On May 8, 2023, Gov. Phil Murphy signed a bill (A3946/S340) into law that permits business deductions for cannabis businesses at the New Jersey state level only. This is a big deal for those engaged in the New Jersey cannabis industry—but why?
Historically, the state tax code has been coupled with the Internal Revenue Code, 26 U.S.C. 280E. At the federal level, Section 280E prohibits deductions or credits for businesses selling federally defined schedule I and II controlled substances. Cannabis remains a schedule I controlled substance under the Controlled Substances Act, meaning there is no accepted medical use in the United States, a lack of safety, and a high potential for abuse, at least according to the federal Legislature. So, even though the state has legalized the regulated sale, recreational use and possession of cannabis for adults 21 years and older by way of the Cannabis Regulatory Enforcement Assistance and Marketplace Modernization Act (CREAAMA), cannabis businesses do not receive the same tax benefits afforded to any other business in the state.
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