IRS Tells Cannabis Businesses They Can’t Force Rescheduling Review to Avoid 280E Taxes

The IRS is standing its ground on the infamous 280E tax code, even as federal rescheduling moves forward. In a recent filing with the U.S. Tax Court, the agency shot down a challenge from New Mexico’s Ultra Health, which argued that cannabis shouldn't be taxed like a Schedule I drug if it doesn't actually meet those criteria anymore. The IRS wasn't having it, calling the attempt an "imaginary" review process and insisting that until the DEA officially signs off on a change, cannabis businesses stay in the high-tax penalty box.

This is a major buzzkill for the industry. Code 280E prevents state-legal shops from taking standard business deductions, which essentially doubles or triples their tax bills compared to other industries. For everyday tokers, this matters because these massive tax burdens make it harder for small, local businesses to survive against corporate giants. It also keeps prices higher at the counter. Until this tax hurdle is cleared, the legal market will keep struggling with the heavy weight of federal "trafficking" labels.