23 This disproportionate impact is a key consideration that can again be in tension with other parameters of the tax policy. State and local taxes can significantly impact the bottom line of cannabis businesses. These taxes can add to the cost of doing business, reduce profitability, and potentially deter customers due to higher prices.
- However, cannabis markets have not evolved a standardized product like tobacco, where taxes can be levied by stick (cigarette) or pack, nor is the intoxicating ingredient (THC) as easily measured as alcohol content for an appropriately targeted tax.
- A base tax rate could be set by weight for cannabis products containing less than 10 percent THC; that rate could double for products with 10 percent to 25 percent THC and then double again for products containing 25 percent THC or more.
- The Illinois Department of Financial and Professional Regulation oversees dispensaries, while the Illinois Department of Agriculture regulates cultivation centers and craft growers.
- Learn more about adult-use cannabis via the Oregon Department of Revenue, and more about the medical program via the Oregon Health Authority.
Congressional Policymakers Should Tread Carefully When Weighing New Corporate SALT Deduction Limits
In addition, cultivators must pay a weight-based tax of $1.10 per ounce for all parts of the plant. Local governments in New Jersey can also impose a gross receipt tax of up to 2% on all cannabis businesses, including cultivators, manufacturers, wholesalers, gross vs net and retailers. However, these businesses face a unique challenge since marijuana is still considered illegal at the federal level. So, while dispensaries can operate within their state’s laws, they can’t claim the same tax deductions and benefits as traditional businesses.
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Businesses can do this by regularly consulting with tax professionals, cannabis accounting attending industry events, and subscribing to relevant industry newsletters. One of the most significant impacts of IRC Section 280E is the financial burden it places on cannabis businesses. Because they cannot deduct most of their business expenses, these businesses often end up with a higher taxable income and, consequently, a higher tax bill. In some cases, the federal taxes they owe can even exceed their actual net income.
Illinois
- Federal and state governments have several options for taxes on a legal marijuana industry.
- Recreational marijuana use is also legal in the District of Columbia, but Congress prevents the District from regulating and taxing legal transactions.
- This ensures a level playing field for all cannabis-related businesses in Maine, eliminating previous disparities between medical and adult-use ventures.
- The weight-based approach would capture harm derived from the use of smokable products.
- Scutari noted that it’s cheaper to buy weed illegally than it is to buy it from a legal dispensary (New Jersey has some of the highest cannabis prices in the nation).
The bicameral effort to make Section 280E a more permanent hindrance Insurance Accounting to cannabis businesses comes at a time when just 27% of U.S. cannabis businesses are profitable, according to a 2024 Whitney Economics report. He criticized the marijuana industry, calling the bill a way to prevent $2.3 billion in tax cuts for marijuana businesses. Restaurant taxes come with unique challenges, from specific regulations to industry-specific deductions.
Each eligible municipality and county will receive a little more than $58,000 for every licensed retail store and microbusiness based on revenue collected from the 10% recreational marijuana excise tax. Senate President Nicholas Scutari (D-Union), a supporter of legal cannabis, said he is not supportive of raising the tax right now. Scutari noted that it’s cheaper to buy weed illegally than it is to buy it from a legal dispensary (New Jersey has some of the highest cannabis prices in the nation). He said he wants more people visiting dispensaries, and increasing cannabis taxes isn’t the way to do that.
For others, a $50 or $100 med card renewal may save them thousands in adult-use cannabis excise taxes. Quantity-based taxes also help better align the tax base to the tax’s purpose than ad valorem taxes. Price-based taxes also capture a relatively consistent percentage of overall spending in the market.
Dispensaries pay an effective tax rate of 60-70%, compared to 20-30% for traditional businesses. Because they cannot deduct normal expenses, they owe significantly more in federal taxes. In 2021, these five states collectively generated a record-breaking $2.78 billion in revenue from taxes on cannabis sales, marking the highest income level since tax collection began in 2014. Growing and consuming cannabis was legal in the United States until the 1910s, when states started to enact laws criminalizing it. At that time, cannabis was included in the United States Pharmacopeia, the list of permissible and federally approved medicines, but in 1937, the federal government followed the states’ lead by passing the Marijuana Tax Act.