Nearly 75% of cannabis businesses operate at a loss, and many in the industry point to a feature of the Internal Revenue Code as the reason why.

Cannabis companies are prohibited from deducting ordinary business expenses—like rent or payroll—from their federal taxes as long as marijuana remains under the most restrictive portion of the Controlled Substances Act.

That could change if marijuana is moved from Schedule I to Schedule III of the act, as the Biden administration has proposed. But in the meantime, 22 states plus Washington, D.C., have allowed medical or recreational cannabis businesses to take some deductions on their state returns, by decoupling their tax codes from Section 280E of the Internal Revenue Code, which imposes the federal ban. Pennsylvania was the most recent to make that change with a state budget adopted last month.

In this episode of Talking Tax, Bloomberg Tax reporters Angélica Serrano-Román and Owen Racer talk about their recent look into how states are increasingly decoupling their tax from 280E at the state level.

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