The cannabis community is facing many unknowns. Will the ongoing rescheduling saga ever get to the finish line? Could the Trump administration shake up federal legalization efforts altogether? And if any type of reform does happen, what will it mean for existing and future industry operators?
Taxation is one big benefit of moving cannabis to Schedule III (or de-scheduling it completely). Currently, pot businesses are subject to an IRS tax code called 280E. The policy forbids businesses working with Schedule I substances to deduct their costs of goods sold (COGS), which include things like office supplies, payroll, and utilities. Because of 280E, cannabis companies end up with extraordinarily high tax bills that make profits seemingly impossible.
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“It threatens the dreams of small business owners striving for success and generational wealth while further straining cash flow for those already operating on thin margins,” Mark Waller of Morem & Waller CPAs, told GreenState.
The potential elimination of 280E sparked excitement for many operators hoping to be in the black—finally. But if a number of Congressional lawmakers have their way, the shining light of rescheduling could fade away.
A devastating blow…
Representative Jodey Arrington (R-Texas), chair of the House Budget Committee, introduced H.R. 1447 last week. The measure would amend the U.S. tax code to permanently prohibit any deductions or credits for businesses involved in “trafficking marijuana.” A nearly identical bill was introduced earlier this month in the Senate.
“Marijuana doesn’t make our families stronger, our streets safer, or our workplaces more productive. Businesses who sell federally illegal drugs—including marijuana businesses—shouldn’t get federal tax breaks,” said bill sponsor Senator James Lankford (R-OK) in a press release.
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If the bills are adopted, they could spell disaster for the cannabis industry—even if reform were to happen. Currently, only a fraction of pot businesses are profitable, and these measures would make it even harder for the market to succeed.
“Making Section 280E permanent would be a devastating blow to the legal cannabis industry,” Waller proclaimed, adding the move could also jeopardize the path toward reform.
“With concerns already mounting over the current delays in cannabis rescheduling and with regard to new DEA leadership having expressed anti-cannabis views, passing a bill to lock in 280E would be a serious step backward for an industry working hard to remain compliant and economically viable,” he said.
It’s unclear if Congress will adopt the 280E bills, but cannabis industry professionals are likely watching closely. Marijuana operators are no strangers to strife, but the passage of these measures could easily strike a fatal blow to a space experiencing a serious failure to launch.
