Recreational marijuana was legalized in Connecticut on July 1, 2021 which made the use and possession of small amounts of the substance legal for adults 21 years and older. In 2012, Connecticut became the 17th state to legalize medical marijuana. This emerging industry is seeking federal tax deductions, but because the federal government still classifies marijuana as a Schedule 1 drug they cannot take federal deductions.
Schedule 1 drugs are substances or chemicals that are defined as drugs with currently accepted medical use and a high potential for abuse. Examples are heroin, lysergic acid diethylamide (LSD), marijuana (cannabis), 3,4-methylenedioxy-methamphetamine (ecstasy), methaqualone and peyote.
The high costs for medical patients and recreational-use consumers are affecting the growth of the industry. The costs are also affecting the social equity program, which was established in August 2021 to ensure that the legal market includes businesses that are owned by people who are from communities afflicted by the decades-long “War on Drugs.”
A member of Hartford’s city council, Tiana Hercules said, “We’re being penalized as if we were not legitimate businesses.”
“As a person in the social equity program, we are supposed to be developing business acumen and hopefully make a living and build some generational wealth as well,” said Hercules. “We should be able to reinvest in the business, staff and innovation as well. It makes a lot of sense if Connecticut wants a competitive and thriving cannabis industry.”
The General Assembly’s Finance, Revenue and Bonding Committee has legislation awaiting action that could save the industry $4.7 million in the state budget year starting July 1; $6.2 million in the year after; and $9.6 million in the year ending June 30, 2026. This would help to save amounts on equipment, personnel and inventory expenses, allowing for lower prices and increasing sales and tax revenue.
If the legislation is passed, it has the potential to help Connecticut’s industry compete with other states’ cannabis industries. Massachusetts and New York adopted similar legislation that is called decoupling which protects the relevant parts of their tax code from the changes in the federal tax code. In 19 other states decoupling has also been used to gain tax breaks in the industry.
Connecticut is competing with the underground market as well. Bryan Murray, the vice president of Acre Holdings, a multi-state company that has dispensaries in Danbury, Montville and South Windsor, said “I think what we often overlook in this conversation is that Connecticut is competing against a thriving illicit and underground market.”
“Allowing the same tax deductions and normalizing the industry helps create a runway and environment to bring individuals into the legal market and drive down our costs,” said Murray.
Many cannabis businesses are sharing their need and support for tax deductions, including the Connecticut Cannabis Chamber of Commerce, the Connecticut Society of Certified Public Accountants and the Connecticut Medical Cannabis Council.
“When pricing is reasonable or under control, the regulated market grows, and sales taxes from these businesses will increase,” said Adam Wood, president of the Connecticut Cannabis Chamber of Commerce.
The legislative finance committee will begin voting on budget items the week of April 24 and the CT General Assembly will make a tax-and-spending package which will be negotiated with the governor. The issue will likely fit into the overall negotiations before the June 7 adjournment date.