In a letter dated August 29, the Department of Health & Human Services made an official recommendation to the Drug Enforcement Administration (DEA) to move cannabis from its status as a Schedule I controlled substance to a Schedule III controlled substance. According to the DEA, Schedule III drugs are those that “have a moderate to low potential for physical and psychological dependence,” as opposed to Schedule I drugs that “have no currently accepted medical use and a high potential for abuse.”
While many hurdles remain for cannabusinesses, rescheduling the drug would be a significant step towards legalization and has the potential to impact FDA oversight and regulation, medical research opportunities, project funding, banking restrictions and the criminal system surrounding cannabis enforcement, among others. One of the most impactful aspects of rescheduling cannabis for cannabusinesses are the federal tax implications – specifically as they relate to Internal Revenue Code Section 280E which states:
No deduction or credit shall be allowed for any amount paid or incurred during the taxable year in carrying on any trade or business if such trade or business (or the activities which comprise such trade or business) consists of trafficking in controlled substances (within the meaning of schedule I and II of the Controlled Substances Act) which is prohibited by Federal law or the law of any State in which such trade or business is conducted.
Read more over on Tax Practice News.
Kristin Kowalski
Kristin Kowalski
Partner at The Bonadio Group
Kristin is a Partner in the firm’s Tax practice. She has over a decade of experience providing tax compliance, consulting and advisory services to multi-state corporations and flow-through clients in the manufacturing, technology and real estate industries. Additional areas of interest include inbound international organizations, tax credits, accounting for income taxes and transaction planning. Kristin is also a member of Bonadio’s cannabis and industrial hemp team.