Cannabis Industry Paid $1.8B In Excess Taxes In 2022, Refund Checks Anyone?

Cannabis research firm, Whitney Economics, conducted an impact analysis of federal taxes on the cannabis industry and it was not very pretty.

In 2022 alone, cannabis operators paid over $1.8 billion in additional taxes as compared to ordinary businesses. And worse, this excess is forecasted to increase to $2.1 billion in 2023.

Why Are Cannabis Operators Overpaying Taxes? Great Question

Cannabis operators are subject to federal tax provision 280E, a federal internal code and bane of the cannabis industry’s existence. It essentially penalizes anyone who sells “Schedule I or II controlled substances” from being able to deduct business expenses like other companies. And, as we know, cannabis is still classified as a Schedule I drug.

Beau Whitney, chief economist at Whitney Economics, said, "the cannabis industry is under extreme economic distress and the current regulatory and taxation environment is untenable, even in the short term." 

He added, in a press release, that several state markets are teetering on the brink of systemic collapse, which would result in significant personal wealth destruction and disproportionately impact smaller operators. 

Lack Of Banking Services Doesn't Help

In addition to unfair cannabis taxation, the lack of banking services, anti-business regulation and lack of interstate commerce are cited as the most critical issues facing cannabis operators in the U.S. today. The tax burden is so heavy that only 24.4% of cannabis operators surveyed by Whitney Economics indicated that they are profitable. This is down from 42% the year prior. The effective tax rates often exceed 70% for cannabis retailers.

Logical Solution?

Tax reform may be the solution that helps support the cannabis industry, while it would also serve to generate billions in economic activity.

As part of its report, Whitney Economics conducted a rescoring of the tax policy and found that 280E reform would increase operator profitability, increase cannabis employment and increase economic activity by $35.2 billion over a 10-year period. This comes at a time when the cannabis industry experienced its first ever decline in employment, according to Vangst’s 2023 cannabis industry jobs report that showed a 2% drop in employment, a first since 2012. 

Glimmer Of Hope?

This coming Thursday, May 11, the Senate Banking Committee is scheduled to hold a hearing on the Secure and Fair Enforcement (SAFE) Banking Act.  

Stay tuned!

Photo: IRS website