WASHINGTON, D.C. –
Today, Rep. Earl Blumenauer (D-OR) introduced the Small Business Tax Equity Act which would allow state-licensed cannabis businesses to deduct ordinary and necessary business expenses from federal taxable income.
Deductions for expenses associated with activities defined by federal law as “drug trafficking” are currently prohibited under a little-known section of the tax code section 280E. The provision was enacted by Congress with the intent of penalizing criminal drug dealers in 1982, decades before states began licensing the sales of cannabis for medical and adult-use.
Advocates point out that current enforcement of 280E appears to be almost exclusively targeted at legal cannabis businesses – entities that were never conceived of when the provision was enacted. 280E prevents legal cannabis businesses from deducting expenses such as payroll, rent, security, and compliance costs. Some businesses are paying an effective tax rate of 70% or more as a result of 280E.
“The unfair application of the outdated 280E provision on state-licensed cannabis businesses is preventing our industry from reaching its full economic potential and our ability to successfully replace criminal markets in accordance with the will of the voters and state legislators that have implemented modern state marijuana programs across the country,” said National Cannabis Industry Association CEO Aaron Smith. “We commend Congressman Blumenauer and the bill’s original co-sponsors for leading this narrowly-crafted, sensible legislation that would resolve this unforeseen consequence and bring our tax code into the 21st century.”
“State-legal cannabis businesses are denied equal treatment under 280E. They cannot fully deduct the cost of doing business which means they pay two or three times as much as a similar non-cannabis business,” said Congressman Blumenauer. “This grotesquely unfair treatment incentivizes people to cut corners. If Congress wants to get serious about supporting small businesses and ending the illicit cannabis market, it is commonsense that we allow legal cannabis operations to deduct business expenses, just like any other industry.”
Rep. Blumenauer is joined by Reps. Nancy Mace (R-SC) and Barbara Lee (D-CA) as original cosponsors.
“The Small Business Tax Equity Act is critical legislation that aims to repeal the oppressive taxation of marijuana businesses under IRC 280E, which unfairly denies them ordinary business deductions and credits.” Said Congresswoman Mace, “State-licensed cannabis companies deserve fair treatment and the ability to operate on a level playing field. The American people agree, and it is time our laws reflect it.”
A November 2022 Gallup survey found that 68% of Americans support making cannabis legal for adults and a recent Pew Research Center poll found that less than 10% of Americans still support marijuana prohibition.
Over 100 National Cannabis Industry Association members are expected to travel to Washington, D.C. to lobby for the passage of the Small Business Tax Equity Act and other industry priorities at the organization’s 11th Annual Cannabis Industry Lobby Days May 16-18.
Laws to make cannabis legal for adults have passed in 21 states as well as the District of Columbia and the territories of CNMI and Guam, and 38 states, as well as several territories, have comprehensive medical cannabis laws. Nearly three in four Americans live in a state where cannabis is legal in some form.
The National Cannabis Industry Association (NCIA) is the largest cannabis trade association in the U.S. and the only organization focused on representing small and independent cannabis-related businesses at the national level. NCIA promotes the growth of a responsible, sustainable, and inclusive cannabis industry and works for a favorable social, economic, and regulatory environment for that industry throughout the United States.
