Two Republican senators have introduced a bill that would ensure marijuana businesses remain locked out of federal tax deductions indefinitely, even if cannabis is reclassified under federal law. The move could have a major financial impact on the industry, which has already been burdened by tax restrictions for years.
A Permanent Block on Tax Breaks
Senators James Lankford of Oklahoma and Pete Ricketts of Nebraska are behind the new proposal, called the “No Deductions for Marijuana Businesses Act.” The bill seeks to keep Section 280E of the Internal Revenue Code fully intact, preventing cannabis companies from deducting standard business expenses such as rent, payroll, and marketing costs.
This restriction currently applies because marijuana remains classified as a Schedule I drug under the Controlled Substances Act. However, if cannabis were to be downgraded to Schedule III, businesses could potentially claim deductions like any other legal industry. This bill aims to stop that from happening.
For cannabis operators, this means continuing to face an effective tax rate of 70% or more—far higher than most other industries. The industry has already lost over $1 billion due to 280E, and this bill would ensure that figure keeps rising.
Does This Bill Have a Real Shot?
Despite the senators’ push, some experts are skeptical about the bill’s future. Marijuana reform is broadly popular across political lines, and several states with Republican leadership have legalized or decriminalized it.
Even within the GOP, there is a divide. Some Republican lawmakers, particularly those from states with booming cannabis industries, have supported tax relief for operators. The proposed legislation directly contradicts that stance.
Another factor working against the bill? The potential rescheduling of marijuana. The U.S. Drug Enforcement Administration (DEA) is under pressure to reclassify cannabis following a recommendation from federal health regulators under President Joe Biden in August 2023.
The Legal Limbo Around Rescheduling
Rescheduling marijuana would be a game-changer for the industry, at least from a tax standpoint. But the process has been anything but smooth.
- In January 2024, the DEA’s chief administrative law judge halted the marijuana rescheduling process indefinitely.
- Some have accused the agency of deliberately stalling to prevent reforms from moving forward.
- If marijuana is reclassified to Schedule III, the industry’s tax burden would shrink significantly—unless the new GOP bill succeeds.
For now, cannabis operators remain in limbo.
The Industry’s Next Move
If this bill were to pass, it would set a major precedent. But cannabis businesses aren’t likely to sit back and accept it.
- Lobbying efforts are already in motion, as companies push for federal tax relief.
- State governments, especially those relying on cannabis tax revenue, may challenge the bill’s validity.
- Legal battles could arise, particularly if rescheduling moves forward but tax deductions remain blocked.
For now, the industry is watching closely. The coming months will determine whether cannabis companies finally get a break—or if the tax burden stays permanently locked in place.