Rhode Island Governor Proposes Tax Relief for Cannabis Industry to Counteract IRS Code 280E

LOS ANGELES- In a significant move aimed at supporting the cannabis industry, Rhode Island Governor Dan McKee has unveiled a proposal to decouple state tax codes from federal tax regulations, specifically targeting the financial strains caused by IRS code 280E. This code currently prevents cannabis businesses from deducting typical business expenses due to cannabis’s status as a Schedule I controlled substance at the federal level.

Governor McKee’s initiative, part of his fiscal year 2025 budget proposal, seeks to offer substantial tax relief to cannabis operators within the state by separating Rhode Island’s tax calculations from those mandated by the federal government. This strategic decoupling would align Rhode Island with Massachusetts, Connecticut, and at least ten other states that have already implemented similar measures to mitigate the tax burdens placed on cannabis businesses by federal policies.

According to Marijuana Moment, this policy change could result in significant financial benefits for the cannabis sector, with estimated savings of $824,642 in fiscal year 2025 and an anticipated $1.7 million in fiscal year 2026. The proposal has garnered support from key industry stakeholders, including Cannabis Control Commission (CCC) Chair Kim Ahern, who highlighted the initiative during a recent House Finance Committee meeting that discussed the governor’s budget.

The push for tax relief comes amid broader discussions on federal cannabis policy reform, with potential for further relief if the Biden Administration chooses to reschedule cannabis from Schedule I to Schedule III, as recommended by the U.S. Department of Health and Human Services last year, or deschedules cannabis entirely, as suggested by a group of Senate Democrats.

Rhode Island’s progressive stance on cannabis was solidified with the passage of its legalization law in 2022, leading to over $100 million in combined medical and adult-use cannabis sales during the first full year of legalized adult-use operations. Governor McKee’s tax relief proposal represents a significant step toward easing the financial pressures on cannabis businesses, reflecting a growing recognition of the industry’s economic potential and the need for supportive legislative frameworks. Lawmakers have yet to vote on the budget proposal, but the initiative marks a pivotal moment in the ongoing efforts to harmonize state and federal cannabis policies.