South Dakota medical cannabis industry expects tax, banking gains from federal rescheduling
The federal reclassification of medical marijuana from Schedule I to Schedule III is expected to allow South Dakota medical cannabis businesses to claim federal tax deductions and gain better access to. . .
The federal reclassification of medical marijuana from Schedule I to Schedule III is expected to allow South Dakota medical cannabis businesses to claim federal tax deductions and gain better access to banking, but Whitney Brunner, administrator of the state's medical cannabis program, told the legislative Medical Marijuana Oversight Committee in Pierre on Monday that significant uncertainty remains. "At the state level, we probably have more questions than answers," Brunner said. The federal government has shared little information with South Dakota beyond requesting data since completing the reclassification in April. Nicole Ezeh, a presenter with the National Conference of State Legislatures, confirmed the reclassification will allow medical cannabis businesses to claim deductions previously blocked because Schedule I classification barred them from writing off ordinary business expenses. Banks have largely avoided cannabis businesses due to federal illegality, exposing financial institutions to regulatory risk even in states where medical marijuana is legal. Ezeh said the change should ease that as well. Brunner did not specify whether South Dakota businesses must register with the Drug Enforcement Administration or what new compliance requirements they might face. Kittrick Jeffries, chairman of the Cannabis Industry Association of South Dakota and owner of Puffy's Dispensary in Rapid City, said members are moving ahead anyway. "A lot of our establishments within our association are currently going through the DEA inspection process to become licensed under the DEA," Jeffries said. The federal changes arrive as the state overhauls its inspection program. "We realized last year, and it wasn't a difficult realization to make, that we had a lot of work to do on inspections and our processes," Brunner said. The department created new procedures, restructured supervisor oversight, added inspector training, and introduced a formal process for businesses to challenge citations. Rob Krogstad, who operates Bad River Cannabis in Fort Pierre, told lawmakers his business was fined $3,000 for two clerical errors corrected before inspectors left the building. "There will be human error," Krogstad said, noting the fine forced the business to delay other operational expenses. He proposed a three-strikes approach for minor clerical violations, reserving immediate fines for more serious infractions. A rules package in administrative review would make first-offense minor violations result in a corrective action plan rather than an immediate fine.