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LITTLE ROCK, Ark. — Just last month, the Justice Department announced it would move medical marijuana to a lower drug classification, recommending a shift from Schedule I to Schedule III.
Since then, there have been some concerns over how that would impact people here in Arkansas.
“Moving it to a Schedule III still says there is potential for abuse, but it does have known medical benefits,” explained Matt Perrin, who is a CPA with Flatland Financial.
With the reclassification, businesses have been watching closely, especially when it comes to taxes.
Experts said that even a small change could mean big relief.
“It’s huge for the cannabis business owners,” said Megan Raines, another CPA with Flatland Financial. Most cannabis business owners are paying anywhere from 30 to 40% more tax than any other operating business; that’s ultimately the biggest effect.”
Raines and Perrin are both managing partners with Flatland Financial, a cannabis accounting firm in Blytheville, and they both point to Section 280E, a federal tax code that raises effective tax rates by blocking most deductions and limiting businesses to writing off only the cost of their product.
“Now that rescheduling has occurred, not only is it going to essentially save them money, but it’s also going to allow them the opportunity to be opened up to potential tax credits more,” Raines said.
Perrin said this means that “net income will reflect a way higher number than the money that they actually have spent throughout the year to make that product.”
When it comes to the consumer, Raines said the impact could be immediate.
“The retail for an eighth of flower was about $40 to $45 now, depending on the dispensary and the sale that they may or may not be running, you can get an eighth as low as $15 um, you know the fact that that these retails and the business owners are going to be seeing an increase in their bottom line, potentially,” Raines explained.
Now the code applies only to Schedule I and II drugs.
With marijuana moving to Schedule III, both Perrin and Raines said it’s still unclear exactly when or how 280E will stop applying.
“Now their taxable income is going to more accurately reflect, within some sense, the cash flow,” Raines said. “They will be able to deduct these items that they are essentially paying for, but they’re going to get some sort of tax benefit for it.”
Raines said lower tax bills mean businesses won’t be taxed on money they never keep, but some things won’t change.
“With rescheduling and reclassification, that did not change anything, because at the end of the day, cannabis is still considered illegal at the federal level,” Raines said.
Here in Arkansas, Amendment 98 remains, and marijuana is not legal.
Both Raines and Perrin add that businesses now await instructions from the IRS as to what to do next.