ALBANY, N.Y. (March 18, 2022) – Bills introduced in the New York House and Senate would eliminate the state’s conformity with Internal Revenue Code (IRC) Section 280E. The enactment of this law would implement a small but important tax relief measure for legal marijuana businesses in New York.

Federal tax Section 280E forbids businesses from deducting otherwise ordinary business expenses from gross income associated with the “trafficking” of Schedule I or II substances, as defined by the Controlled Substances Act. The IRS applies Section 280E to state-legal cannabis businesses. That means that marijuana growers, processors and sellers are unable to deduct expenses from their taxes that businesses in other sectors can write off. The only deductions that cannabis businesses can take are the costs of goods sold.

Under the current tax scheme, marijuana businesses pay effective tax rates of up to 80 percent.

The current New York tax code conforms to federal tax law, meaning legal marijuana businesses can’t claim normal businesses expenses on their state tax returns.

Bills introduced in the New York House and Senate would address this situation.

Sen. Jeremy Cooney (D) introduced Senate Bill 7518 (S7518) last November. Asm. Donna Lupardo (D) and a coalition of Democrats introduced the companion bill, Assembly Bill 8808 (A8808) in January.  Under the proposed law, “the provisions of 280E…shall not apply for the purposes of this chapter to the carrying on of any trade or business that is commercial cannabis activity by a licensee.”

“This bill will provide tax equity to the emerging cannabis industry by allowing licensed cannabis businesses to make ordinary and necessary deductions on their New York state taxes,” Cooney said. “Additionally, it ensures the adult-use cannabis market will not be dominated solely by large multi-state operators who can afford to pay the higher effective tax rate.”

There are also provisions in both the House and Assembly budget bills that would create the same tax deduction effective until 2025.


Under the federal Controlled Substances Act (CSA) passed in 1970, the federal government maintains complete prohibition of marijuana. Of course, the federal government lacks any constitutional authority to ban or regulate cannabis within the borders of a state, despite the opinion of the politically connected lawyers on the Supreme Court. If you doubt this, ask yourself why it took a constitutional amendment to institute federal alcohol prohibition.

New York legalized medical marijuana in 2014 and adult-use marijuana last year. This removed a huge layer of laws prohibiting the possession and use of marijuana in the state even though federal prohibition remains in effect. This is significant because FBI statistics show that law enforcement makes approximately 99 of 100 marijuana arrests under state, not federal law. When states stop enforcing marijuana laws, they sweep away most of the basis for 99 percent of marijuana arrests.

Furthermore, figures indicate it would take 40 percent of the DEA’s yearly budget just to investigate and raid all of the dispensaries in Los Angeles – a single city in a single state. That doesn’t include the cost of prosecution. The lesson? The feds lack the resources to enforce marijuana prohibition without state assistance.


Colorado, Washington state, Oregon and Alaska were the first states to legalize recreational cannabis, and California, Nevada, Maine and Massachusetts joined them after ballot initiatives in favor of legalization passed in November 2016. Michigan followed suit when voters legalized cannabis for general use in 2018. Vermont became the first state to legalize marijuana through a legislative act in 2018. Illinois followed suit in 2019. New Jersey, Montana and Arizona all legalized recreational marijuana through ballot measures in the 2020 election. Earlier this year, New YorkNew MexicoVirginia and Connecticut legalized marijuana through legislative action.

With 37 states allowing cannabis for medical use, and 18 legalizing for adult recreational use, the feds find themselves in a position where they simply can’t enforce prohibition anymore.

The lesson here is pretty straightforward. As Tenth Amendment Center Executive Director Michael Boldin noted, “When enough people say, ‘No!’ to the federal government, and enough states pass laws backing those people up, there’s not much the feds can do to shove their so-called laws, regulations, or mandates down our throats.”

The push to ease the tax burden on marijuana businesses highlights another important strategic reality. Once a state legalizes marijuana – even if only in a very limited way – the law tends to eventually expand. As the state tears down some barriers, markets develop and demand expands. That creates pressure to further relax state law. These new laws represent a further erosion of unconstitutional federal marijuana prohibition.


S7518 was referred to the Senate Budget and Revenue Committee. A8808 was referred to the Assembly Ways and Means Committee. The bills must get a hearing and pass their respective committees by a majority vote before moving forward in the legislative process.

Mike Maharrey

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