What Is 280E?
Section 280E is a tax code provision from 1982 that says businesses "trafficking in controlled substances" can't deduct operating expenses. [1]
The problem: Cannabis is still Schedule I federally, so the IRS treats every dispensary like a cartel. No payroll deductions. No rent write-offs. No marketing expenses.
The Math Is Brutal
Say you make $1M in revenue. After cost of goods ($400k) and operating expenses ($450k), you have $150k in real profit. But 280E taxes you on $600k (revenue minus COGS only). That's an effective tax rate of 116% of actual profit. [2]
Rescheduling Is Stalled
Moving cannabis to Schedule III would fix this instantly. But the DEA's hearing got postponed in January 2025 and remains "in limbo" with no timeline. [1]
The Tax Revolt
Cannabis operators are fighting back by filing tax returns that dispute the amounts owed. They're arguing state-legal businesses shouldn't be treated as criminal trafficking operations. [2]
"We're paying taxes like criminals while running legal businesses. The math doesn't work."
— Cannabis Operator
What's the Risk?
The IRS can audit you, pile on penalties, seize assets, or even prosecute for tax evasion. But for operators facing bankruptcy under current tax rates, it's fight or die.
What Happens Next?
Either the DEA reschedules cannabis (kills 280E), Congress passes reform (unlikely), or the IRS cracks down on the revolt. No good options. Just survival mode.