$In yet another wrinkle stemming from the ongoing federal prohibition on marijuana, a U.S. district court has ruled that an IRS tax rule prevents state-legal cannabis companies from being eligible for refunds of employee retention credits (ERCs). The court ruled that “nothing in the plain text of \[IRS code\] Section 280E limits its application to income tax credits,” rejecting arguments from plaintiffs. Section 280E disallows standard tax deductions and tax credits for businesses that traffic in Schedule I or II substances, even in cases where businesses are operating in compliance with state law.$

Federal Court Rules 280E Still Blocks Cannabis Businesses from COVID Tax Credits

Jun 10, 2025

Source:

Ben Adlin

Marijuana Moment

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The federal government's ongoing war on cannabis just threw another curveball at the industry, and this time it’s hitting the wallet. A federal court in Washington state recently ruled that legal weed businesses are barred from claiming COVID-era Employee Retention Tax Credits. The judge basically said that because of the ancient IRS Section 280E—which treats state-legal cannabis shops like illegal traffickers—these businesses aren't eligible for the same tax breaks that kept other "essential" companies afloat during the pandemic.

This ruling is a total buzzkill for our local cultivators and dispensaries who played by the rules and stayed open during some of the toughest times. While many industries got a helping hand, the cannabis community continues to be penalized by outdated federal policies. For everyday tokers, this matters because when our favorite local shops are buried under unfair taxes, it makes it harder for them to lower prices or invest in better products. It’s a stark reminder that until rescheduling is finalized, the industry is still fighting an uphill battle for basic fairness.

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