Cannabis businesses hoping for financial relief through rescheduling may be in for a rude awakening.
Two Republican U.S. senators have introduced a bill that would continue to ban federal tax deductions for the cannabis industry – regardless of whether marijuana is rescheduled, according to MJBizDaily.
The proposed “No Deductions for Marijuana Businesses Act” would effectively neutralize the biggest tax benefit expected from moving cannabis from Schedule 1 to Schedule 3 — ensuring that operators remain subject to the crushing burden of IRC 280E.
“The proposed ‘No Deductions for Marijuana Businesses Act’ is a direct attack on the economic viability of the cannabis industry. If passed, it would ensure that even after rescheduling to Schedule 3, cannabis operators remain subject to the crushing tax burden of 280E,” says Darren Gleeman, managing partner of MBO Ventures. “This would eliminate the main financial relief that rescheduling was expected to bring. This move could stifle investment, innovation and job growth, while giving illicit markets an unintended advantage. Instead of creating a sustainable, tax-paying industry, this bill keeps cannabis businesses in financial handcuffs.”
Repercussions for cannabis operators
For cannabis operators, this bill would mean that they would continue to pay the highest effective tax rates of any industry in the country due to the restrictions of Section 280E.
“Right now, operators have been holding onto the hope that rescheduling cannabis to Schedule 3 would allow them to deduct normal business expenses,” Gleeman says. “If this bill passes, that hope is gone, and the tax burden will remain just as crushing.”
Gleeman also explains that this situation will impact cannabis investors. “If federal policy continues to restrict the industry’s financial viability, institutional capital will remain hesitant to enter the space,” he says.
Cannabis policymakers will be impacted, as well, with Gleeman stating that any potential tax relief for cannabis businesses will require broader reform beyond rescheduling. “Since it now appears that rescheduling itself is in jeopardy, this bill would only add to the long list of federal roadblocks keeping the industry in limbo,” he says.
An unlikely pass
According to Gleeman, Senators James Lankford of Oklahoma and Pete Ricketts of Nebraska “are staunch opponents of cannabis and fundamentally believe it is a gateway drug that poses a risk to public health and safety.”
However, Gleeman doesn’t think the bill has a strong chance of passing.
“Right now, there are far more pressing legislative priorities in Congress, and it’s unlikely this bill will gain enough traction to reach a vote on the Senate or House floor,” he says.
Additionally, while the Trump administration’s stance on cannabis has been inconsistent, it’s unclear whether he would actively support or oppose such a measure.
What can cannabis supporters do?
If the industry sits back and does nothing, this bill could gain traction. Gleeman offers a few ways for cannabis supporters to take action before the bill becomes a real threat:
- Engage with lawmakers. Direct lobbying efforts are crucial. Businesses, industry groups, and advocates should reach out to both Republican and Democratic senators to emphasize the economic harm this bill would cause.
- Public awareness campaigns. Many Americans support cannabis legalization and fair tax treatment for legal businesses. Industry leaders should push for more media attention on how this bill would stifle jobs, economic growth, and tax revenues at the state level.
- Industry coalitions and alliances. The cannabis sector should partner with other business groups that advocate for fair tax policies. If mainstream business organizations see this as government overreach, it could expand opposition.
- State-level pressure. Since many states rely on cannabis tax revenues, governors and state officials should be encouraged to push back against federal interference that could hurt their local economies.
- Leverage Republican allies. Some Republican senators have supported cannabis banking reform and tax relief efforts. Engaging with those senators could create internal opposition to this bill within the party.
