If adult-use cannabis is legalized in New Jersey, it is crucial that the state decouples from the federal law governing cannabis — Internal Revenue Code 280(E) — to have a viable cannabis industry. As it stands, the federal provisions in IRS Code 280(E) make it impossible for cannabis business owners to receive a tax benefit for any of their operating expenses due to cannabis’ status as a federally controlled substance. This creates an immense challenge to the cash flow of cannabis operations in the United States. Only by separating New Jersey from the IRS tax law will cannabis owners be able to deduct ordinary and necessary expenses in the same manner as their non-cannabis counterparts.
Though the New Jersey Society of Certified Public Accountants (NJCPA) does not have a position on legalizing adult-use cannabis, we understand the need for the tax law change. The specific changes to decouple New Jersey from federal 280(E) for gross income tax and corporate income tax calculations are underlined in the attached document.