The cannabis industry is on the cusp of significant change as rescheduling under federal law is a possibility. Currently classified as a Schedule I substance, cannabis is burdened by harsh tax laws under Section 280E, which prevents businesses from deducting standard expenses, leading to effective tax rates as high as 70%. However, a move to Schedule II or III would allow these businesses to deduct normal expenses, enabling them to reinvest in growth and better compete against the black market, thereby transforming the financial landscape of the industry.
If cannabis gets moved to Schedule III or lower, Section 280E would no longer apply. This would let cannabis businesses deduct the same expenses as any other company.
Effective tax rates that can hit a staggering 70% or more. Ouch! For many smaller players, this tax situation makes it nearly impossible to compete with larger companies.
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