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Federal officials said they plan to issue new tax guidance for the marijuana industry following a move by the Trump administration to reclassify cannabis that was announced on Thursday.
Under an order from Acting Attorney General Todd Blanche, marijuana regulated by a state medical cannabis license will immediately move to Schedule III. Marijuana products such as those in state-legal recreational markets remain in Schedule I for now, however, subject to a hearing process this summer to consider broader rescheduling of cannabis.
The U.S. Department of the Treasury and Internal Revenue Service (IRS) said they “expect DOJ’s action to have significant positive tax consequences for businesses in the medical marijuana industry, and Treasury and the IRS plan to issue guidance to address the principal federal tax issues stemming from” the move.
Rescheduling won’t federally legalize cannabis, but it will benefit state-licensed marijuana businesses by allowing them to take federal tax deductions they’re currently barred from under an IRS code known as 280E that doesn’t apply to Schedule III substances.
“Accordingly, rescheduling generally removes section 280E as a bar to claiming deductions and credits for businesses that as a result of the Final Order no longer traffic in Schedule I or II controlled substances under the CSA,” the new Treasury and IRS announcement says.
Because of the way the rescheduling action is being rolled out in phases, state-licensed marijuana companies that serve both the medical and recreational markets may only be able to immediately obtain tax relief for parts of their businesses.
“Guidance is expected to clarify the ways in which, for businesses with multiple activities, section 280E applies only to those activities related to trafficking in Schedule I or II controlled substances (e.g., by apportioning expenses),” the tax agency and Treasury Department said.
Blanche’s rescheduling order for DOJ said he “encourages” the treasury secretary “to consider providing retrospective relief from Section 280E liability for taxable years in which a state licensee operated under a state medical marijuana license.”
But the new Treasury and IRS announcement says that, at least for an initial transition rule, “rescheduling generally will be considered to first apply for a business’s full taxable year that includes the effective date of the Final Order, for the business’s activities that do not involve Schedule I or II controlled substances as a result of the Final Order.”
The agencies did not specify when they expect to issue the forthcoming guidance.
Separately on Thursday, the Justice Department told the Supreme Court in a filing that federal rescheduling of marijuana doesn’t change how justice should decide a pending case on cannabis consumers’ gun rights.
President Donald Trump also highlighted the medical benefits of marijuana hours after DOJ issued the cannabis rescheduling rule.
“A lot of people are suffering from big problems, which this seems to be the best answer,” the president said in the Oval Office. “They’re very happy about it.”
“So hopefully you don’t need it,” he said. “But if you do need it, I hear it’s the best of all the alternatives.”
Tom Angell is the editor of Marijuana Moment. A 25-year veteran in the cannabis and drug law reform movement, he covers the policy, politics, science and culture of marijuana, psychedelics and other substances. He previously reported for Forbes, Marijuana.com and MassRoots, and was given the Hunter S. Thompson Media Award by NORML and has been named Journalist of the Year by Americans for Safe Access. As an activist, Tom founded the nonprofit Marijuana Majority and handled media relations, campaigns and lobbying for Law Enforcement Against Prohibition and Students for Sensible Drug Policy.
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