Two U.S. Senators have teamed up with prohibitionists to work on legislation that would block marijuana firms from receiving potential tax relief under Schedule III of the Controlled Substances Act. Senators Pete Ricketts and James Lankford are working with Smart Approaches to Marijuana to block 280E relief for state-sanctioned cannabis companies in the U.S.
As marijuana remains a Schedule I controlled substance at the federal level, cannabis firms cannot function as effectively as businesses in other industries. For instance, they lack access to most banking services and cannot receive any kind of financial relief from the federal government even though the industry pays billions of dollars in taxes and fees each year.
The two Republican senators recently introduced a bill titled “No Deductions for Marijuana Businesses Act” that would bar licensed marijuana retailers from deducting their ordinary business expenses from their taxes even if the federal government decides to reschedule marijuana. Section 280E of the Internal Revenue Code currently prevents cannabis businesses from deducting expenses such as utilities, payroll and rent from their taxable income thanks to marijuana’s classification at the federal level.
The fact that cannabis is considered a Schedule I controlled substance also forces some of the largest players in the industry to pay over $100 million annually in federal taxes that aren’t mandated in other industries. Most cannabis companies will pass these costs onto their consumers, resulting in high prices for legal cannabis and making it difficult for licensed companies to compete with black market sellers that aren’t subject to these taxes.
Reclassifying marijuana from Schedule I to Schedule III, as proposed and recommended by the previous administration’s Department of Justice (DOJ) and the Health and Human Services Department (HHS) respectively, would have allowed cannabis businesses to deduct their expenses from their income by eliminating the 280E tax burden.
With the cannabis rescheduling proposal now hanging in limbo, the two Republican senators have introduced a measure that would retain the Section 280E provisions for cannabis companies even if the often controversial drug is reclassified. A press release from Senator Lankford argued that cannabis doesn’t strengthen American families, increase productivity in the workplace, or make the streets safer.
As a result, the Republican Senator said, businesses selling drugs that are illegal at the federal level like marijuana should be locked out of the federal tax break system. He said the measure, developed in collaboration with Smart Approaches to Marijuana, would ensure that ‘federally illegal products’ do not have legal federal tax deductions. If the bill becomes a law, cannabis businesses will not be able to deduct their business expenses from their taxable income even if cannabis is moved from Schedule I to Schedule III of the Controlled Substances Act.
The marijuana industry, including firms like Cresco Labs Inc. (CSE: CL) (OTCQX: CRLBF) hopes that lawmakers recognize that licensed marijuana businesses deserve equal treatment to that accorded to licensed actors in other industries.
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