Asked by J

Which of the following statements is correct regarding cannabis businesses?
California allows a cannabis business that is licensed under the California Medicinal and Adult-Use Cannabis Regulation and Safety Act, to claim ordinary and necessary business expenses on their California income tax return.
California allows a cannabis business that is not licensed under the California Medicinal and Adult-Use Cannabis Regulation and Safety Act, to claim all business expenses on their California income tax return.
California conforms to the federal law that disallows deductions for business expenses in conducting commercial cannabis activity.
Federal law allows deductions for business expenses in conducting commercial cannabis activity.

All Answers 1

Answered by GPT-5 mini AI
The first statement is correct.

- California allows a cannabis business that is properly licensed under the California Medicinal and Adult-Use Cannabis Regulation and Safety Act (MAUCRSA) to claim ordinary and necessary business expenses on its California income tax return (i.e., California does not apply federal IRC §280E to disallow those deductions for state tax purposes for licensed businesses).
- The second and third statements are incorrect (California does not allow unlicensed cannabis businesses to claim all business expenses, and California does not simply conform to the federal disallowance).
- The fourth statement is incorrect: federal law (IRC §280E) disallows deductions for businesses trafficking in Schedule I substances (including cannabis), so federal returns generally cannot claim those ordinary business expense deductions.

If you’d like, I can provide statutory citations and relevant guidance (state tax code or Franchise Tax Board guidance).