Even though adult-use cannabis is legal in the state of New York, marijuana is still considered an illegal controlled substance at the federal level, and that leads to numerous problems for the state’s legal cannabis companies.
To assist in two areas where those companies encounter problems — banking and taxes — the state has passed new laws that take effect immediately.
The first law provides New York City cannabis companies with tax relief by allowing them to deduct certain business expenses for city tax purposes, a privilege not permitted under federal law.
The Internal Revenue Code prohibits businesses selling products classified as Schedule I controlled substances from deducting certain business expenses for purposes of computing federal taxable income.
Because New York City’s Business Corporation Tax, General Corporation Tax and Unincorporated Business Tax subject a business to tax on its entire federal taxable income, the fact businesses cannot deduct business expenses at the federal level means they will also pay higher taxes at the local level.
While New York State allows the deduction of business expenses equal to those that are disallowed at the federal level, the New York City administrative code didn’t permit it. The new law amends the code so the city businesses are treated similarly to cannabis businesses throughout the state.
A second law, signed by Gov. Kathy Hochul on the same day, permits the state’s Office of Cannabis Management to share licensee and applicant information with financial institutions upon applicant approval.
Because cannabis is illegal at the federal level, financial institutions face increased regulations and costs, leaving little to no incentive for them to do businesses with cannabis companies. This forces many to operate as cash-only businesses, which can invite criminal activity.
The new law improves access to information, helps with “know your customer” compliance and makes it less costly for financial institutions that want to do business with cannabis companies.
It is important to note The U.S. Department of Health and Human Services recently recommended to the U.S. Drug Enforcement Agency that cannabis be moved to Schedule III of the Controlled Substances Act. As a Schedule III drug, cannabis would still be illegal under federal law, but the change would ease some restrictions presently imposed on the cannabis industry and represent an important step toward full legalization. The DEA is reviewing the HHS request.