Major marijuana multistate operators owe more than $1.6 billion in back taxes collectively to the federal Internal Revenue Service, according to their recent public filings.
Withheld by the MSOs from the taxman as part of a bold but risky strategy to increase cash flow, the unpaid taxes due under Internal Revenue Code Section 280E are still owed, attorneys from the IRS argued in a recent cannabis-related case.
And because it’s not yet finalized – and wasn’t in effect in the past when the taxes were due – President Donald Trump’s recent marijuana rescheduling executive order does not change that.
Cannabis companies continue 280E fight in tax court
Struggling under the tax burden imposed by 280E, which forbids deducting many normal business expenses on federal returns, more than 40 cannabis operators have tried challenging the IRS in U.S. Tax Court, according to filings.
And so far, “all have been unsuccessful,” Senior Tax Court Judge Mark Holmes noted in one case last year.
The latest cannabis business to try its luck is New Mexico Top Organics, which does business as Ultra Health and first filed a tax court petition in Decemeber 2024 seeking 280E deductions for the 2018, 2019 and 2020 tax years, court records show.
In its case, the ongoing federal marijuana rescheduling push “is a game changer,” Top Organics argued in an October filing. That’s because federal health regulators in August 2023 said that cannabis “belongs on schedule (3),” the business argued.
Does federal marijuana rescheduling mean past 280E relief?
But cannabis is still on Schedule 1 even after President Donald Trump’s Dec. 18 executive order.
The Justice Department has yet to follow the president’s directive to “take all necessary steps” and downgrade marijuana’s status under federal law “in the most expeditious manner possible,” as Trump’s EO instructs.
Hopes that future marijuana rescheduling will somehow lead to retroactive 280E relief are unfounded, the IRS said in a March 6 filing in the Top Organics case.
“Despite many taxpayer challenges, federal courts have consistently held that section 280E is constitutionally valid and have created a robust legal authority supporting its validity and applicability to sellers of marijuana,” IRS Acting Chief Counsel Kenneth Kies wrote.
“Since marijuana was a Schedule I controlled substance during that period (referred to by Top Organics), the Court must ‘apply the law in effect at the time it renders its decision,’ and apply section 280E in those periods,” Kies added.
It’s the latest example of the IRS making its position on past-due 280E bills crystal clear. The IRS also issued a memo in the summer of 2024 stating the same argument.
Marijuana MSOs owe at least $1.6 billion to IRS over 280E
Amid that, the five prominent marijuana multistate operators who began declaring independence from 280E starting in late 2023 are seeing their potential tax bills pile up, according to recent annual earnings statements.
Top of the list is Tallahassee, Florida-based Trulieve Cannabis Corp.
In late 2023, the company filed amended tax returns dating back to 2019, “claiming $143 million of refunds,” it noted in its most recent annual report.
“Amended returns were supported by legal interpretations that challenge the tax liability under Section 280E of the Internal Revenue Code,” the report added. “While challenge is ongoing, taxes are swept into an uncertain tax position.”
And Trulieve’s uncertain tax position related to “this (280E) tax challenge” stands at $630 million, the company said.
Other companies also owe substantial amounts in uncertain tax positions, according to their filings.
These include:
- Curaleaf Holdings, $531.5 million
- Verano Holding Corp., $378.26 million
- Cresco Labs, $171.4 million
Ascend Wellness, another MSO that made the 280E claims, was scheduled to deliver its annual earnings report Thursday evening.
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The risky game of cannabis companies fighting 280E
Most tax attorneys and legal experts agree that past taxes paid under 280E are unlikely to be refunded and unpaid past taxes due under 280E will still be owed.
“We think this more aggressive strategy is reckless and is going to come back to haunt the people who are using them,” San Francisco-based tax attorney Henry Wykowski told MJBizDaily in 2024.
Adding to the risk is the possibility of penalties of up to 20% or more piled on top of the past-due bills, he added.
Withholding 280E on speculative hopes of tax court relief “just isn’t going to work,” he said.
Chris Roberts can be reached at chris.roberts@mjbizdaily.com.
