On June 12, 2023, Connecticut Governor Ned Lamont signed into law legislation enacting the fiscal years 2024 and 2025 biennial state budget (House Bill 6941) (the "Bill"). Included in the Bill was a provision eliminating the angel investor tax credit for eligible investments in qualified cannabis businesses. Cannabis businesses will no longer be eligible for the angel investor tax credit effective July 1, 2023.
In the 2021 legislative session, the angel investor tax credit program was expanded to provide personal income tax credits to angel investors who make qualifying cash investments in eligible Connecticut businesses. As adopted, the program was set to expire on June 30, 2028. Angel investors who invest at least $25,000 in approved cannabis businesses are eligible for a personal income tax credit equal to 40% of their investment, up to a maximum credit per investor of $500,000. Under the Bill, no new credits may be reserved by an angel investor for these investments in cannabis businesses after June 30, 2023. The angel investor credit remains available after June 30, 2023, to eligible non-cannabis businesses.
Governor Lamont's office said the expansion of Connecticut's existing angel investor tax credit to the cannabis industry is no longer needed "given the overwhelming interest in entities seeking to be part of the cannabis market." Angel investors and cannabis businesses should be aware of this change in law in order to plan for how this may impact investment strategies.
While the repeal of the angel investor tax credit for cannabis investments is unfavorable news for the cannabis industry, Connecticut is offering some relief to cannabis businesses through decoupling Section 280E of the Internal Revenue Code from Connecticut's business and income tax provisions. Cannabis businesses are not permitted to deduct ordinary and necessary expenses paid in carrying on their trade or business for federal tax purposes under Section 280E because cannabis remains classified as an illegal Schedule I controlled substance. However, effective as of January 1, 2023, Connecticut will permit cannabis licensees to deduct ordinary and necessary business expenses from their Connecticut taxes (personal income or corporate business tax). Connecticut has now joined a number of other states, including Massachusetts and New York that have recently decoupled from the federal prohibition of deducting such expenses in an effort to provide some tax relief.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
