Rescheduling Impacts Tax Treatment

This April, the Justice Department and the Drug Enforcement Administration issued a final order moving certain marijuana products from Schedule I to Schedule III of the Controlled Substances Act. The order applies specifically to FDA-approved products containing marijuana and marijuana products regulated by a state-issued medical marijuana license. It does not apply to other forms of marijuana, such as those sold for recreational use, which remain Schedule I substances.

This change impacts cannabis businesses’ federal income tax treatment. Section 280E prohibits businesses from taking tax deductions or credits for expenses paid or incurred while “trafficking in controlled substances” listed in Schedule I or II — but the prohibition does not apply for Schedule III substances.

To dig deeper, visit the original article on the Thomson Reuters blog.