New Jersey Governor Signs 280E Cannabis Tax Law

The law "decouples" New Jersey's tax provision from the federal tax code.

New Jersey Gov. Phil Murphy signed a law on Monday to end the state’s unfair tax treatment of cannabis businesses.

The legislation, written by the New Jersey Society of CPAs Cannabis Interest Group, decouples cannabis businesses from federal Internal Revenue Code Section 280E and creates a level playing field for cannabis businesses in the state.

Section 280E prohibits many cannabis companies from deducting business expenses on personal or corporate income tax returns. This has cut into profits and caused companies to look like they have  more losses than other businesses. It also creates a higher tax bill than for noncannabis companies.

“NJ has joined the short list of other states that have provided a much-needed offset to the onerous 280e tax that is crippling many operators in cannabis, large and small,” said Morgan Paxhia, co-founder and managing partner of Poseidon Investment Management. “It is great to see NJ recognizing the deleterious impacts of the 280E tax code and providing some relief while we wait for the federal government to catch up. … Capital flows to where it is treated best and that is true with legal cannabis states and their subsequent tax rates.”

The legislation A-3946/S-340 read as follows, “As amended, this bill decouples the corporation business tax from the federal income tax provision that prohibits deductions and credits for cannabis businesses. The bill also decouples S corporation income under the gross income tax from the federal provision. … As a result of enactment of this bill, a business subject to the corporation business tax will be allowed to deduct from income all ordinary and necessary business expenses incurred in carrying on a licensed cannabis business.”

The new law applies to tax years beginning on and after Jan. 1, 2023. Prior to the signing of this legislation, New Jersey’s tax structure “piggybacked” on 280E, according to NJCPA, thus taxing cannabis business owners like drug dealers, including those who operate in the medicinal space.

“280E has been plaguing this industry for too long, and hard-working entrepreneurs deserve the ability to deduct the same business-related expenses that all other companies are entitled to,” Matt Hawkins, founder and managing partner of Entourage Effect Capital, said. “I would like to see lawmakers in all legal states adopt similar bills, although real change will require comprehensive banking reform at the federal level.”

In addition, the legislation also removes the $15 million cap on revenue to qualify for “deductions and credits for ordinary and necessary business expenses incurred in carrying on a licenses cannabis business.”

Matt Darin – CEO, of Curaleaf said, “We want to thank Governor Murphy and the state of New Jersey for passing this law allowing cannabis businesses to be taxed like any other industry in the state. This much-needed state tax reform takes an unnecessary financial burden off the industry and it will allow businesses to focus on growth and job creation. By reducing the tax burden, social equity businesses across the state will be better positioned to thrive and become profitable.”

Debra Borchardt

Debra Borchardt is the Co-Founder, and Executive Editor of GMR. She has covered the cannabis industry for several years at Forbes, Seeking Alpha and TheStreet. Prior to becoming a financial journalist, Debra was a Vice President at Bear Stearns where she held a Series 7 and Registered Investment Advisor license. Debra has a Master's degree in Business Journalism from New York University.

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