Illinois Tax Change Could Help Cannabis Businesses 

A proposed change to the Illinois tax code for cannabis could have a positive effect on smaller cannabis businesses struggling to get by in the market.

A letter to the editor in the Chicago Sun Times from Pamela Althoff, executive director of the Cannabis Business Association of Illinois, claims that cannabis businesses are facing bigger struggles than ever before, and thereby are in need of relief. She also argues that more oversight is needed to keep the states’ cannabis industry in check.

“IRS Code Section 280e prohibits cannabis businesses from deducting normal expenses, like rent, utilities and payroll,” she explains in the letter regarding the change in question. “As a result, these companies—particularly those run by minority business owners who have received social equity licenses—are at a severe disadvantage. These companies pay taxes on gross profit, which can be more than double their net income. Cannabis businesses that can’t deduct these expenses are unable to funnel that money back into growing their company, creating more jobs and contributing to the economy.”

The complaint that cannabis businesses pay heavy taxes without receiving any benefits is not uncommon, and often borders on claims of taxation without representation. Tax season is difficult for cannabis companies because of lack of access to banking and accounting services, and, as stated above, little ability for write-offs. At the same time, legal states receive massive benefits from the taxes cannabis businesses have to pay.  So, it’s not surprising that this letter makes the same argument. It also claims that the state has scattered, non-centralized oversight controlling the industry.

“There’s general agreement that Illinois should decouple itself from 280e and legislation to do just that has been introduced in the spring session of the Illinois General Assembly, sponsored by Sen. Elgie Sims. But this has been a clear problem since recreational cannabis was legalized in Illinois and businesses began operating. So why hasn’t it been addressed? I can give you 17 reasons.”

Althoff goes on to argue that 17 independent bureaucratic agencies oversee cannabis in the state, which means that there is a lack of clear strategy on what the regulations should be.

To address this, the Cannabis Business Association of Illinois would like to create one, single Cannabis Control Commission to oversee the industry and manage the 17 agencies that currently exist and operate independently of one another. Althoff claims that such a system is successful in states like Nevada, Maryland, and Massachusetts. She compares it to the current operation of liquor and gaming already in place in Illinois. 

“By combining oversight into a single commission, we will be able to move quicker on reforms that make it easier to enter the cannabis industry, grow a successful business, contribute to the state’s economy and ensure consumer safety and protection,” she writes.

“A single commission can help move forward common-sense proposals like permanently allowing curbside pick-up of cannabis, which gives customers—especially medical cannabis patients—safe and convenient pick-up options; and medical cannabis card reciprocity, which allows patients with a valid medical card issued by a different state to purchase, use and possess cannabis here in Illinois.”

She goes on to say that because the economy itself is recovering from COVID, the growth of cannabis can only help speed things up and provide more tax revenue for the state. Since it has brought in over $435 million since 2020, it stands to remember this number can keep increasing, even if growth is slow. 

These steps to establish more regulatory oversight and allow more flexibility when it comes to taxation would make a huge difference when it comes to how legal cannabis looks and operates in Illinois this year and beyond. The right moves now could mean a solid foundation for years to come.