AndreTaxCo, PLLC

Texas Cannabis & Hemp Industries 

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IRC § 280E Analysis / R&D Tax Credit Eligibility

• Does Section 280E Apply to state individual income tax?

  • Yes. Texas conforms to the IRC in effect for the tax year beginning Jan. 1, 2007, not including any changes made by federal law after that date, or any regulations adopted after that date. There is no provision that states Section 280E does not apply. 

  • See Texas Tax Code §171.0001(9).

• Does Section 280E apply to state corporate income tax?

  • Yes. Texas conforms to the IRC in effect for the tax year beginning Jan. 1, 2007, not including any changes made by federal law after that date, or any regulations adopted after that date. There is no provision that states Section 280E does not apply.  

  • See Texas Tax Code §171.0001(9).

• Are State R&D Tax Credits Potentially Eligible for "Plant Touching" (e.g. producers, cultivators, manufacturers, retailers) Cannabis Companies?

  • No​, subject to further 280E restrictions. 

• Are State R&D Tax Credits Potentially Eligible for Industrial Hemp Companies & "Non-Plant Touching" Separate Trade or Businesses (e.g. testing laboratories)?

  • Yes​, subject to further 280E analysis regarding company activities, structure, and applicable state laws.

• See Texas R&D Credit Summary​

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State Law Background

(1) Hemp State Law Authority & Background​ ​

• HB 1325               

  • Directs the Texas Department of Agriculture to adopt rules for hemp production, including seed certification, licensing, testing, and fees, and submit a state hemp plan to USDA.

  • Authorizes the cultivation, processing and sale of hemp crops and products, including consumable products. Prohibits hemp products for smoking.

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(2) Medical Marijuana State Law Authority & Background - Limited Access Marijuana Product Laws (low THC/high CBD- cannabidiol)

• Statutory Language (year) - SB 339 (2015) Texas Compassionate Use Act HB 3703 (2019)

  • Patient Registry or ID cards - Yes

  • Allows Dispensaries - Yes, licensed by the Department of Public Safety.

  • Specifies Conditions - Yes, intractable epilepsy, incurable neurodegenerative disease, terminal cancer, multiple sclerosis, spasticity, ALS, autism.

  • Recognizes Patients from other states - No

  • State Allows for Retail Sales/Adult Use - "Low-THC Cannabis" with not more than 0.5 percent by weight of tetrahydrocannabinols.

  • ​During the 2019 legislative session, the state expanded its low-THC medical marijuana program with the passage of HB 3703. The law added the following qualifying conditions: multiple sclerosis, ALS, terminal cancer, autism, spasticity, epilepsy, and incurable neurodegenerative diseases. Previously, only those with intractable epilepsy could qualify for medical marijuana. However, the 0.5% cap on THC was not repealed. The low-THC cap is the single biggest barrier for patient relief in Texas’ medical marijuana program.

• Are sales of medical marijuana subject to sales tax?

  • N/A (Pending legislation)​

• Is medical marijuana subject to an excise tax?

  • N/A (Pending legislation)

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(3) Recreational Marijuana State Law Authority & Background​​​ - N/A​

• Are sales of recreational marijuana subject to sales tax?

  • N/A.

• Is recreational marijuana subject to an excise tax?

  • N/A.

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(4) Does the State impose a Stamp Tax or Controlled Substances Tax?

• No. Tax on controlled substances was abolished effective September 1, 2015.