This article from Law360 was first published on May 14, 2024. The entire publication is available at: https://www.law360.com/articles/1835160/state-regulated-cannabis-can-thrive-without-section-280e.
A study by FTI Consulting’s Cannabis practice shows that the top five U.S. operators could spend more than $9 billion in the next two years with their expected tax savings from IRS Section 280E relief. The DEA’s move to re-schedule cannabis would give the legal U.S. market a chance for survival by eliminating draconian tax policies that pose an impediment to profitability for the state-regulated marketplace.
In this Law360 article co-authored by Perkins Coie LLP senior counsel Andrew Kline and FTI Consulting senior director Sammy Markland, the authors examine the potential impacts of rescheduling marijuana as a Schedule III controlled substance, alongside ketamine and some anabolic steroids. Obtaining access to capital markets, payment processing, and traditional banking services – long denied to the cannabis industry due to its Schedule I classification – would not only generate significant tax savings that could be reinvested in the business but would also level the playing field for the legitimate industry to compete against illicit and unregulated providers. The first step is to remove cannabis from being subjected to Section 280E of the Internal Revenue Code, which prohibits businesses from deducting ordinary business expenses from gross income, resulting in an effective federal tax rate of 70% or higher.
FTI Consulting’s study examines the tax burdens of top multistate operators and calculates estimates on how much each could save if not subjected to Section 280E. This one step would be a shot in the arm that would revitalize the industry and spur tremendous economic growth.
