A bill pending before lawmakers in Connecticut would allow companies in the state’s fledgling cannabis industry to take tax deductions normally enjoyed by companies in other industries. If passed by the legislature and signed into law, the legislation is expected to save companies in the cannabis industry $4.7 million in the fiscal year beginning July 1, and grow to nearly $10 million by 2026.
In many states that have legalized marijuana for recreational or medical purposes, tax laws follow the lead of Section 280E of the federal tax code, which forbids most standard business tax deductions for cannabis. Under this rule, cannabis businesses are only allowed to deduct cost of goods sold, while other business expenses such as rent, payroll, and utilities are not allowed for most operators.
under Bill From Democratic Representative Jason Rojas, the House Majority Leader, cannabis businesses will be allowed to deduct standard business expenses on state tax returns, though Section 280E will still apply to federal corporate tax liability. While the measure won’t result in huge gains for cannabis companies, the change is expected to make Connecticut companies more competitive with nearby recreational marijuana dispensaries. Massachusetts And Rhode IslandWhere prices are much lower.
“Everyone I’ve interviewed says it’s a very difficult business to get into, particularly because of the capital costs involved, but the regulatory environment is also very complex because you’re dealing with a controlled substance that is still illegal at the federal level.” Rojas said Hartford Business Journal on the legislation.
He added, “Anything that can be done to help reduce the cost of doing business, I think is in the interest of the country, if we want to see this market really succeed.”
Adam Wood, president of the Connecticut Chamber of Commerce of Cannabis, said Rojas’ bill would benefit both businesses and consumers. The tax rebate is also likely to lower retail prices, bring more consumers into the regulated market and increase tax revenue over time.
“Every other business in the state is allowed to deduct overhead, equipment, and labor,” Wood said CTInsider. “Our argument is that allowing these state tax cuts will actually lower the price because the net operating costs will not be as high. When the price is reasonable or under control, the regulated market grows, and sales taxes from these companies will increase.”
The lack of standard business discounts makes it difficult for entrepreneurs to succeed and grow their businesses. The burden is particularly difficult for social equity firms, which often have the added difficulty of raising commercial capital to start their ventures. Tiana Hercules, a Hartford, Connecticut, city council member who recently obtained a temporary license to grow cannabis through the state’s Social Justice Board, said last week that federal tax law has its roots in the War on Drugs.
Hercules said: “We are punished as if we were not lawful companies.” “As people in the social justice program, we’re supposed to develop business acumen and hopefully make a living and build some generational wealth as well. We need to be able to reinvest in business and employees and innovate as well. It makes sense that Connecticut would want a competitive cannabis industry And thriving. We’re ready to create a lot of excitement.”
So far, 19 states with legal dope, including New York and nearby Massachusetts, have separated their tax laws from federal Section 280E to allow companies in the industry to take business deductions. Rojas’ bill, HB 5413, is currently under consideration by the Connecticut General Assembly’s Finance, Revenue, and Securities Committee.
Brian Vicente, founding partner of cannabis law firm Vicente LLP, wrote in an email to: High times. “For too long, state-legal marijuana companies have been beholden to strict federal taxes, and allowing cannabis companies to make traditional deductions for overhead, equipment, and labor will result in more healthy business in Connecticut. Connecticut is poised to follow the lead of northeastern states that have embraced state tax reforms to the cannabis industry, including New York and Massachusetts.”
The Financial Legislative Committee will soon start voting on items to be included in the budget for the next fiscal year. In an interview with local media, the bill’s sponsor said he hopes his colleagues in the legislature will support the tax changes in HB 5413.
“It’s going to be part of the larger discussion around revenue and whether we can approach this differently because it’s a loss of revenue and there are a lot of priorities,” Rojas said. But it’s a thriving market and we’ll see what other countries do. It is consumer friendly. I hope there will be room in the budget for that.”