Federal approval could lower business taxes for medical marijuana operators, but a Minnesota dispensary’s reported denial raises concerns for companies serving both medical and recreational customers.
LANSING — Cannabis businesses in Michigan and Ohio have submitted 216 applications for federal medical marijuana registration, potentially opening the door to substantial federal income tax savings. But a new regulatory dispute could prevent some dual-use dispensaries from qualifying.
The development follows the U.S. Department of Justice’s October 30 announcement that the Drug Enforcement Administration has begun issuing federal registrations to more than 900 medical marijuana dispensaries in seven states.
Neither Michigan nor Ohio was included in the first round.
The financial stakes are significant because qualifying medical cannabis businesses may gain access to ordinary federal tax deductions previously restricted under Section 280E of the Internal Revenue Code.
However, a Minnesota dispensary owner has reported receiving a DEA notice proposing to deny his registration because of conflicts between federal requirements and the state’s cannabis licensing system.
That raises questions about the eligibility of Michigan and Ohio operators that serve both medical patients and recreational customers.
What Michigan And Ohio Cannabis Businesses Need To Know
- 216 applications: Michigan accounts for 56 and Ohio for 160.
- Potential tax relief: Qualifying medical marijuana activities may become eligible for deductions covering ordinary business expenses.
- No announced approvals in either state: The initial federal registrations went to seven other states.
- Dual-use complication: A Minnesota dispensary has reported receiving a proposed denial involving its medical and recreational operations.
- November 29 deadline: Federal regulators expect timely applicants to establish compliant medical marijuana supply chains.
Michigan And Ohio Applications
An October 30 analysis published by Marijuana Moment identified nearly 7,000 applications nationwide.
The reported state totals are:
| Business category | Michigan | Ohio |
|---|---|---|
| Dispensaries | 25 | 125 |
| Manufacturers | 25 | 27 |
| Distributors | 6 | 8 |
| Total applications | 56 | 160 |
These figures represent applications, not necessarily separate companies or approved registrations.
The publicly available applicant list does not identify individual businesses by name.
Why Federal Registration Matters For Taxes
Section 280E generally prevents businesses dealing in Schedule I or Schedule II controlled substances from deducting ordinary operating expenses on federal income tax returns.
For cannabis operators, those restrictions can include payroll, rent, advertising and other business costs.
Under the federal government’s new framework, qualifying medical marijuana activities are subject to Schedule III controls, potentially removing the Section 280E restriction for those activities.
That could improve profitability for medical cannabis businesses.
However, the federal changes do not automatically extend the same treatment to recreational marijuana sales, which remain outside the medical marijuana order.
The IRS has indicated that additional guidance will address businesses operating in both markets.
Minnesota Denial Raises Concerns For Dual-Use Dispensaries
The Minnesota Star Tribune reported October 30 that Mark Eide, owner of In-Dispensary in Minneapolis, received a DEA order proposing to deny his federal medical marijuana registration.
According to the newspaper, federal regulators raised objections involving Minnesota’s dual-purpose licensing framework and other provisions of state cannabis law.
The reported notice questions whether a license permitting both medical and recreational marijuana sales satisfies federal requirements designed to prevent diversion into the recreational market.
Ohio authorizes dual-use dispensaries, while Michigan also permits businesses to participate in both medical and adult-use markets under state licensing requirements.
The Minnesota case does not establish that DEA will reject every Michigan or Ohio application.
However, it introduces uncertainty for businesses seeking federal registration while continuing recreational sales.
November 29 Compliance Deadline
The DEA has also issued guidance concerning the medical marijuana supply chain.
Under that guidance, federally registered businesses and qualifying timely applicants generally must conduct Schedule III medical marijuana transactions with other registered businesses or eligible timely applicants.
The agency expects affected applicants to establish compliant supply chains by November 29.
Businesses that fail to comply could risk denial or revocation of their federal registrations.
The requirements may affect how medical cannabis operators select suppliers, document transactions and maintain inventories.
What Happens Next?
The DEA says it will continue reviewing dispensary applications in phases while separately evaluating manufacturers and distributors.
For Michigan and Ohio cannabis businesses, several questions remain unresolved.
Will dual-use dispensaries qualify for federal registration? How will federal regulators evaluate state licensing systems that permit recreational sales? And how much of a qualifying business’s operating expenses will become deductible?
The answers could have major financial implications for cannabis operators already facing substantial taxes, regulatory expenses and competitive pressures.
MITechNews is examining those questions and seeking additional information from regulators and industry experts in both states.
Coming Tuesday: MITechNews will examine whether Michigan and Ohio dual-use dispensaries face the same federal registration obstacles reported in Minnesota, what the November 29 deadline means for cannabis suppliers and how much money qualifying operators could potentially save.
