While sales of medical marijuana surpassed $50 million in Missouri just last week, the companies who dispense, supply, grow and distribute the plant-based drug aren't allowed to deduct most business expenses.
That's because under President Ronald Reagan in the 1980s, the Internal Revenue Service (IRS) created tax code 280E to prevent individuals engaged in drug trafficking from profiting.
Cannabis businesses are included under 280E because the federal government has yet to legalize marijuana use.
But if Gov. Mike Parson signs SB 226 into law, the state would decouple itself from federal law.
“It would allow any cannabis businesses in Missouri that are legally operating under Article 14 of the Missouri Constitution to claim an income tax deduction in the amount equal to any expenditure that would ordinarily be allowed for federal income tax purposes,” said Jack Cardetti, spokesperson for the Missouri Medical Cannabis Trade Association.
SB 226, sponsored by Senator Andrew Koenig (R-15th District), passed the Missouri House 142-to-1 and the Missouri Senate 32-to-1 last week.
“Some of the legislators have various different backgrounds when it comes to understanding the medical marijuana industry, how it's taxed and how it's organized and so it was a very non-controversial piece of legislation after we were able to explain to the lawmakers why this puts cannabis businesses on a level playing field,” Cardetti told the St. Louis Record.
Specifically, Tax Code § 280E bans cannabis companies from deducting ordinary and necessary business expenses from gross income, such as business development, advertising, and marketing costs, bank or payroll fees, employment taxes, garbage removal fees, packaging and supplies, phone and internet charges, postage, expenses for attending conferences, travel and entertainment costs, rent, wages for store clerks, equipment and display cases, security systems and utilities. Without these deductions, marijuana businesses will continue paying taxes on gross profit instead of gross income, according to media reports.
“This is a really critical issue for this brand new industry so our license holders are really excited about the possibility that they'll be treated, for tax purposes, the same as any other small business across the state,” Cardetti said. “That's a really exciting thing to happen to this industry at exactly the right time as we're getting off the ground.”
Gov. Parson has until July 14 to sign the legislation that’s on his desk, according to Cardetti.