Pennsylvania Governor Signs Budget Bill Excluding Marijuana Legalization Provision He Requested, But With 280E Tax Relief For Industry

Pennsylvania’s governor has approved a package of budget legislation that excludes provisions to legalize adult-use marijuana that he had requested. One of the bills does, however, include a section allowing certain medical cannabis businesses to take state-level tax deductions as a partial workaround to the federal Internal Revenue Service (IRS) code known as 280E.

The 2025 budget legislation officially passed both chambers on Thursday and was signed into law the same day. While Gov. Josh Shapiro (D) had proposed recreational marijuana legalization as part of his budget request that was submitted in February, the reform did not materialize in the measure that’s been now enacted.

This comes amid heightened discussions about legalization cannabis in the legislature, with hearings, bill introductions and press conferences highlighting the need to enact the policy change, especially as surrounding states move ahead.

“The legislature left a critical issue behind as they crafted a budget that did not include adult-use cannabis,” Brit Crampsie, spokeswoman for the advocacy organization ResponsiblePA, said in a press release on Friday. “Pennsylvanians are demanding action on the legalization of adult-use cannabis. An adult-use market can bring more than a billion dollars to the state in its first year, and every moment Pennsylvania waits to legalize, we are losing money and business to the 90 percent of our neighboring states who have chosen to act.”

“As Pennsylvanians go on vacation this summer to New York, New Jersey, Maryland and even ‘friggin’ Ohio, they will witness these states rake in millions, as our state legislature fails to act,” she said. “We are hopeful that with the progress made in this budget, that adult-use legalization is at the top of the legislative agenda when the legislature returns in September.”

At a press briefing on Tuesday, the chair of the Pennsylvania Legislative Black Caucus seemed to temper expectations about the potential timeline of passing legalization legislation, pointing out that the rest of the session will likely be too politically charged heading into the November election to get the job done this year.

Sen. Sharif Street (D), who has long championed legalization, was among those who participated in the event. In response to the budget development, he said on Friday that adult-use cannabis “is coming, but every week and month that we delay, we fall further behind our neighboring states in revenue.”

“We delay the opportunity to correct years of disparate enforcement of our cannabis laws that have criminalized Black and brown communities, poor white communities and patients,” he said. “We’ve seen what works in other states and have prepared policy to end the prohibition of cannabis in Pennsylvania. We have a Governor who supports this. All we need is a vote.”

Rep. Emily Kinkead (D), who is sponsoring a separate legalization proposal, said it’s “disappointing that we could not get adult-use done with this budget but it is without question that a legalization bill must be the priority when we return to Harrisburg.”

“The governor is behind cannabis legalization, our state needs the hundreds of millions of dollars in tax revenue, and we have robust options to vote on including the bill I co-authored with Rep. Kaufer,” she said. “I look forward to bringing a bill to a vote this fall and ensuring Pennsylvania can benefit from more jobs, fixing the past harms of our criminal justice system, investing in social equity, and bringing Pennsylvania from behind the curve to the gold standard of legalization in our nation.”

To that end, the Legislative Black Caucus also made clear this week that its members will not stand behind any cannabis reform measure that omits core social equity provisions such as relief for people currently incarcerated due to marijuana convictions.

What did make it into the budget, however, is a section that would allow medical marijuana grower-processors to take state tax deductions in an amount that equivalent to what they would’ve received at the federal level were it not for the IRS 280E policy, which precludes deductions for businesses that work with Schedule I and Schedule II substances.

The section appears more limited than a standalone bill that advanced through the House in 2022 that would have more broadly extended the tax relief to the state cannabis industry. The newly enacted reform defines an eligible “medical cannabis business” as one that possesses an “active grower/processor permit,” seemingly excluding dispensaries from taking the tax deductions.

An attached fiscal note says the tax cut will cost the state $2.1 million in revenue over each of the next two fiscal years.

Multiple states have moved to provide the state-level tax relief to licensed marijuana businesses as Congress continues to stall on the issue. That said, if the Biden administration’s proposal to move cannabis from Schedule I to Schedule III of the Controlled Substances Act (CSA) comes to fruition, it would resolve the 280E problem.

Pennsylvania’s prior governor did separately sign a bill into law in July 2022 that included provisions to protect banks and insurers in the state that work with licensed medical marijuana businesses.

In any case, advocates are hoping to see legislators respond to the budget’s lack of legalization provisions with action on standalone proposals.

And while the chair of the Legislative Black Caucus seemed to doubt the prospects of enacting legalization this year, other lawmakers have emphasized the urgency of legalizing as soon as possible given regional dynamics, while signaling that legislators are close to aligning House and Senate proposals.

“As the debate around this year’s budget focused on the long-term sustainability of new spending, it is critical that the legislature pass comprehensive adult-use legislation as a means of a new, recurring revenue source,” Meredith Buettner, executive director of the Pennsylvania Cannabis Coalition, said. “Every day that we wait to legalize adult-use cannabis, tax revenue is crossing our borders and deposited into coffers of other states. Our message to policymakers is to ensure that PA tax dollars stay in our state. The priority in September must be adult-use legalization.”

Meanwhile, a recent report commissioned by activists projected that Pennsylvania would see up to $2.8 billion in adult-use marijuana sales in the first year of implementing legalization, generate as much as $720 million in tax revenue and create upwards of 45,000 jobs.

Street and Sen. Dan Laughlin (R) also recently participated in an X Spaces event where they said the votes are there to pass a marijuana legalization bill as soon as this year, though they stressed that the governor needs to work across the aisle to get the job done—and argued that it would be helpful if the federal government implemented its proposed cannabis rescheduling rule sooner rather than later.

Street was also among advocates and lawmakers who participated in a cannabis rally at the Pennsylvania State Capitol last month, where there was a significant emphasis on the need to incorporate social equity provisions as they move to advance legalization.

Laughlin, for his part, also said an event in May that the state is “getting close” to legalizing marijuana, but the job will only get done if House and Senate leaders sit down with the governor and “work it out.”

Warren County, Pennsylvania District Attorney Robert Greene, a registered medical cannabis patient in the state, filed a lawsuit in federal court in January seeking to overturn a ban preventing medical marijuana patients from buying and possessing firearms.

Two Pennsylvania House panels held a joint hearing to discuss marijuana legalization in April, with multiple lawmakers asking the state’s top liquor regulator about the prospect of having that agency run cannabis shops.

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Also in April, members of the House Health Committee had a conversation centered on social justice and equity considerations for reform.

At a prior meeting in March, members focused on criminal justice implications of prohibition and the potential benefits of reform.

At another hearing in February, members looked at the industry perspective, with multiple stakeholders from cannabis growing, dispensing and testing businesses, as well as clinical registrants, testifying.

At the subcommittee’s previous cannabis meeting in December, members heard testimony and asked questions about various elements of marijuana oversight, including promoting social equity and business opportunities, laboratory testing and public versus private operation of a state-legal cannabis industry.

And during the panel’s first meeting late last year, Frankel said that state-run stores are “certainly an option” he’s considering for Pennsylvania, similar to what New Hampshire Gov. Chris Sununu (R) recommended for that state last year, though a state commission later shied away from that plan.

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