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Industrial Hemp R&D Tax Credit
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potential offset benefit to payroll taxes


amount of cannabinoid product development expenses can qualify as R&D


carry-forward duration for federal R&D tax credits

Industrial Hemp R&D Tax Credits

The 2018 Farm Bill made cultivating, selling, transporting, and possessing industrial hemp products federally legal. This act allowed for huge innovation and growth in the industrial hemp sectors.

In fact, the global industrial hemp market is expected to reach $16.75 billion by 2030. But more importantly, the act made it possible for these industries to claim qualified federal tax credits, such as the R&D tax credit.

Unfortunately, due to previous limitations, many hemp firms do not take advantage of that. For this reason, this article will go over the activities and costs that qualify businesses in the hemp industry for an R&D tax credit.

Qualifying for R&D Tax Credits

To apply, a company must produce hemp only from the Cannabidiol Sativa, not the cannabis plant. Sectors like product manufacturing and development, hemp farming, extraction companies, testing labs, equipment manufacturers, sustainable packaging, white label manufacturing, and many others have already claimed significant R&D tax credits. That means they got millions of dollars to reinvest in their staff, infrastructure, and continuing innovation. So, if your company focuses on industrial hemp-derived goods or processes, such as tinctures, energy bars, lotions, or hempcrete, your R&D expenditures may be offset by a dollar-for-dollar tax credit.

Aside from the federal credit, several states provide tax advantages to eligible small companies. Companies in their early stages of development and start-ups with fewer than five years of income can use R&D tax credits to reduce future payroll taxes. It could provide start-up businesses with an immediate federal benefit of $250,000.

Qualifying Activities

  • Creating or enhancing new strains

  • Assessing strategies to grow crop yields in different settings

  • Introducing new extraction tools or techniques

  • Enhancing products or procedures

  • Grow room automation or innovation

  • Designing innovative seed-to-sale technology

  • Potency testing

Qualifying Costs

Usually, 57% of product development expenses qualify for an R&D tax credit. They include staff wages, raw materials and supplies, computer rentals, and contractors (like botanists, chemists, grow consultants, engineers, scientists, software developers, master growers, and master extractors).

As long as it dates back to the 2019 tax year, current legislation allows businesses to alter past years’ tax filings, providing further financial benefits from tax refunds. The IRS permits taxpayers to carry credits forward for up to twenty years if they are unable to use the R&D credits right away.

When You Need Expert Help

Still not sure if your hemp company qualifies? Our experts can help determine if tax advantages are available for the technologies your business has been developing.

We use a success-based pricing system that enables companies in the hemp sector to request credits or refunds without upfront fees. We provide full audit protection as well as a money-back guarantee. To determine your possible claims for credits, use our R&D Tax Calculator.

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