STATES 2.0 Act: Federal Government Steps Back, Allowing State-Legal Cannabis Businesses Huge Tax Relief

The Strengthening the Tenth Amendment Through Entrusting States 2.0 Act, or STATES 2.0 Act, is a massive piece of legislation designed to finally end the messy conflict between state and federal cannabis laws. Put simply, this bill pulls the federal government out of the business of prosecuting state-legal marijuana operations. It effectively declares that if you are growing, selling, or possessing cannabis in compliance with your state’s or federally recognized Tribe’s laws, you are no longer breaking federal drug laws. This move is intended to let states manage their own markets—setting rules for everything from craft cultivation to dispensary locations—while forcing the federal government to focus on controlling illegal interstate smuggling.

The End of the 280E Tax Nightmare

For anyone working in or investing in the legal cannabis industry, this bill is a game-changer because of what it removes. Currently, legal cannabis businesses are hit with Section 280E of the Internal Revenue Code, which prevents them from taking standard business deductions—like payroll, rent, or utilities—because the federal government still considers them drug traffickers. The STATES 2.0 Act explicitly states that activities compliant with state or tribal law will no longer be treated as proceeds from an unlawful transaction, meaning 280E is effectively neutralized for these businesses. For the consumer, this could mean lower prices, as businesses will finally be able to operate with normal profit margins instead of passing massive tax burdens onto the buyer. Crucially, the bill also shields compliant businesses from federal asset forfeiture and money laundering charges, providing much-needed legal certainty for banks and financial institutions.

New Federal Tax, New Federal Oversight

While the bill offers massive relief, it doesn't create a total free-for-all. It replaces the current punitive structure with a proposed federal excise tax on legal cannabis products. The goal here, according to the bill’s findings, is to create a tax structure that is low enough to undercut the illegal market—which currently accounts for about 75% of all sales—but high enough to cover the costs of federal oversight, testing, enforcement, and youth prevention programs. If this tax is set too high, however, consumers will simply stick with the cheaper, untaxed black market, defeating the entire purpose. The bill also mandates that the federal government step up to regulate interstate trade, ensuring that cannabis doesn't flow illegally between states that allow it and those that still prohibit it.

FDA Takes the Wheel on Safety

Under STATES 2.0, the Food and Drug Administration (FDA) is tasked with regulating marijuana products much like they handle food, drugs, and cosmetics. If a cannabis product is marketed as a medicine, it must go through the standard drug approval process. If it’s an edible or drink, the FDA will regulate it similarly to food products containing alcohol. The bill carves out a special category for all other marijuana products, requiring the FDA to create rules within 180 days covering testing, manufacturing, and marketing standards, with a focus on keeping products away from minors. Importantly, these “other” products are exempt from the FDA’s premarket approval process, meaning the industry won’t have to wait years for new products to be approved, though the FDA still retains the power to ensure safety.

Traffic Safety and the Tribal Carve-Out

The bill also recognizes that with legalization comes new public safety challenges. It requires the Comptroller General (GAO) to conduct a comprehensive study on how marijuana legalization affects traffic safety, looking closely at crash data, state testing standards for impairment, and what federal support is needed. This is a smart move, acknowledging that while policy changes, the laws of physics and public safety concerns don't. Finally, the bill gives explicit support to the self-governance rights of federally recognized Indian Tribes, ensuring that they can set their own marijuana regulations within their territories, provided they are located in a state that permits the activity. This is a crucial recognition of tribal sovereignty in this emerging market.