RICHMOND Va. (Feb. 2, 2023) – Yesterday, a Virginia House committee passed a bill that would eliminate the state’s conformity with Internal Revenue Code (IRC) Section 280E. The enactment of this provision would represent a small, but important state tax relief for marijuana businesses despite ongoing federal cannabis prohibition.

Del. Jeffrey L. Campbell (R) introduced House Bill 1547 (HB1547) on Jan. 11. The proposed law would deconform the state tax code from federal law as it applies to deductions for marijuana businesses.

Section 280E of the IRC 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, meaning marijuana growers, processors and sellers cannot deduct expenses from their taxes that businesses in other sectors can write off. The only deduction that cannabis businesses can make is the cost of goods sold.

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

Under Virginia law, the state tax codes generally conform to federal tax law with respect to itemized deductions and business deductions. Under HB1547, they would be able to take deductions for state tax purposes, in an amount equal to any expenditures otherwise allowable as a federal income tax deduction, but that are disallowed for federal purposes because cannabis is a controlled substance under federal law.

On Feb. 1, the House Committee on Finance passed HB1547 by a 20-2 vote.


Virginia established a viable medical marijuana program in 2020 and legalized marijuana for adult use the following year.

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.

The legalization of medical and recreational cannabis removed a huge layer of laws prohibiting the possession and use of marijuana. 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.


Virginia is one of a growing number of states simply ignoring federal prohibition, and nullifying it in practice.

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. In 2021, New YorkNew MexicoVirginia and Connecticut legalized marijuana through legislative action, and Rhode Island legalized cannabis for adult use in 2022. With Missouri and Maryland legalizing marijuana in November, there are now 37 states allowing cannabis for medical use, and 21 legalizing for adult recreational use.

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.”


HB1547 will move to the House Appropriations Committee where it will need to get a hearing and pass the committee by a majority vote in order to advance.

Mike Maharrey

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