President Donald Trump issued an executive order Thursday reclassifying marijuana as a Schedule III controlled substance, a change that does not legalize the drug at the federal level but could mean significant tax savings for Michigan cannabis businesses.
Currently, cannabis businesses are taxed on gross income and cannot deduct ordinary operating expenses the way other companies can.
That means many expenses — from salaries to marketing — are not deductible, leaving some operators with high tax burdens.
“The only thing they can deduct with their revenue is cost of goods sold, and what that means is currently, before the rescheduling, many of them have tax burdens north of 60%,” said Ross Sloan, senior vice president of cannabis banking for Dart Bank.
Sloan said the reclassification could be a game-changer for smaller businesses operating on thin margins.
“It really will free up cash for other purposes, for re-investment in the businesses, for paying debt, any number of things other than paying taxes,” Sloan said.
Al Williams, president of the Detroit Cannabis Industry Association and owner of DACUT dispensaries, called the reclassification a step in the right direction but said he remains cautiously optimistic.
“It would allow for social equity operators to be able to do more, to expand, regular banking would allow for us to hire more people and do more in the community,” Williams said.
With the executive order framed as a move to improve medical marijuana research, Williams said he has concerns about what federal regulations might follow.
“I’m worried about more regulations on the recreational end, and I’m definitely worried about the federal government doing more to take more taxes or a federal tax that possibly could come,” Williams said.
Sloan said more federal involvement could draw large pharmaceutical companies and more scrutiny from regulators.
“The expectation is there may be some big pharma companies that may get involved, and the FDA will pay more attention to it,” Sloan said. “It’s still unclear what that will mean for these companies regarding regulations from the FDA.”