Connecticut lawmakers have sent a budget bill to the governor that includes provisions to provide state-level tax relief to licensed marijuana businesses that are currently prohibited for making federal deductions under an Internal Revenue Service (IRS) code known as 280E.
A separate cannabis omnibus bill was also transmitted to Gov. Ned Lamont (D) this week that contains a number of reforms, including the establishment of off-site event permits for marijuana retailers, restricting intoxicating hemp-derived products and creating a new Office of the Cannabis Ombudsman.
Under provisions of the budget legislation, licensed cannabis businesses in the state would be able to deduct “the amount of ordinary and necessary expenses that would be eligible to be claimed as a deduction for federal income purposes…but that are disallowed under Section 280E of the Internal Revenue Code because marijuana is a controlled substance under the federal Controlled Substance Act.”
That measure also contains provisions on appropriations for cannabis social equity, substance misuse prevention and regulation funds. And it further repeals a tax credit for marijuana “angel investors” who financially support new cannabis businesses—a policy change proposed by the governor earlier this year.
Lamont applauded the legislature’s passage of the overall bill and announced on Tuesday that he intends to sign it into law in the next few days.
The 280E fix is consistent with legislation that lawmakers in several states have pursued to provide relief for state marijuana markets, which face significantly higher effective tax rates under federal prohibition.
For example, Illinois lawmakers sent a budget bill to the governor this week that includes language similarly allowing state-licensed cannabis to take tax deductions that they’re barred from doing at the federal level under the IRS prohibition.
Also, the governor of New Jersey signed legislation last month to allow licensed marijuana businesses to deduct certain expenses on their state tax returns as a partial IRS 280E workaround. Lawmakers in Iowa, New York, Pennsylvania and Virginia have similarly pursued tax relief for each of their state’s marijuana markets.
The New York Senate passed a bill on Monday to provide a 280E fix for New York City cannabis companies at the local level because the already-enacted statewide reform didn’t affect the city’s separate tax law.
Back in Connecticut, separate marijuana omnibus legislation that’s also heading to the governor would additionally establish a definition for edible cannabis products and revise the rules for the state’s lottery system for marijuana business licensing.
“This bill has multiple implications, affecting the lottery process for applicants by implementing a submission cap, modifying definitions, providing clarity on license types, reclassifying ‘high-THC hemp products’ as marijuana, and extending the deadlines for lottery applicants to obtain their final license,” Michelle Bodian, partner at the cannabis and psychedelics law firm Vicente LLP, told Marijuana Moment.
“These changes have far-reaching consequences not only for future license holders but also for existing marijuana and hemp product businesses in Connecticut,” she said. “While some of the changes are expected to be viewed positively, others may disrupt businesses and future plans.”
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Meanwhile, Connecticut’s House of Representatives approved a bill last month to build on the state’s marijuana legalization and expungements law by requiring courts to reduce sentences or dismiss charges for a wider range of cannabis-related convictions and, accordingly, to release people who are currently incarcerated on those charges.
The House also passed a measure last month to bill to decriminalize possession of psilocybin mushrooms.
Separately, Lamont announced in January that the state had cleared nearly 43,000 records for marijuana-related convictions. The legalization legislation that he signed into law in 2021 empowered the state government to facilitate mass cannabis conviction relief.
The state also launched a web portal in January that provides residents with information about the status of their cannabis records and also guides those with older eligible convictions that weren’t automatically erased through the process of petitioning the courts for relief.
Lamont has embraced the state’s adult-use market, which launched at the beginning of the year, saying that he’s optimistic that it will mitigate illicit sales.
He also joked that one of his concerns about the cannabis industry rollout would be finding a place in line at one of the dispensaries. He wasn’t being serious, but the governor previously didn’t rule out the idea of participating in the legal marketplace.
In March alone, Connecticut saw a record $22 million in combined recreational and medical marijuana sales, state data shows.
Photo courtesy of Chris Wallis // Side Pocket Images.