A new battle is brewing in Washington over cannabis taxation, as two Republican senators team up with prohibitionists to block tax relief for the industry. If successful, their effort could keep cannabis businesses saddled with massive federal tax bills—even if the plant gets rescheduled.
The Push to Keep Cannabis Businesses Locked Out of Tax Deductions
On Feb. 7, U.S. Senators James Lankford (R-Okla.) and Pete Ricketts (R-Neb.) introduced the “No Deductions for Marijuana Businesses Act.” The bill aims to permanently bar cannabis companies from deducting ordinary business expenses—like payroll, rent, and utilities—no matter how the federal government classifies the drug.
Currently, Section 280E of the Internal Revenue Code prevents cannabis businesses from claiming these tax deductions because marijuana remains a Schedule I controlled substance under federal law. The tax rule was originally designed to target illegal drug traffickers, but it now applies to state-legal cannabis businesses.
If cannabis is reclassified to Schedule III, as the U.S. Health and Human Services Department (HHS) recommended and the Department of Justice (DOJ) proposed, Section 280E would no longer apply. That change would eliminate a huge financial burden that forces some of the biggest cannabis companies to pay more than $100 million in extra federal taxes per year.
But Lankford and Ricketts want to prevent that relief from ever happening.
Who’s Behind the Bill? Prohibitionists and Republican Lawmakers
Lankford and Ricketts aren’t acting alone. They’re working closely with Smart Approaches to Marijuana (SAM), a prohibitionist group that has long fought against cannabis legalization. SAM President Kevin Sabet even admitted that his group pitched the bill to Lankford last year and praised the senator for taking the lead.
Lankford defended his bill in a press release, saying:
“Marijuana doesn’t make our families stronger, our streets safer, or our workplaces more productive. Businesses who sell federally illegal drugs—including marijuana businesses—shouldn’t get federal tax breaks.”
Sabet doubled down on that stance, arguing that cannabis businesses shouldn’t get “tax relief” because they are federally illegal. He even claimed the bill would prevent a $2.3 billion loss in tax revenue.
The Cannabis Industry is Already Struggling—And This Bill Could Make It Worse
Despite Sabet’s claim that cannabis companies are raking in profits, the reality is starkly different.
According to Whitney Economics’ 2024 U.S. Cannabis Business Conditions Survey:
- Only 27.3% of U.S. cannabis businesses are profitable.
- By comparison, 65.3% of all small businesses in the U.S. report being profitable.
For many cannabis operators, the weight of 280E is crushing. Unlike other industries, they can’t deduct essential costs, forcing them to pay taxes on gross revenue instead of net income. This creates a situation where businesses owe more in taxes than they actually make.
Without relief from 280E, small and mid-sized cannabis businesses could be pushed out of the market, leaving only the biggest corporations standing.
Lankford’s Anti-Cannabis History: A Pattern of Opposition
This isn’t the first time Lankford has moved against the cannabis industry.
In July 2024, he co-led a group of 25 Republican lawmakers in sending a letter to former Attorney General Merrick Garland, urging the DOJ to abandon its proposal to reclassify cannabis as Schedule III.
In that letter, Lankford and his colleagues dismissed the HHS’s rescheduling recommendation as “based on politics, not science.”
His latest bill continues that same hardline stance, making it clear that he wants to keep cannabis taxed like an illicit drug—regardless of whether it gets reclassified.
What’s Next?
With the DOJ’s rescheduling proposal still in limbo, Lankford and Ricketts’ bill is an attempt to influence the final decision. If their legislation gains traction, it could ensure that even if cannabis is moved to Schedule III, businesses will still be punished with unfair tax burdens.
The cannabis industry, already struggling under high taxes and regulatory hurdles, now faces yet another roadblock from federal lawmakers. Whether this bill gains momentum in the Senate remains to be seen, but one thing is clear: the fight over cannabis taxation is far from over.
David Johnson is a respected writer known for his expertise in crafting compelling articles about cannabis. With a passion for exploring the intersection of cannabis, health, and wellness, he sheds light on the therapeutic properties and potential uses of this versatile plant. David’s in-depth analysis and thought-provoking commentary offer readers a deeper understanding of the evolving landscape of cannabis legislation, consumption methods, and industry trends.
