We recently ran across an article written in May by Joseph A. Peterson, a Senior Attorney at Plunkett Cooney, called Beyond 280E: The Future of the Ordinary Business Deduction for Cannabis Businesses (Here is the link to the article). His article again highlights how 280E has damaged the cannabis business and argues that companies have the constitutional right to claw back their lost deductions. See Justin’s video, which he recorded back in March, for more details (Watch Justin’s video).

Below are the highlights of Joseph’s article. We encourage you to reach out today to verify if you qualify to amend your returns and/or file a protective claim for a refund.

Highlights of Joseph’s Article:

  1. Economic Impact:
    • Medical and recreational cannabis sales could exceed $33.6 billion, with an additional economic impact of $100.8 billion by the end of 2023.
  2. Section 280E Overview:
    • Section 280E disallows tax deductions for ordinary business expenses for businesses involved in “trafficking” controlled substances, including cannabis.
    • Cannabis businesses are only allowed to deduct the Cost of Goods Sold (COGS), leading to significantly higher effective tax rates (up to 70% or higher) compared to other businesses.
  3. Impact on Cannabis Businesses:
    • The restriction of 280E creates financial strain, reducing the ability to reinvest, hire new employees, and expand operations.
    • Efforts to reform 280E include legislative proposals like The Small Business Tax Equity Act and state-level tax relief through decoupling from federal restrictions.
  4. Recent Developments:
    • Two cannabis Multi-State Operators (MSOs), Truelieve and Ascend Wellness Holdings, successfully filed amended returns to claim ordinary business expense deductions previously excluded under 280E.
    • Truelieve received $113 million in tax refunds for the 2019, 2020, and 2021 tax years, and Ascend Wellness Holdings filed for similar refunds for 2020, 2021, and 2022.
    • Both MSOs plan to file 2023 tax returns as normal corporate taxpayers, excluding 280E.
  5. Implications for the Industry:
    • The amended returns by MSOs have set a precedent and sent shockwaves through the cannabis industry.
    • There is anticipation of additional scrutiny and potential litigation from the IRS regarding these refunds.
  6. Recommendations for Cannabis Businesses:
    • Cannabis businesses should consider filing amended protective returns to preserve the ability to claim retroactive refunds if the federal stance on 280E changes.
    • The process involves identifying the basis for the claim, providing sufficient facts, quantifying the refund, meeting filing requirements, and following up after the 280E contingency is resolved.
    • Filing a protective claim can preserve the right to a refund if 280E’s applicability changes.
  7. Legal and Regulatory Context:
    • The U.S. Supreme Court affirmed the federal government’s authority to regulate cannabis under the Commerce Clause.
    • Justice Clarence Thomas and the DOJ have criticized the enforcement of 280E on medical cannabis sales.
    • Businesses should seek specialist advice and monitor legal developments closely.

We encourage you to contact us today to verify whether you qualify to amend your returns and/or file a protective claim for refund.

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