Key points:
- The U.S. Treasury Department is supposed to tell cannabis operators how they can seek relief from Internal Revenue Code 280E.
- Cannabis operators with medical and adult-use licenses will learn more about the Internal Revenue Service policy on claiming deductions.
- The Treasury Department is also “encourage(d)” to offer retroactive relief for past-due tax bills.
For once, the cannabis industry and the U.S. Treasury Department agree: The Trump Justice Department’s April 23 move to reclassify state-licensed medical cannabis as a Schedule 3 drug will have “significant positive consequences” for marijuana businesses nationwide.
Left unanswered is a key question that could be the difference between survival or bankruptcy for firms struggling under the weight of past-due tax bills, including the publicly traded marijuana multistate operators who owe the Internal Revenue Service a combined $1.6 billion: Is 280E relief retroactive? And if so, how many years of past-due tax debt could cannabis rescheduling wipe clean?
“This is one of the most important and exciting elements here,” Michael Cooper, policy chair at the National Cannabis Industry Association, told MJBizDaily in a recent interview.
It’s also one of the least settled.
While the order officially “encourages” the Treasury to “consider” retroactive relief for the estimated $15 billion in 280E taxes paid since 2018, the final decision appears to be up to the agency – unless Congress steps in with lawmaking or an operator steps in with a lawsuit.
No matter what the Treasury does, the question seems destined to be argued in U.S. Tax Court, several observers told MJBizDaily.
“You’re dealing with an unprecedented situation – an entire industry was subject to 280E, and now it’s not,” said Michael Rosenblum, an attorney who co-chairs Thompson Coburn’s cannabis practice.
“It’s a mess, and it’s hard to predict how the internal politics (at the Treasury) will play out.”
What does the marijuana rescheduling order say about tax relief?
The Trump administration’s marijuana rescheduling order says that “state licensees will no longer be subject to the deduction disallowance imposed by Section 280E of the Internal Revenue Code.”
It adds, “Nothing in this rule constitutes a determination regarding federal tax liability, and qualifying state licensees should consult with tax counsel regarding the applicability of Section 280E to their specific circumstances.”
Relief is already retroactive, but only back as far as January – and only for medical cannabis operators.
Whether tax relief will apply to tax years before 2026 is up to the Treasury.
The order encourages the Treasury “to consider providing retrospective relief from Section 280E liability for taxable years in which a state licensee operated under a state medical marijuana license.”
What does the US Treasury say about 280E?
As of Monday, the Treasury had yet to release details.
When it does, it’s “expected to clarify the ways in which, for businesses with multiple activities, section 280E applies only to those activities related to trafficking in Schedule I or II controlled substances (e.g., by apportioning expenses),” the Treasury said in an April 23 statement.
However, the Treasury offered a hint that’s consistent with past bulletins: 280E applies in years when cannabis was Schedule 1.
“Guidance is also expected to include a transition rule providing that, for purposes of section 280E, rescheduling generally will be considered to first apply for a business’s full taxable year that includes the effective date of the Final Order, for the business’s activities that do not involve Schedule I or II controlled substances as a result of the Final Order,” the Treasury said.
Who is eligible for 280E tax relief?
Importantly, the tax relief – like the rescheduling order itself – only applies to medical cannabis “subject to a state medical marijuana license.”
That could change pending the outcome of more hearings set to begin June 29.
But in the meantime, there are unanswered questions about how a cannabis business, such as a major marijuana multistate operator active in medical-only states such as Florida and Pennsylvania, as well as adult-use markets like New York and Maryland, can decide where to draw the line and start claiming deductions – and where to stop.
NCIA has a position. The organization published a white paper arguing in detail that since Internal Revenue Service Code 280E wasn’t written with state-legal operators in mind, it shouldn’t apply for any year.
“We think the same common-sense argument applies to both” medical and adult-use cannabis, Cooper said. Denying retroactive 280E relief, he added, “hurts people the longer they’ve operated.”
Chris Roberts can be reached at chris.roberts@mjbizdaily.com.
