Pennsylvania Stands Up To Federal Law On Medical Cannabis Taxes

A large-scale tax reform measure that recently advanced through the Pennsylvania legislature includes provisions that offer a partial solution to the restrictive IRS code known as 280E, which bans tax deductions at the federal level for state-licensed medical cannabis businesses.

The bill's language, greenlighted by House members in a party-live vote of 102-101 on Tuesday, says these marijuana businesses could benefit from state tax deductions as a workaround to IRS restrictions, reported Marijuana Moment.

It stipulates that medical marijuana businesses could claim an extra deduction equal to the expenses paid or accumulated throughout the tax year that are typically eligible for ordinary deductions in federal income taxation.

Last year, the state House Finance Committee approved an amendment from Rep. Aaron Kaufer (R) to part of a broader tax code reform bill that sought to address the fact that the medical marijuana industry was unfairly targeted because cannabis is banned under federal law. Ultimately, that push was tabled.

The bill is now headed to the state Senate, which is under the control of Republican lawmakers.

There was some opposition to the bill's marijuana-related language in the House where Rep. John Lawrence (R) touted positive aspects" of the large-scale bill, though said he was against "tax breaks for marijuana operations." His colleague, Rep. Valerie Gaydos (R), also opposed "special privileges for marijuana growers."

Pros & Cons Of Tax Policy Reform

The cannabis industry has faced numerous challenges over the past few years, including falling prices, excessive debt, stagnant sales in mature markets and the 280E IRS code, to name a few. Simultaneously, experts have been discussing the possible implications of each trend, most recently touching on the elimination of the 280E provision and marijuana rescheduling.

Viridian Capital Advisors, one of the earliest financial and strategic advisory firms in the cannabis sector, says that eliminating this provision would have a more significant effect than anticipated, potentially increasing free cash flow (FCF) and profitability for major cannabis companies. The move could result in adding an estimated $700 million to the 2023 FCF.

However, one recent Zuanic and Associates report highlighted potential complexities and overlooked consequences of such policy changes.

Rescheduling medical marijuana would make it federally legal, but it could also usher in stricter FDA regulations and limit prescription accessibility for doctors, the report stated.

Additionally, it might lead to the entrance of pharmaceutical companies, altering the industry's dynamics significantly.

For Multi-State Operators, rescheduling marijuana could be a double-edged sword. While it might alleviate the 280E burden for medical businesses, the report noted, the associated regulatory framework and potential downsides make it a precarious path.

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