End Of IRS' 280E On The Horizon? What Cannabis Rescheduling Means For Business Tax Deductions

The cannabis industry may be on the verge of significant financial relief with the Biden administration's proposal to reclassify cannabis to Schedule III of the Controlled Substances Act. This reclassification would eliminate the oppressive restrictions of Section 280E of the Internal Revenue Code, which prevents cannabis businesses from deducting typical business expenses.

Potential Profit Boost From Cannabis Reclassification

The proposed rescheduling could change the landscape dramatically. According to MJBizDaily guest columnists Neil Prasad and Martin Martinez, both part of Marcum LLP, reclassification would allow cannabis companies to deduct business expenses, aligning them with businesses in other industries. This shift could lead to increased profitability through reductions in taxable income, potentially lowering prices for consumers and making medical cannabis more accessible.

Tax Changes Could Propel Cannabis Industry Growth

Moreover, as Prasad and Martinez note, if cannabis is rescheduled these companies could claim a full spectrum of business deductions, aligning their tax treatment with that of other industries. The potential for deducting ordinary business expenses would transform the economic landscape for cannabis companies, allowing for:

• Reinvestment In Operations: Freed funds could be channeled back into business expansion, research and development, and innovation, driving further growth in the sector.
• Lower Consumer Prices: Reductions in operational costs could be passed on to consumers, potentially making medical cannabis more accessible and affordable.
• Improved Financial Services: With reduced stigma, cannabis companies might find it easier to obtain loans, credit lines, and banking services.
• Competitive Market Pricing: Enhanced tax relief could foster more competitive pricing, decreasing the allure of the illicit market.

Read Also: Will Biden’s Shaky Debate Performance Affect Cannabis Reform? How A Trump Return Could Reshape Marijuana Policy

IRS Maintains Tax Rules For Now

The IRS has reiterated that current tax rules remain in place until the final rescheduling rule is published. Businesses filing amended returns seeking refunds for taxes paid under 280E have been denied. Major operators like Trulieve Cannabis Corp TCNNF, TerrAscend Corp TSNDF and Ascend Wellness Holdings Inc AAWH have already filed for substantial refunds, highlighting the industry’s eagerness for tax relief.

The potential financial benefits of this tax code change could be a game-changer, marking a significant step towards financial parity with other sectors and contributing to the overall stability and growth of the cannabis industry.

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Cannabis rescheduling seems to be right around the corner. Want to understand what this means for the future of the industry? Hear directly for top executives, investors and policymakers at the 19th Benzinga Cannabis Capital Conference, coming to Chicago this Oct. 8-9. Get your tickets now before prices surge by following this link.