Tax Relief on the Horizon: New England’s Cannabis Businesses Break Away from 280E

The cannabis industry in New England is on the cusp of a financial transformation. As states move to decouple from the contentious Section 280E of the Federal Tax Code, a significant pain point for cannabis-related businesses, they could encourage a new era of fiscal viability and opportunity. With decoupling, businesses will now have additional capital available to allow for re-investment back into the business, or even expansion of operations. Here’s a closer look at where each state stands.

Connecticut

Connecticut has taken definitive action with the State Budget Package (H.B. 6941), signed into law on June 12, 2023. Crucially, Sections 394 and 396 of this package pave the way for cannabis businesses to sidestep the federal restrictions laid down by 280E. This means cannabis licensees can deduct from their state personal income or corporation business tax “ordinary and necessary business expenses” that would otherwise be eligible for a federal tax deduction but are disallowed because marijuana is a controlled substance.

Maine

Until July 2023, Maine allowed a subtraction modification for business expenses related to carrying on a trade or business as a caregiver or a medical use dispensary in an amount equal to the deduction that would otherwise be allowable if 280E. But, with the unanimous vote by the Appropriations and Financial Affairs Committee to enact LD 1063, which is the 280E decoupling bill, this will change significantly. Effective January 1, 2023, a more inclusive modification will allow not just caregivers or medical dispensaries but even manufacturing, adult-use dispensaries and testing facilities to claim deductions. This shift ensures that all cannabis-related businesses in Maine stand on equal footing, removing previous disparities between the state’s medical and adult-use cannabis ventures.

Massachusetts

Having decoupled from 280E as early as May 2022, Massachusetts remains a beacon for progressive cannabis financial reforms in the region.

New Hampshire

In stark contrast, New Hampshire stands out as the sole New England state yet to embrace adult-use cannabis, maintaining its alignment with the federal 280E provision.

Rhode Island, Vermont

Both these states continue to be tethered to 280E, a decision that has undeniably affected the financial dynamics of their respective cannabis industries.

In conclusion, as New England grapples with the financial nuances of a rapidly evolving cannabis landscape, the decoupling from 280E is a testament to the industry’s potential and the region’s commitment to nurturing it. The path ahead is fraught with challenges and opportunities, but with each legislative change, the region inches closer to establishing a robust, equitable, and thriving cannabis economy.