Two Cannabis Tax Cases to Watch

Cannabis Companies Challenge 280E and the Controlled Substances Act with Cannabis Tax Cases

As the nation’s cannabis industry eyes Washington D.C. in the hopes that cannabis will be reclassified from Schedule 1 to Schedule 3 of the Controlled Substances Act, thereby making 280E not-applicable, five companies are taking matters into their own hands with aggressive tax and legal positions. One company is challenging 280E, while a group of four companies are disputing the Controlled Substances Act (CSA). 420CPA believes that, for all cannabis businesses involved, the road ahead looks to be a rocky one, and these important cannabis tax cases shed light on the situation. 

Cannabis Tax Cases: Challenging 280E

Trulieve Cannabis Corporation, a vertically integrated multi-state operator with dispensaries in Arizona, California, Connecticut, Florida, Georgia, Maryland, Ohio, Pennsylvania and West Virginia, last October 2023 filed amended income tax returns with refund claims totaling $143 million dollars. The claims are for the years 2019-2021, and very few details have been issued other than their tight-lipped comment in their press release that “this determination is supported by legal interpretations that challenge the Company’s tax liability under Section 280E of the Internal Revenue Code.” (See this article at 420CPA.com for difficulties other companies have faced challenging 280E.)

Cannabis Tax Cases: Challenging The Controlled Substance Act

Meanwhile, in Massachusetts, four dispensary companies have hired superlawyer David Boies (United States v. Microsoft Corp. and Bush v. Gore) to represent them in a suit against U.S. Attorney General Merrick Garland in his official capacity. They seek to have the Controlled Substances Act declared unconstitutional when it comes to states’ legal cannabis industries. Canna Provisions, Inc. et al v. Garland, filed in federal district court in Springfield, Mass., argues the prohibition exceeds congressional authority over interstate commerce by interfering with state-based businesses that don’t operate across state lines. Boies’s goal is to challenge a 2005 Supreme Court decision, Gonzales v. Raich, which upheld the federal criminalization of marijuana despite a California law authorizing its medical use. 

Industry Impact and Perspective on Cannabis Tax Cases

Many cannabis companies are eyeing these two actions to see if they have sufficient standing to challenge 280E and request refunds of their own. However, in an opinion piece for MJBizDaily.com, attorneys Rachel Gillette and Jennifer Benda note that neither action provides much current support for federal tax relief. Almost no information has been released about the basis for Trulieve’s refund claims (which could be the result of previous incorrect filings, for example, rather than a challenge to 280E). As for the Canna Provisions suit, it does not challenge the legality of 280E and will likely take a long time to wend its way to the Supreme Court.

The Outlook

Both cases, though interesting and with possible long-term upsides for the cannabis industry, do not provide any near-term relief to companies struggling to wring a profit from an over-taxed and over-regulated market. Perhaps our hopes hinge best on the Department of Health and Human Service’s request to the DEA that cannabis be reclassified. This can be accomplished administratively, by the U.S. Attorney General, or by an act of Congress, or by the President. As this looks to be a tightly contested presidential election year, immediate action on this issue is not expected.

To explore taking an advantageous and knowledgeable tax position on 280E for your cannabis company, feel free to contact 420CPA (by AB Finwright LLP) for a timely consultation.

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