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California Governor Newsom Signs Bill for Cannabis Tax Deductions

October 15, 2019

One of the giant hurdles for California cannabis retailers has been paying taxes to the IRS without having the ability to take advantage of tax deductions afforded to regular retail businesses. Over the weekend, California Governor Gavin Newsom signed legislation that will overrule section 280E of the Internal Revenue Code that will allow cannabis cultivators, processors, and dispensaries to claim certain cannabis tax deductions when filing their business taxes.

State Law Overrides 280E

Los Angeles Assemblyman Reggie Jones-Sawyer introduced AB-37 to alleviate some of the burdens of operating a legal cannabis business. This will not only make these businesses more profitable but allow them to grow and expand as the demand for recreational cannabis increases.

The new bill makes it clear that, “For each taxable year beginning on or after January 1, 2020, and before January 1, 2025, would specifically provide in the Personal Income Tax Law for nonconformity to that federal law disallowing a deduction or credit for business expenses of a trade or business whose activities consist of trafficking specified controlled substances only for commercial cannabis activity…” 

Gov. Newsom Protects Compassionate Care

In addition to signing a bill for cannabis tax deductions, Governor Newsom also signed SB 34 that will authorize cannabis dispensaries to provide free medical marijuana to low-income patients, and exempts those products from state taxes. Implementing this statute will increase access for thousands of patients who have been drained by costly medical bills and insurance premiums. 

Compassionate care programs were on the verge of disintegration as the recreational, for-profit market made it difficult for medical specific cannabis retailers to compete. SB 34 ensures that medical marijuana patients will always have access to affordable products despite their income or social class.

Governor Newsom passionately addressed the issue saying that, “It is inconceivable that the federal government continues to regard cannabis as having no medicinal value.” He explained that its, “ludicrous stance puts patients and those who care for them in an unconscionable position.”