Tax deductions

New York lawmakers seek tax deductions for marijuana businesses in budget proposals, despite federal ban

New York’s legislative leaders have tabled budget proposals that include language allowing marijuana companies to take advantage of state tax deductions that are available to other industries despite an ongoing federal ban.

House and Senate budget measures expected to pass before the April 1 deadline seek to create an exemption that would allow cannabis companies to make the deductions as the state prepares to launch its adult market . Retailers could start opening as early as this year.

This is not a problem unique to the marijuana industry in New York. Medical and adult cannabis businesses in the United States are not allowed to take certain federal tax deductions under a section of the tax code known as 280E.

Under 280E, businesses whose activities consist of “trafficking in controlled substances (as defined in Schedules I and II of the Controlled Substances Act)” cannot have most business expenses deducted from their federal taxes or receive tax credits, even though they still have to pay taxes like any other business.

Since many states simply reflect federal tax policy in their own codes, the federal government’s anti-cannabis stance also blocks state-level deductions in some places.

As a result, some cannabis companies are paying effective tax rates as high as 80%, according to industry groups and accounting firms.

To help address the issue, New York lawmakers in both houses inserted language in their respective budget proposals stating that, effective this tax year through January 1, 2025, “the provisions of the section 280E of the Internal Revenue Code, relating to expenses related to the illegal sale of drugs, does not apply, for the purposes of this chapter, to carrying on a trade or business that is a commercial activity of cannabis by a license holder.


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Sen. Jeremy Cooney (D) introduced a standalone bill in December seeking a similar exclusion for the state’s booming cannabis market. Assemblywoman Donna Lupardo (D) followed suit in her room.

“I filed it at the request of the industry,” Lupardo told Cannabis Wire, who first reported on budget language related to marijuana. “I have no resistance whatsoever.”

She added that other states have explored similar policies for their marijuana markets. Missouri lawmakers, for example, sent a bill to the governor that would have allowed medical cannabis companies to make tax deductions, but it was vetoed for reasons not specifically related to health issues. marijuana.

New York Senator Liz Krueger (D), who sponsored the Adult Use Legalization Act that former Gov. Andrew Cuomo (D) signed into law last year, is also in favor of granting a tax break for cannabis businesses.

“The goal here is to decouple the state from the federal government on the deduction of business expenses to allow cannabis companies to deduct their state taxes (since they cannot do so on their federal taxes)” , Krueger, who presides over the Senate. Finance Committee, Cannabis Wire told. “All other businesses can deduct their business expenses, and not doing so is a burden on the cannabis industry. We cannot solve the federal problem, but we can solve the state problem, which was the origin of this language.

In a report released last year, congressional researchers examined tax policies and restrictions for the marijuana industry and how these might change if a number of federal reform bills were enacted.

Meanwhile, in New York, regulators advanced a rule last week for people with previous marijuana convictions, or whose family members have been harmed by criminalization, to get the first round of sales licenses. adult marijuana retail, ahead of existing medical cannabis businesses. .

The development is part of what Gov. Kathy Hochul’s (D) administration calls “the Seeding Opportunity Initiative,” which she also announced last week.

Office of Cannabis Management (OCM) executive director Chris Alexander said he expects more than 200 “justice-involved” applicants to receive priority licenses under the proposal, with retailers that can go live by the end of the year.

The state has also taken separate steps to make industry available to dispose of products by creating Interim Marijuana Grower and Processor Licenses for existing hemp businesses that take certain steps to promote fairness in the industry. emerging industry. Hochul signed this legislation late last month. This “Farmers First Program” is another of the three branches of the administration’s Seeding Opportunity Initiative.

Assembly Majority Leader Crystal Peoples-Stokes (D), who sponsored legislation that created the Legalization Act and recently launched an equity-focused political action committee that will put strong emphasis on l focus on electing candidates who support marijuana reform, said “we are doing what no other state has done by focusing on those most criminalized by cannabis prohibition and making the promotion of New York farmers.

As it stands, adults 21 and older can possess and publicly use cannabis, as well as give marijuana to other adults as long as they are not compensated. But regulators are still finalizing licensing rules, and no retailers are currently allowed to sell cannabis for adult use in the state.

Hochul has repeatedly stressed his interest in effectively implementing the legalization law.

The governor released a state-of-the-state book in January that called for the creation of a $200 million public-private fund to specifically help promote social equity in the burgeoning labor market. marijuana in the state. This funding, called the New York Social Equity Cannabis Investment Program, is the latest installment of the Seeding Opportunity Initiative.

Hochul said that while cannabis business licenses have yet to be approved since the law was legalized last year, the market is expected to generate billions of dollars and it is important to “create opportunities for all New -Yorkers, especially those from historically marginalized communities.”

This proposal was also cited in the governor’s executive budget, which was released in January. The budget also estimates that New York should generate more than $1.25 billion in marijuana tax revenue over the next six years.

Passing legislation that expedites licensing could help the state reduce the number of companies that effectively use the legal “gift” provision of the state’s marijuana law to donate cannabis. “for free” if a non-marijuana purchase is made.

New York regulators recently issued warnings to more than two dozen companies they believe are illegally selling unlicensed marijuana or exploiting the “gift” component.

Here are some other ways New York lawmakers and regulators are working to build on the legalization law as the state prepares to implement retail sales:

In February, for example, a state senator introduced a bill that would promote recycling in the marijuana industry once retail sales officially kicked off.

Senator Michelle Hinchey (D) is also sponsoring this legislation, which would require cannabis stores to apply a $1 deposit for any marijuana product sold in single-use plastic containers and also reimburse consumers for those fees. if they return the container.

The senator is also behind a separate bill introduced last year that would prioritize hemp-based packaging over synthetic plastics for marijuana products.

The recycling bill is identical to an Assembly version tabled by MP Patricia Fahy (D) last year.

The state Department of Labor separately announced in recent guidelines that employers in New York are no longer allowed to test most workers for marijuana.

Meanwhile, a New York lawmaker introduced a bill in June that would require the state to create an institute to research the therapeutic potential of psychedelics.

Another state legislator introduced legislation in December to legalize psilocybin mushrooms for medical use and establish facilities where the psychedelic could be grown and administered to patients.

Meanwhile, as New York prepares to launch its adult-use marijuana market, OCM announced a significant expansion of the existing medical cannabis program.

Now doctors will be able to make medical marijuana recommendations to people for any condition they think can be treated with cannabis, rather than relying on a list of specific eligible conditions.

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