Final week, I wrote a bit entitled “Deschedule Hashish, Don’t Reschedule It.” The put up got here on the heels of President Joe Biden’s announcement that the federal authorities is contemplating the federal scheduling of hashish. As I famous, rescheduling hashish to schedule II or under is a nasty concept, as a result of it could topic hashish to DEA rules much like pharmaceuticals. I wish to dedicate this put up to exploring the intense tax implications on hashish companies if the federal authorities rescheduled hashish on schedule II particularly.
Anybody accustomed to the hashish trade has heard of section 280E of the Inner Income Code, a subject we’ve written about usually through the years. Part 280E supplies in full:
No deduction or credit score shall be allowed for any quantity paid or incurred throughout the taxable yr in carrying on any commerce or enterprise if such commerce or enterprise (or the actions which comprise such commerce or enterprise) consists of trafficking in managed substances (inside the which means of schedule I and II of the Managed Substances Act) which is prohibited by Federal legislation or the legislation of any State wherein such commerce or enterprise is carried out.
In different phrases, companies that “site visitors” in substances on schedules I or II of the Managed Substances Act can’t make federal tax deductions (with some restricted COGS exceptions that are outdoors the scope of this put up). Because of this any state-licensed hashish enterprise at present is topic to a lot larger taxes than it could be if it bought different shopper items, by advantage of the truth that it might probably’t take customary deductions. If a enterprise had been to promote medication that had been at present on schedule II with out the correct entitlements, it could even be topic to 280E.
Now let’s take a step again and take a look at the rescheduling points. If the Drug Enforcement Administration rescheduled hashish to schedule II, it could create a pathway for hashish to be prescribed (versus present doctor suggestions) by sure licensed healthcare professionals, in accordance with DEA rules. Rescheduling hashish to schedule II would NOT have the impact of constructing all state-licensed hashish companies federally authorized. They’d nonetheless be federally unlawful, and as talked about, a brand new channel for federally authorized doctor prescriptions would open up.
In different phrases, if DEA reschedules hashish, all state-licensed hashish companies would nonetheless violate federal legislation; however as a substitute of trafficking in a schedule I narcotic, would site visitors in a schedule II narcotic. This is able to imply that part 28oE would nonetheless govern and hashish companies would get little reduction. Add to that the truth that a large sea change in federal legislation and coverage would happen in a single day (rising the price of compliance and uncertainty), shifting hashish to schedule II shouldn’t be a good suggestion.
If President Biden is decided to reschedule hashish, it could be greatest on schedule III or under, the place 280E wouldn’t apply. That stated, as I argued in my final put up, rescheduling hashish would create extra points than merely descheduling hashish.