In addition to obtaining a license and real estate, one more hurdle faced by cannabis business owners is complying with Section 280E of the Internal Revenue Code.
Update as of May 2023: New Jersey has decoupled from the 280E federal prohibition on business expense deductions.
Since cannabis is still illegal at the federal level, Section 280E prohibits businesses that sell cannabis and other federally illegal controlled substances from deducting expenses other than cost of goods sold. This results in a much higher taxable income, so proper tax planning and compliance with a knowledgeable CPA is critical.
Alloy Silverstein’s Ren Cicalese III discusses the ins and outs of 280E in The Business of Cannabis in South Jersey Panel Discussion.
New Jersey lawmakers approved a bill that will allow New Jersey Cannabis businesses to claim a state tax deduction as a partial 280E workaround. This bill has passed the New Jersey Assembly, but still must pass the senate and be signed by Governor Murphy before being put into law. If it is approved all the way through Governor Murphy, the bill will allow licensed marijuana businesses to deduct certain expenses on their state tax return. This would be to counteract the block from making federal deductions under the IRS for those in the industry.
Learn more about the new bill →
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