IRC Section 280E: An Unjust Burden on State-Legal Cannabis Businesses

Prepared by NCIA

Section 280E of the Internal Revenue Code forbids businesses from deducting otherwise ordinary business associated with the “trafficking” of Schedule I or II substances, as defined by the Controlled Substances Act.

This provision was enacted by Congress in 1982 in order to penalize illegal drug dealers.  However, today the IRS aggressively applies Section 280E to state-licensed cannabis businesses, entities that were never conceived of when the statute was originally adopted.

An overwhelming majority of U.S. states now permit some form of legal cannabis commerce despite its nonsensical Schedule I status under federal law. As a result of the outdated federal status, 280E is being applied to thousands of licensed businesses effectively prohibiting them from taking the ordinary business deductions every other business relies on. 

We updated our position paper, “IRC 280E: An Unjust Burden on State-Legal Cannabis Businesses,” to help illustrate the facts about this outdated provision of the tax code. We’ve already delivered this publication to every member of Congress but we encourage you to download it and share with those in your network who need to know about 280E. 

The publication includes data from NCIA’s chief economist Beau Whitney which shows that exempting state-legal cannabis businesses from 280E would create a net benefit to the economy of nearly $2 billion dollars over the next three years. That means more new jobs, more prosperity, and more payroll taxes for the federal government.

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