California Gov. Approves Cannabis Tax Overhauls

California Gov. Gavin Newsome (D) signed a bill into law on Saturday that will override the infamous Section 280E of the Internal Revenue Code, which has blocked cannabis businesses from taking advantage of the usual tax deductions afforded to other American businesses, Tom Angell reports for Forbes.

Despite the growing hype around the industry, cannabis businesses nationwide have long struggled to break even or stay afloat due to Section 280E. AB-37, proposed by Assemblymember Reggie Jones-Sawyer (D-Los Angeles), would relieve a significant amount of that pressure for California cannabis companies.

“This bill, 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…” — Excerpt from AB-37

AB-37 was approved alongside many other cannabis-related bills, including one bill instructing officials to create and submit an industrial hemp program satisfying the USDA’s requirements and another bill implementing cannabis compassion programs to benefit low-income medical cannabis patients.

The governor, however, chose to veto legislation that would have allowed the use of medical cannabis products in hospitals, saying the bill departed too far from federal laws and would risk losing federal Medicare and Medicaid funding. “It is inconceivable that the federal government continues to regard cannabis as having no medicinal value,” said Newsom.