Cannabis Industry I.R.C. § 280E

Updated: Jan 2

Impact on Federal Taxation (Section 280E)

The most critical tax consequence of rescheduling is the elimination of Internal Revenue Code Section 280E for cannabis businesses.

Removal of Deductions Ban: Under Schedule I, businesses are prohibited from deducting ordinary business expenses (rent, payroll, marketing, insurance) and can only deduct the "Cost of Goods Sold". Moving to Schedule III lifts this ban.
Effective Tax Rates: Current effective federal tax rates for cannabis businesses often range from 70% to 90% due to 280E. Rescheduling is expected to lower these to standard corporate rates, potentially saving the industry billions.
Eligibility for Credits: Businesses will gain access to federal tax credits previously unavailable, such as the Research and Development (R&D) Tax Credit and the Work Opportunity Tax Credit (WOTC).

Promotes voluntary compliance by helping taxpayers understand and meet their tax responsibilities.
Enforces the law with integrity and fairness.
General guidance and FAQs for taxpayers in the cannabis/marijuana industry.
IRC Section 280E limitations for businesses trafficking marijuana.
Income from any source is taxable and must be reported.
Cash payment options available for unbanked taxpayers.
File Form 8300 for cash payments over $10,000.
Small business taxpayers need to make quarterly estimated tax payments.
Good recordkeeping is essential for monitoring business progress and substantiating tax returns.
Additional resources and publications for the cannabis industry and cash payments.
File and pay your State TPT and Federal Excise separately