In a December 2018 letter to Governor Hogan, the President of the Senate, and the Speaker of the House, the Maryland Medical Cannabis Commission (“MMCC”) discussed plans to fund the Compassionate Use Fund.[1]  As medical cannabis is categorized as a Schedule I drug and is not recognized for medical use by the federal government (more on the later), it cannot be covered by insurance plans.  Therefore, individuals are often required to use out-of-pocket funds to purchase medical cannabis.  Some individuals may not be able to afford this medication.  The MMCC’s purpose in establishing the Compassionate Use Fund is to provide greater access to program participants, including veterans.  While this is still an ongoing process, proposals include imposition of license fees, excise taxes, and other revenue generators.

Within its letter, the MMCC emphasized that the Fund was necessary to combat a lack of discounted supply in Maryland.  In its view, dispensaries often could not afford to offer substantial discounts to veterans and the like – and also stay in business – partially as a result of “the deleterious effects of the federal tax code on medical cannabis businesses.”  Based on the MMCC’s analysis:

Under 26 U.S.C. 280E, businesses engaging in the trafficking of Schedule I or II controlled substances, including cannabis, are prohibited from deducting ordinary and necessary businesses expenses. Medical cannabis businesses may deduct the costs of goods sold (COGS), which are costs directly attributable to the production of a good, including the cost of labor and materials. However, the Department of Legislative Services estimates that 30% of a medical cannabis dispensary’s expenses may not be deducted due to 280E restrictions, and that these businesses pay significantly higher federal tax bills than similar retail facilities.

Letter from Maryland Medical Cannabis Commission to Governor Hogan, President Miller and Speaker Busch regarding “Health-General Article, § 13-3303.1(f), Natalie M. LaPrade Medical Cannabis Compassionate Use Fund,” (December 11, 2018).  In essence, a cannabusiness may experience a significant after-tax reduction in profits compared to other industries as few legitimate industries are affected by I.R.C. § 280E.[2] 

While this may illustrate that income taxes are a unique problem to cannabis dispensaries, it fails to place any responsibility with Maryland, which could legislatively de-couple its income tax system from I.R.C. § 280E to likely increase the affordability of medical cannabis.  (In other words, Maryland could offer a state tax adjustment to allow for the deduction of ordinary and necessary business expenses, notwithstanding the federal application of I.R.C. § 280E.  Maryland has not taken any steps to do this.[3]

Absent legislative change, Maryland cannabusinesses need to properly plan to minimize federal and state income taxes.  Some of these considerations include proper differentiation between marijuana and non-marijuana-related business activities, proper accounting for costs of goods sold and indirect expenses, and proper entity selection.  Rosenberg Martin Greenberg is experienced in all aspects of federal and state tax laws, including developments germane to the legalization of marijuana in Maryland and taxation of cannabusinesses.  For a free consultation, please contact Brandon N. Mourges at or 410.951.1149. 

[1] Available at:,%20%C2%A7%2013-3303.1,%20Compassionate%20Use%20Fund%20Report_MMCC.pdf

[2] This letter is a follow up to an earlier analysis performed by the MMCC in 2015.  Letter from Maryland Medical Marijuana Commission to President Miller and Speak Busch, “Medical Marijuana Commission Report on Taxation of Medical Marijuana and Financial Transactions for Medical Marijuana,” (February 7, 2015).  Available at:  Within that letter, the MMCC illustrated the negative impact of federal and state income taxes on the medical marijuana industry in Maryland.

[3] On the other hand, Maryland does not impose and sales tax on the sale of medical cannabis.  Other states impose a sales or excise tax ranging from 1% to 37%.