IRS Notice 2024-22: Treatment of State Cannabis License Fees and Application Costs

## Overview IRS Notice 2024-22 addresses a recurring question in cannabis tax planning: whether state cannabis license application fees, annual license renewal fees, and cannabis-specific state regulatory fees are "trade or business expenses" subject to §280E disallowance, or whether they are capital expenditures or costs subject to a different treatment. ## IRS Position The IRS takes the position that state cannabis license fees are ordinary and necessary business expenses under IRC §162, and therefore subject to §280E disallowance. The IRS rejected arguments that license fees constitute: (1) capital expenditures amortizable under §197, (2) startup expenditures under §195, or (3) taxes deductible under §164. ## Planning Implications For most cannabis operators, this notice confirms an adverse treatment that was already widely anticipated. However, it does create potential planning opportunities for operators who can structure their license fees as part of a bona fide startup period (pre-trafficking) or who can allocate some portion of application costs to non-trafficking business lines.