Last week, I wrote a piece entitled “Deschedule Cannabis, Don’t Reschedule It.” The post came on the heels of President Joe Biden’s announcement that the federal government is considering the federal scheduling of cannabis. As I noted, rescheduling cannabis to schedule II or below is a bad idea, because it would subject cannabis to DEA regulations similar to prescription drugs. I want to devote this post to exploring the serious tax implications on cannabis businesses if the federal government rescheduled cannabis on schedule II specifically.
Anyone familiar with the cannabis industry has heard of section 280E of the Internal Revenue Code, a topic we’ve written about often over the years. Section 280E provides in full:
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.
In other words, businesses that “traffic” in
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