Maryland’s Tax Laws on Cannabis: What You Need to Know

As Maryland continues to evolve its stance on cannabis, understanding the tax laws surrounding its use and sale becomes crucial for both consumers and businesses. Maryland legalized medical cannabis in 2014 and made significant strides by legalizing recreational use in 2021. The implications of these changes extend to how cannabis is taxed at both the state and local levels.

Maryland imposes a 9 percent sales tax on cannabis products. This rate applies regardless of whether the product is for medical or recreational use. However, it's important to note that the sales tax does not include any local taxes that might be implemented by individual counties or municipalities. This means that, depending on your location, the total tax burden on cannabis purchases can be higher.

For medical cannabis patients, it is worth noting that while the standard sales tax applies, patients with a valid medical cannabis card may not be subject to additional local taxes. This exemption helps ease the financial burden on those using cannabis for medical purposes.

Businesses engaging in the cultivation, distribution, or sale of cannabis must also navigate a variety of tax obligations. Beyond the sales tax, cannabis businesses in Maryland face a 3 percent excise tax on retail sales. This excise tax is crucial for understanding the overall cost structure associated with operating a cannabis business.

Moreover, cannabis businesses must comply with the federal tax code as well. Due to cannabis being classified as a Schedule I substance by the federal government, businesses are unable to deduct ordinary business expenses through IRS Section 280E. This limitation can significantly impact profitability, as it essentially forces cannabis businesses to pay taxes on revenue rather than profit.

It's also important for both consumers and business owners to be aware that revenue generated from cannabis sales is designated for various state programs. In Maryland, a portion of tax revenue collected from cannabis sales is allocated to education, public health, and drug addiction treatment programs. This aspect of the tax structure helps illustrate how cannabis revenue is funneled back into community services.

In conclusion, understanding the tax landscape surrounding cannabis in Maryland is essential for compliance and informed decision-making, whether you're a consumer purchasing products or a business looking to enter the market. With varying taxes at the state and local levels, as well as unique federal implications, staying informed about tax laws can help ensure that you navigate the world of cannabis responsibly and prudently.