Cannabis Business Resources for the Federal Government.
General Fact Sheets
In the United States, the use and possession of cannabis is illegal under federal law for any purpose, by way of the Controlled Substances Act of 1970. Under the CSA, cannabis is classified as a Schedule I substance, determined to have a high potential for abuse and no accepted medical use – thereby prohibiting even medical use of the drug. At the state level, however, policies regarding the medical and recreational use of cannabis vary greatly, and in many states conflict significantly with federal law.
Section 280E of the Internal Revenue Code
Section 280E of the Internal Revenue Code forbids businesses from deducting otherwise ordinary business expenses from gross income associated with the “trafficking” of Schedule I or II substances, as defined by the Controlled Substances Act. The IRS has subsequently applied Section 280E to state-legal cannabis businesses, since cannabis is still a Schedule I substance.
Fairness in Federal Drug Testing Under State Laws Act
There is a current bill in motion called the Fairness in Federal Drug Testing Under State Laws Act. It addresses the growing chasm between federal and state laws that have resulted in marijuana being legal in many areas even as it is still federally prohibited. Congress has yet to truly address that divide, even as lawmakers from both parties voice support for their voter’s decisions to legalize cannabis in their districts.
Section 471 of the Internal Revenue Code
When a taxpayer produces inventory, general cost accounting principles and Section 471 of the Code dictate that the taxpayer can not take an immediate tax deduction for the direct costs of producing the inventory. Additionally, when a taxpayer purchases inventory for resale, costs of acquiring that inventory can not be deducted. Ultimately, the direct costs associated with producing the property and the acquisition costs of inventory purchased for resale must be capitalized with those capitalized costs only deducted for tax purposes when the inventory is eventually sold.