Missouri Marijuana 2023 Tax Update: Rays of Hope

In a significant development for the cannabis industry, licensed marijuana businesses in Missouri are now permitted to bypass 280E for state tax filings. This new change, effective from 2022, enables these cannabis businesses to claim normal business deductions on their state returns that were previously disallowed on the federal level due to 280E.

While marijuana-related businesses face considerable tax challenges, this update presents a ray of hope for Missouri marijuana licensees seeking fair treatment in tax matters. Let’s delve into the impact of 280E on cannabis businesses and the potential legislative progress that could further transform the landscape of the industry.

Marijuana Related Businesses Face Tax Challenges

Cannabis businesses, also known as marijuana related businesses (MRBs), face significant tax challenges.

Though cannabis businesses are now legal in some state laws, they are still illegal under federal law. This results in a challenging situation for the federal income tax treatment as it relates to Federal statute 280E.

Marijuana Legislative Progress on 280E

Some members of Congress are interested in changing the law to permit taxpayers in a marijuana business to deduct their business expenses and claim applicable credits.

Bills have been introduced to remove (deschedule) or reduce the severity (reschedule) marijuana from the Controlled Substances Act (CSA) and section 280E, thereby allowing deductions and credits. Descheduling and rescheduling have different overall consequences for the industry.

Descheduling Marijuana: Increased Opportunities for Businesses

Descheduling would remove marijuana from the CSA altogether, making it no longer a controlled substance. This means that marijuana would no longer be classified as a Schedule I or Schedule II substance, which are considered to have a high potential for abuse and no accepted medical use. By descheduling marijuana, it would be treated similarly to alcohol and tobacco, allowing for more lenient federal regulations and potentially opening the door to broader medical research and legal access.

This would have a number of benefits for the industry, including:

• Increased access to banking and financial services
• Reduced legal risks for businesses
• Increased research into the medical and therapeutic benefits of marijuana

Rescheduling Marijuana: Less Restrictive for Businesses

Rescheduling would move marijuana to a less restrictive schedule, such as Schedule II or III, depending on the perceived potential for abuse and accepted medical use. Rescheduling would acknowledge some potential medical benefits of marijuana but would still subject it to strict federal regulations. For instance, Schedule II substances are considered to have a high potential for abuse but may have accepted medical uses, while Schedule III substances have a lower potential for abuse and recognized medical uses.

The overall consequences of descheduling and rescheduling for the industry would depend on a number of factors, including the specific schedule to which marijuana is moved, the regulatory framework that is put in place, and the public’s perception of marijuana. However, both descheduling and rescheduling would represent significant progress for the marijuana industry and would pave the way for further legalization and regulation.

Why 280E Impacts Marijuana Related Businesses

In 1982, Congress passed Internal Revenue Code (IRC) section 280E in response to a Tax Court case concerning a drug dealer who claimed ordinary and necessary business expenses related to his drug sales.

Section 280E disallows deductions and credits for amounts paid or incurred in the trade or business of trafficking in controlled substances prohibited by federal law or the law of any state where the trade or business is conducted.

Marijuana is listed as a controlled substance on schedule I and II of the Controlled Substance Act. This is why cannabis companies can’t take federal business-related tax deductions, which is a significant competitive disadvantage.

Unlocking the Future of Missouri’s Cannabis Industry

With the recent tax update allowing licensed marijuana businesses to bypass 280E for state filings, the landscape of Missouri’s cannabis industry is poised for transformation. This long-awaited change offers a glimmer of hope to marijuana licensees, granting them the opportunity to claim deductions that were once denied on the federal level.

While challenges persist, the potential legislative progress on 280E provides further optimism for businesses seeking fair treatment and equal opportunities. As the industry continues to evolve, we look forward to witnessing increased growth and prosperity for cannabis entrepreneurs in the Show-Me State.