Missouri marijuana businesses had reason to celebrate in April when federal officials moved medical marijuana into a less restrictive category of controlled substances. The federal order could also set marijuana companies on a path to substantial federal tax savings. For years, federal law has prevented many cannabis businesses from deducting ordinary expenses – including employee salaries, rent and other costs – when calculating their federal taxes. But months after the change, Missouri businesses still don’t know exactly how to claim those savings, especially if they sell both medical and recreational marijuana.
That uncertainty was a key topic this month on the Missouri Division of Cannabis Regulation’s DCR OutLoud podcast, where leaders of the Missouri Cannabis Trade Association said they’re waiting for federal tax officials to explain how the new rules will work. “Not only is the cannabis industry here in Missouri one of the most regulated industries, but it’s also one of the most taxed,” said Andrew Mullins, executive director of the association.
The federal tax rule at the center of the debate is known as Section 280E. It generally prevents businesses that sell certain federally prohibited drugs from deducting everyday business expenses. This prohibition results in an effective income tax rate on marijuana businesses of as high as 80%, compared to the standard federal corporate rate of 21%. Missouri already allows licensed marijuana businesses to deduct those expenses on their state income tax returns, but the federal restriction has remained in place.
The April order moved marijuana regulated under state medical licenses into Schedule III but left recreational marijuana in Schedule I. That leaves businesses that sell both types of cannabis with a difficult question: How much of their spending can they deduct? “Certainly they’re all very anxious to see if relief is on the way and if we’re going to see that guidance from the IRS that basically directs what they can do…” Mullins said.
In late September, the U.S. Department of the Treasury and Internal Revenue Service listed Section 280E guidance among their priorities for the coming fiscal year, which runs through September 2027. But the list includes more than 100 other tasks. Amy Moore, director of the Missouri Division of Cannabis Regulation, said the federal order creates a particular challenge for states such as Missouri, where many businesses handle medical and recreational sales under the same license.
“In our state, the difference between medical and just adult-use consumer product really only comes into play at that moment of sale when a particular tax rate is applied,” Moore said on the podcast. “But that [Department of Justice] order seems to be really organized around medical marijuana.”
Drew Lammert, chair of the trade association’s government affairs committee, said businesses may have to make their own decisions about how to divide expenses between medical and recreational sales while they wait for federal guidance. Lammert is also the co-founder of High Fidelity Brands, where he says medical marijuana sales make up only 10% of the company’s business.
“We are excited, but there’s also those questions of the unknowns,” he said, “and what does that mean for the 90% of adult use sales out there.”
Separating the weed Missouri issues what it calls “comprehensive licenses,” allowing businesses to serve both medical marijuana patients and recreational customers. At cultivation facilities, plants also aren’t separated into medical and recreational categories as they grow.
“That is the beauty of the comprehensive license,” Lammert said. “There’s a lot of burden taken away with trying to track two separate systems, medical versus adult use.” That arrangement makes operating a business simpler. But it could make the new federal tax rules harder to apply. If a company grows the same
