of the Internal Revenue Code which limits companies dealing with Schedule I and II substances from making any federal tax deductibles.

Once the change is implemented cannabis companies will be able to file full tax deductions from business expenses such as rent, salary, utility costs, marketing and advertising and even health insurance.

In addition, any states that still follow the IRS in calculation of their cannabis companies’ state income taxes, such as Alaska, Arizona, and Nevada, will benefit from this change and allow full deductions.

Rescheduling also affects banking and commerce

According to the Federal Reserve it is illegal to ““manufacture, distribute, or dispense marijuana”. But with the rescheduling banks will no longer be able to automatically disqualify cannabis businesses from loans and other banking services.

Under current Bank Security Act (BSA) guidance, banks are not only instructed to deny financial services to cannabis businesses but also obligated to report any transactions as “illegal activity”. It was only last year that the SAFER Banking Act was passed which protected financial institutions from prosecution and allowed them to serve state-sanctioned cannabis businesses.

Another positive change will be more relaxed laws for interstate commerce, allowing cannabis to be transported and traded across state borders. However, said products would still need to be approved by the Food and Drug Administration and in compliance with the CSA,

Although rescheduling takes a long time to approve and might even be faced with obstacles thanks to an upcoming election year, experts are already excited and speculating about new prospects for the cannabis industry.

“Funds released from 280E could be reinvested into the business, driving expansion, research and development, innovation, and job creation. And think about the potential cost savings that might be passed to consumers. It will make medical cannabis more accessible and drive down the illicit market’s appeal.”