After a pair of GOP lawmakers last week introduced a bill that would block potential tax breaks for cannabis businesses, industry stakeholders quickly called out the proposal as a deliberate attempt to hamstring legal cannabis.
"The proposed 'No Deductions for Marijuana Businesses Act' is a direct attack on the economic viability of the cannabis industry. If passed, it would ensure that even after rescheduling to Schedule 3, cannabis operators remain subject to the crushing tax burden of 280E," said Darren Gleeman, managing partner of MBO Ventures. "This would eliminate the main financial relief that rescheduling was expected to bring. This move could stifle investment, innovation, and job growth, while giving illicit markets an unintended advantage. Instead of creating a sustainable, tax-paying industry, this bill keeps cannabis businesses in financial handcuffs."
The Drug Enforcement Administration lists cannabis as a Schedule I controlled substance alongside heroin, LSD, ecstasy and peyote, all of which the DEA defines as drugs with no currently accepted medical use and a high potential for abuse. And the Internal Revenue Code Section 280E bars all deductions or credits for any business expenses related to a Schedule I or II controlled substance.
However, the agency is weighing whether to move cannabis from Schedule I to Schedule III, which would free it from enforcement under 280E.
But last week Senator James Lankford (R-OK), joined by Senator Pete Ricketts (R-NE), introduced legislation to prevent marijuana businesses from deducting business expenses from their taxes, calling efforts to reschedule marijuana a "loophole." Dr. Kevin Sabet, president and CEO of Smart Approaches to Marijuana, applauded the legislation and even went so far as to call cannabis an “addiction-for-profit” industry.
Michelle Rutter Friberg, director of government relations at the National Cannabis Industry Association, warned it could undo the progress made by one of the country's fastest growing industries.
"State-legal marijuana businesses currently employ nearly half a million Americans, generate billions of dollars in revenue, and operate under strict regulations. Amending IRC Section 280E to target these businesses would have a devastating impact on thousands of small businesses, their communities, and the economy. If enacted, this bill would empower illicit operators and return us to the era of prohibition, where marijuana is untested and unregulated,” Friberg said.
While a DEA hearing on rescheduling faces delays, the SAFER Banking Act, which would expand access to traditional financial services for cannabis businesses, could regain momentum. Kurtis Hanna, director of government relations and public policy for Blunt Strategies, a cannabis consulting firm based in Minnesota, said previous Republican support for SAFER could mean the No Deductions Act is nothing more than a “messaging bill.”
“SAFER Banking, if passed into law, would allow cannabis businesses to make these deductions even without marijuana being reclassified. It seems unrealistic to believe these same legislators would now change their tune and not allow federal cannabis tax deductions even if cannabis were to be reclassified,” said Hanna. “In the end, we view the No Deductions Act to be a messaging bill filed by dyed in the wool cannabis prohibitionists, a group that continues to lose members in Congress in every passing year.”
As more U.S. states prop up legal medical and recreational cannabis markets, the U.S. industry is being positioned for significant annual growth. According to the MJBiz Factbook, U.S. cannabis sales are projected to reach $56.9 billion by 2028, with a total economic impact of $170.7 billion. But if the No Deductions Act passes, it could significantly impact that growth.
