More than $1.6 billion in unpaid federal taxes sits on the books of major marijuana multistate operators - and the IRS, citing recent court filings, wants it understood that neither executive orders nor rescheduling hopes will make that liability disappear. The dispute centers on Internal Revenue Code Section 280E, a provision that bars businesses trafficking in Schedule I or II controlled substances from deducting ordinary business expenses on their federal returns. For cannabis companies operating legally under state law but still federally illicit, 280E has functioned as a punishing structural tax, and the decision by several large operators to simply stop paying it is now producing a reckoning.
What 280E Actually Does - and Why Companies Decided to Fight It
The mechanics of 280E are blunt. A cannabis retailer cannot deduct rent, payroll, marketing, or most operational costs the way a hardware store or restaurant can. Only the cost of goods sold - the direct cost of producing or acquiring inventory - is deductible. In practice, this means effective tax rates for cannabis businesses can run dramatically higher than those faced by companies in virtually any other legal industry. For multistate operators (MSOs) already struggling with thin margins, high real estate costs, and a persistent illicit market undercutting their prices, 280E isn't a technicality. It's an existential line item.
Starting in late 2023, five prominent MSOs - Trulieve, Curaleaf, Verano, Cresco Labs, and Ascend Wellness - began withholding 280E payments and, in some cases, filing amended returns seeking refunds. The legal rationale leaned on an argument that federal health regulators had themselves acknowledged cannabis belongs on Schedule III, making its continued Schedule I classification increasingly difficult to defend. It was a high-stakes bet on regulatory change arriving before the IRS arrived with a bill.
That bet is not paying off. Not yet - and, legal experts say, probably not at all on the retroactive question.
The Courts Have Been Consistent, and the IRS Intends to Keep It That Way
More than 40 cannabis operators have taken their 280E grievances to U.S. Tax Court. According to Senior Tax Court Judge Mark Holmes, all of them have lost. The IRS, in a March 2025 filing in the case of New Mexico Top Organics - which does business as Ultra Health - made its position unambiguous: rescheduling, even if finalized, does not rewrite the tax obligations that accrued while cannabis was a Schedule I substance.
"Since marijuana was a Schedule I controlled substance during that period, the Court must apply the law in effect at the time it renders its decision," wrote IRS Acting Chief Counsel Kenneth Kies in the filing. That framing is legally conventional and, for the cannabis industry, deeply inconvenient. Tax law has never worked retroactively in the direction taxpayers prefer - courts apply the rules that governed the period in question, not the rules a party hopes will govern tomorrow.
President Trump's December 2024 executive order directing the Justice Department to expedite rescheduling has not yet produced a formal rule change. Cannabis remains on Schedule I. And even when rescheduling does take effect, it will govern future tax years - not the 2018, 2019, and 2020 returns at the center of cases like Top Organics.
The Numbers Behind the Gamble
The scale of the accumulated liability is striking, laid out in cold figures across the MSOs' annual filings:
- Trulieve Cannabis Corp.: $630 million in uncertain tax positions related to its 280E challenge, after filing amended returns in 2023 seeking $143 million in refunds
- Curaleaf Holdings: $531.5 million
- Verano Holding Corp.: $378.26 million
- Cresco Labs: $171.4 million
These figures are disclosed as "uncertain tax positions" - an accounting term for liabilities that are contested but may ultimately be owed. They are not hypothetical. They are real potential obligations sitting on balance sheets that are, in several cases, already under stress.
What the filings don't fully capture is the penalty exposure. The IRS can assess penalties of 20% or more on top of unpaid tax balances, meaning the actual cost of this strategy, if the courts continue ruling as they have, could be substantially larger than the $1.6 billion headline figure.
The Harder Question: What Comes After Rescheduling
Here's the catch - and it's worth stating clearly. Even a completed rescheduling to Schedule III would not automatically repeal 280E for future years. Congress wrote 280E to cover Schedule I and II substances. Moving cannabis to Schedule III would remove it from the provision's scope going forward, but that outcome still requires the formal rulemaking process to conclude, and it still leaves the accumulated past-due bills intact.
San Francisco tax attorney Henry Wykowski told MJBizDaily in 2024 that he considered the strategy "reckless," warning it would "come back to haunt" the companies using it. That view reflects the mainstream of cannabis tax law practice, where most attorneys have advised clients to continue paying 280E while lobbying aggressively for legislative relief - rather than withholding and hoping litigation produces what Congress hasn't.
The cannabis industry has spent years arguing, with some justification, that 280E represents a structural injustice: a tax code provision written in 1982 to punish drug dealers now applied to licensed, regulated businesses operating transparently under state law. That argument has moral weight. It has not, so far, found legal traction. And for the MSOs holding more than $1.6 billion in disputed liabilities, the distance between a compelling argument and a winning one is getting harder to ignore.
