New Jersey Enacts Legislation Allowing Cannabis Business Deductions

May 31, 2023

Types : Alerts

On May 8, 2023, the State of New Jersey enacted legislation affording cannabis businesses certain business deductions for purposes of New Jersey state income tax. The new law departs drastically from the previous statutory scheme which mirrored the federal rules under Section 280E of the Internal Revenue Code (“IRC”). IRC § 280E provides that no deductions shall be allowed for any trade or business if the activity of such trade or business “consists of trafficking in controlled substances.” Under federal law, cannabis is designated as a schedule I controlled substance.

The new legislation expressly provides that cannabis businesses may disregard IRC § 280E when determining gross income for purposes of New Jersey state income tax. Cannabis businesses will now be able to take deductions that mirror the federal deductions available to non-cannabis businesses, such as deductions for ordinary and necessary business expenses as well as the cost of goods sold. These deductions lessen the amount of gross income recognized by the cannabis businesses, thus reducing the amount of New Jersey state income tax owed.

This article is authored by Hannah Travaglini an associate in Montgomery McCracken’s Cannabis Industry Group. Please reach out to Hannah or our Cannabis Co-Chairs Michael Fekete and Alexandra Jacobs for any legal questions.



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