Why it matters: The legal cannabis industry in the United States paid $1.8 billion in excess taxes in 2022 alone, according to data from cannabis research firm Whitney Economics. This number is expected to increase to $2.1 billion in 2023, indicating that the current regulatory and taxation environment is untenable for many cannabis businesses in the legal market.
What they are saying: The high taxes can be attributed to federal tax provision 280E, which disallows the deduction of necessary business expenses for cannabis companies, resulting in higher effective tax rates. Coupled with difficulties accessing banking services and regulations against interstate commerce, many cannabis companies are finding it impossible to make a profit in the legal market. A survey by Whitney Economics found that only 24.4% of cannabis operators are profitable, down from 42% in the previous year.
The big picture: The legal cannabis industry is facing extreme economic distress, with many state markets on the brink of systemic collapse due to the high taxes and regulatory obstacles. Tax reform is needed to rectify the situation, as the industry has the potential to bring in billions of dollars and increase employment and economic activity, according to Whitney Economics.
What to watch: A bill to remove cannabis from the Controlled Substances Act and nullify Code Sec. 280E was introduced by three Senate Democrats in July 2022 but is still pending. Tax reform will be necessary for the cannabis industry to thrive in the legal market.
Take: The excessive taxes and regulatory hurdles faced by the legal cannabis industry are creating an untenable environment for many businesses and preventing the industry from realizing its potential. Tax reform is needed to level the playing field and allow the industry to compete with other sectors.
