MINNEAPOLIS— The US Department of Justice recently proposed a rule that would shift marijuana from a Schedule I to a Schedule III drug classification, a significant change in federal policy that could impact cannabis businesses in states that have legalized it for recreational use.
The update wouldn’t make marijuana legal nationwide, but it would loosen its restrictions and eliminate a major tax penalty known as 280E, cannabis experts say, just as Minnesota prepares. to launch its legal market next year.
That tax provision currently prevents cannabis companies from writing off otherwise typical business expenses, such as rent for the property, utilities and employee salaries.
“It will likely save most cannabis businesses between 40% and 70% in taxes, depending on whether they are retail, wholesale or cultivation,” said Nikki Rohloff, managing partner at Rohloff Associates and Canopy Accounting, which specializes in advising clients in the cannabis industry. “So it’s a huge tax savings for them. It’s a huge way for them to then be able to invest again in their businesses and grow and ultimately put money back into the communities.”
As a Schedule I drug, marijuana is on par with heroin and illicit fentanyl, while Schedule III substances are defined as having a “moderate to low potential for physician and psychological dependence,” according to the Drug Enforcement Administration. Some drugs in that category include ketamine and anabolic steroids.
Jason Tarasek, a cannabis attorney for Vicente LLP, said eliminating that tax burden will make cannabis companies more profitable. And while hurdles remain, such as access to capital and banking, he believes the Justice Department’s move is a notable step that shows further progress is being made in loosening federal rules on marijuana.
“I think you’re going to see a slow erosion over the course of the next few years, both with federal policies and increasingly with state policies that recognize that marijuana may need to be treated just like alcohol and regulated just like alcohol,” Tarasek said. said.
Almost half the country has legalized it for recreational use and even more countries have medical programs. A recent study found that daily marijuana users outnumber daily alcohol drinkers For the first time. But the regulatory process to reclassify marijuana has only just begun and could take some time. Marijuana will remain a Schedule I substance until it is completed.
That’s why Rohloff said she advises her clients to still consider the impact of Section 280E of the tax code when developing their business plans.
State regulators will issue pre-approved business licenses for some applicants later this year as they eye store openings next year.
“We’re still letting them factor in what the federal taxes are going to be on that so that we can plan better so that they get the cash flow necessary to set them up to be a successful business,” she said. “And if this gets passed by the time Minnesota moves forward with recreational use, that’s more of a bonus or a win for them, and not a downside that we didn’t take into account.”
Caroline Cummings
