House Republicans Introduce Legislation to Prevent Cannabis Businesses From Receiving Tax Deductions Under 280E

Forcing state-licensed cannabis businesses to continue paying punitive taxes on their ordinary business expenses, even if cannabis is federally rescheduled, is now a bicameral effort in the U.S. Congress.

Texas Congressman Jodey Arrington Leads a Group of House Republicans in Introducing a Bill to Keep Cannabis Businesses From Claiming Standard Tax Deductions

Congressman Jodey Arrington, R-Texas, who chairs the House Budget Committee, along with six of his fellow representatives, introduced H.R. 1447 on Feb. 21. The bill aims to amend the Internal Revenue Code (IRC) of 1986 to maintain the prohibition on any deduction or credit associated with a trade or business involved in “trafficking” cannabis.

Section 280E of the Internal Revenue Code Prevents Cannabis Businesses From Deducting Ordinary Business Expenses, Placing a Heavy Financial Burden on the Industry

Under Section 280E of the IRC, businesses involved in Schedule I or II substances under the Controlled Substances Act are unable to deduct standard business expenses, such as payroll, rent, and utilities, from their taxable incomes. This results in higher effective tax rates compared to other industries, significantly impacting the profitability of cannabis businesses.

The Push for Federal Rescheduling Sparks Hope Among Cannabis Businesses, but Some Lawmakers Are Determined to Maintain the Industry’s Tax Burden

Many U.S. cannabis businesses, some of which currently pay up to $100 million annually in taxes to a federal government that does not recognize them as legitimate, hope that the Department of Justice’s (DOJ) proposal to reclassify cannabis as a Schedule III substance will provide them with much-needed tax relief under 280E. However, Arrington and his colleagues seek to prevent such relief from taking effect.

House Republicans Join Senate Counterparts in Seeking to Block Cannabis Industry Tax Relief Under Rescheduling

The legislation is cosponsored by Reps. Chuck Edwards, R-N.C.; Gregory Murphy, R-N.C.; Vern Buchanan, R-Fla.; Blake Moore, R-Utah; Gary Palmer, R-Ala.; and Pete Sessions, R-Texas. These representatives are working alongside Republican Senators James Lankford, R-Okla., and Pete Ricketts, R-Neb., who introduced similar legislation in the upper chamber earlier this month.

With the DOJ’s Schedule III Proposal Facing Delays, Lawmakers Push for Preemptive Measures to Ensure Cannabis Businesses Continue Paying Higher Taxes

The DOJ’s Schedule III proposal remains in limbo due to an interlocutory appeal, but lawmakers supporting H.R. 1447 are taking steps to ensure that, even if cannabis is rescheduled, businesses in the industry will still be subjected to 280E tax penalties. The text of H.R. 1447 was not available as of Feb. 24, and no related bills were listed, but its intent closely aligns with the Senate’s “No Deductions for Marijuana Business Act.”

Prohibitionist Groups Applaud the Effort to Keep Cannabis Businesses Taxed at Higher Rates, Claiming It Protects Public Safety and Order

The prohibitionist group Smart Approaches to Marijuana (SAM) has publicly supported this legislation. Kevin Sabet, the CEO and president of SAM, has emphasized that cannabis businesses should continue paying approximately $2.3 billion annually in taxes, preventing them from receiving the financial benefits afforded to other legal industries. SAM has framed this bill as a necessary step to curb the expansion of the cannabis industry.

Arrington’s House Bill Appears to Serve as a Companion to Senate Legislation, Reinforcing a Coordinated Republican Effort Against Cannabis Tax Reform

On Feb. 24, SAM highlighted a report from The Washington Post suggesting that Arrington’s bill serves as the House’s companion legislation to the Senate’s effort to maintain 280E restrictions on cannabis businesses. The Washington Post reported that Arrington introduced the bill late last week, despite the House not being in session, as a strategic move to block cannabis tax relief efforts in advance.

With Only 27% of Cannabis Businesses Currently Profitable, the Proposed Legislation Would Further Restrict the Industry’s Growth and Stability

According to a 2024 Whitney Economics report, just 27% of U.S. cannabis businesses are currently profitable, largely due to the high tax burdens imposed by Section 280E. Without relief, many operators struggle to remain competitive in an already challenging regulatory landscape. The introduction of H.R. 1447 signals continued resistance to federal cannabis tax reform, ensuring that these businesses remain financially constrained.

H.R. 1447 Has Been Referred to the House Committee on Ways and Means, Marking the Next Step in the Legislative Battle Over Cannabis Taxation

Following its introduction, H.R. 1447 was referred to the House Committee on Ways and Means for further consideration. The bill’s progress will determine the fate of tax policy for cannabis businesses and whether efforts to provide tax relief under federal rescheduling will be nullified by congressional intervention.