Oklahoma Senator James Lankford (R) is making a move that could hit the cannabis industry where it hurts: their tax filings. His new legislation aims to prevent cannabis businesses from deducting expenses on their federal taxes, even if the drug is eventually rescheduled under federal law. The move comes as the Biden administration considers lowering cannabis from a Schedule I to a lower classification under the Controlled Substances Act.
Cannabis Industry Faces Tax Crackdown
Lankford’s bill reinforces a long-standing federal stance against cannabis businesses receiving financial benefits, regardless of shifting legal status. Under current law, cannabis companies cannot take normal business deductions due to Section 280E of the Internal Revenue Code. This provision applies to businesses trafficking Schedule I and II controlled substances, meaning even state-legal dispensaries and cultivators face massive tax burdens.
His bill ensures that, even if cannabis is rescheduled to a lower tier, those restrictions remain. Lankford framed the proposal as a safeguard against providing tax benefits to an industry he believes does more harm than good.
“Marijuana doesn’t make our families stronger, our streets safer, or our workplaces more productive,” Lankford stated in a press release. “Businesses who sell federally illegal drugs – including marijuana businesses – shouldn’t get federal tax breaks.”
Support and Opposition to the Proposal
The bill has found an ally in Nebraska Sen. Pete Ricketts (R), who co-sponsored the legislation. However, not everyone sees it as necessary.
Jed Green, an advocate with Oklahomans for Responsible Cannabis Action, noted that most of what Lankford is trying to enforce is already in place. Section 280E already blocks dispensaries and many other cannabis-related businesses from writing off operating costs.
“What that means is that some growers can deduct taxes. However, your dispensaries, any advertising, bud tenders—none of that can be deducted,” Green explained to KOCO 5. “So, he’s kind of beating a dead horse and is against the tide here, which there are 22 other states that have allowed this.”
Green’s comment highlights a growing divide in federal and state approaches to cannabis taxation. While some states have allowed cannabis businesses to deduct expenses at the state level, federal tax law remains strict.
The Rescheduling Factor
The Biden administration has been considering rescheduling cannabis, a move that could lessen criminal penalties and open doors for further research. The Drug Enforcement Administration (DEA) is currently reviewing the matter, following a recommendation from the Department of Health and Human Services (HHS) to move cannabis to Schedule III.
Rescheduling cannabis from Schedule I (where it is currently classified alongside heroin) to Schedule III (where it would join drugs like ketamine and anabolic steroids) would be a significant shift. Schedule III drugs are still controlled substances but are recognized for medical use and face fewer restrictions.
If this happens, cannabis businesses could technically become eligible for tax deductions. But Lankford’s bill aims to shut that door before it even opens.
What This Means for the Cannabis Industry
For cannabis businesses, the implications of this bill are clear:
- No tax relief, even if rescheduled – Cannabis businesses will continue to face high tax burdens.
- Rescheduling won’t change federal tax restrictions – Even if the DEA lowers cannabis to Schedule III or lower, the bill would ensure they still can’t deduct normal expenses.
- Federal opposition to cannabis remains strong – Despite growing state-level legalization, key federal lawmakers are still resistant to policies that could benefit the industry.
If passed, the legislation would solidify cannabis tax restrictions and potentially create a further wedge between federal and state policies. Meanwhile, industry advocates argue that the bill ignores economic realities. Legal cannabis sales are projected to surpass $50 billion annually by 2028, and without tax breaks, businesses will continue to pay disproportionately high tax rates compared to non-cannabis enterprises.
The debate is far from over, but one thing is clear: cannabis businesses are still facing an uphill battle when it comes to federal tax relief.
Jane Smith is a seasoned article writer specializing in cannabis-related content. With a keen focus on the latest trends, research, and developments in the cannabis industry, she brings a fresh perspective to her writing. Jane’s insightful articles delve into the medicinal benefits, legalization efforts, and evolving culture surrounding cannabis. Her engaging storytelling and informative approach make her a trusted source for readers seeking accurate and up-to-date information on all things cannabis.
