Governor Kathy Hochul has signed into law a measure that provides tax relief to cannabis businesses in the state of New York. The measure, which was approved by the Senate and Assembly a few months ago, fills a policy gap left by a separate measure the governor signed in 2022, which included provisions that permitted tax deductions for marijuana businesses in the state.
In summary, the resolution would permit deductions for business expenses incurred by those authorized by the law to sell, distribute or produce medical marijuana or adult-use marijuana products, for purposes of the business corporation tax, the general corporation tax and the unincorporated business tax. A memo attached to this resolution stated that the modification was appropriate as the expenses of marijuana-related businesses couldn’t be deducted for federal purposes.
Legislators in a few other states have been looking into a tax workaround as state-licensed marijuana businesses continue to grapple with considerably higher federal tax rates as a result of prohibition. For instance, lawmakers in Pennsylvania passed a large-scale tax reform measure in October that contained language to offer state-level relief to medical cannabis businesses.
Governor Janet Mills of Maine also signed a measure to separate state tax from the federal policy for marijuana businesses. In addition, Connecticut Governor Ned Lamont also signed a budget resolution that included provisions offering tax relief at the state-level to licensed cannabis businesses as a workaround for the growing industry.
Illinois Governor J.B. Pritzker also signed a budget measure that included provisions that permitted licensed cannabis businesses to take state tax deductions that were currently prohibited under the 280E code. Prior to the moves made by the Connecticut and Illinois governors, New Jersey governor Phil Murphy signed a measure that would permit licensed cannabis businesses to deduct some expenses on their state tax returns as a partial fix.
Legislators in Virginia and Iowa have also pursued similar tax relief measures for their state’s cannabis markets.
A bill that would amend the IRS code and permit state-legal cannabis businesses to take federal tax deductions that were availed to companies in other industries was also reintroduced by Representative Earl Blumenauer in Congress. At the federal level, however, cannabis businesses in legal states are still not allowed to make federal deductions under Section 280E of the Internal Revenue Code. This is primarily because marijuana remains classified as a Schedule I substance under the Controlled Substances Act.
This issue can be resolved if the DEA considered the recommendations made by the Department of Health and Human Services and reclassified cannabis under Schedule III.
These efforts to provide a measure of tax relief to cannabis companies is a step in the right direction and enterprises such as Cresco Labs Inc. (CSE: CL) (OTCQX: CRLBF) could use the funds they save in this way to avail more product options to their customers.
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