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On October 12, California Governor Gavin Newsom signed into law Assembly Bill No. 37 (“The Bill”). The Bill exempts industrial cannabis companies from the provisions of IRC Sec. 280E for purposes of California’s individual earnings tax.  The Bill is in impact from January 1, 2020 till December 31, 2024. Prior to the Bill’s passage, only corporations have been exempt from IRC Sec. 280E when calculating California corporate earnings tax. Given that cannabis is nonetheless federally illegal, IRC Sec. 280E denies federal deductions and credits to cannabis companies with the exception of direct expense of goods sold (“COGS”). A detailed discussion on IRC Sec. 280E can be identified right here . The new law will let California cannabis company owners operating as a sole proprietorship or a partnership further state tax deductions that might lead to considerable state level tax savings.

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