GOP Rep. Nancy Mace Fights For Cannabis Businesses To Receive Federal Tax Deductions

Rep. Nancy Mace (R-SC) filed a congressional house bill on Friday to amend the Internal Revenue Code of 1986 in an effort to make federal tax deductions and credits possible for legal cannabis businesses.

The first woman to graduate from the Corps of Cadets program at The Citadel and a long-time cannabis advocate, Mace, introduced this legislation on the last day of the 117th Congress, reported Marijuana Moment. The bill's title, H.R. 9702, is the same as previous versions of the Small Business Tax Equity Act: “To amend the Internal Revenue Code of 1986 to allow deductions and credits relating to expenditures in connection with marijuana sales conducted in compliance with State law.”

Unfortunately, with the new Congress starting its session on January 3rd, Mace’s legislation will have to be reintroduced in 2023.

The IRS code that the bill seeks to change, also known as 280E, stipulates that “No deduction or credit shall be allowed for any amount paid or incurred during the taxable year in carrying on any trade or business if such trade or business (or the activities which comprise such trade or business) consists of trafficking in controlled substances (within the meaning of Schedule I and II of the Controlled Substances Act) which is prohibited by Federal law or the law of any State in which such trade or business is conducted.”

The IRS offered a guidance update in 2020 highlighting that even though marijuana businesses cannot use standard deductions, 280E does not “prohibit a participant in the marijuana industry from reducing its gross receipts by its properly calculated cost of goods sold to determine its gross income.”

Still, with IRS code 280E in place, legal cannabis cultivators, producers and retailers have larger tax burdens than most other businesses across a plethora of industries. This is another huge problem for cannabis.

Cannabis Businesses Already In Debt To The IRS

Several weeks ago, Green Market Report wrote that California’s marijuana sector is “carrying $250,410,890 in unpaid sales and cannabis taxes, out of a $4.4 billion total in taxed due.”

Another report, filed in late September, revealed that 10 multi-state operators (MSO) owed $500 million to the IRS. Those cannabis companies included Acreage Holdings Inc. ACRDF, Ascend Wellness Inc. AAWH,  Ayr Wellness Inc. AYRWF, Cresco Labs Inc. CRLBF, Columbia Care Inc. CCHWF, Curaleaf Holding Inc. CURLF, Green Thumb Industries Inc. GTBIF, TerrAscend Corp. TRSSF, Trulieve Cannabis Corp. TCNNF and Verano Holdings VRNOF.

In view of these internal revenue struggles as well as the ongoing lack of financial services and loans, one wonders how the industry has managed to keep moving forward.

Will 2023 be a better year for the industry in terms of reform? Only time will tell.

Photo: Benzinga Edit; Sources: Nataliya Vaitkevich and Kindel Media on Pexels, and Wikimedia Commons