Week in Insights: Marijuana Taxation Needs Policies That Add Up

Curated by Daniel Xu

Marijuana businesses face a unique challenge due to the interplay between state legalization and federal tax law. Under Section 280E, businesses that traffic in controlled substances are ineligible for any deductions or credits for amounts paid or incurred in carrying on their trade or business.

Despite widespread state legalization, marijuana remains a federal “controlled substance,” meaning Section 280E applies to businesses that traffic in marijuana. (Though the Drug Enforcement Administration has recommended marijuana be reclassified as a less dangerous drug, the move will take time to implement.)

This denial of deductions alters the income tax ...