Three cannabis tax experts said during a Wednesday webinar that the federal marijuana rescheduling will likely be deferred until 2026 at least, if it is not cancelled altogether by President Donald Trump’s new administration.
This week’s nomination of Terrance Col to head the Drug Enforcement Administration was key in this analysis. Cole is a career public servant who has been vehemently against cannabis.
Cannabis businesses are worried about the financial implications of not completing rescheduling under Trump. This is because the 280E provisions, which bar standard business deductions from Schedule I and Schedule II drugs, will continue to apply. The rescheduling plan from the Biden administration was expected to save billions for the cannabis industry. But it is not clear whether Trump will complete the task.
Cole will have great influence on the future of this scheduling proceeding, should it proceed. Hannah King, partner of Dentons Law Firm said: “We are still trying digest this and reading the tea leaf.”
“It’s going to depend on this new administration’s policy goals… Certainly, cannabis generally, legalization of cannabis, rescheduling is not a priority of this administration,” King said.
King says that from a procedure standpoint it’s unclear whether the original December hearing scheduled on marijuana rescheduling would ever take place, or if a new DEA in charge will just cancel the process.
King stated that there was a great deal of uncertainty about the timing for rescheduling. King said: “We are in a place where the rescheduling of events is unlikely to take place in 2025. Could I be wrong? Hope I’m wrong. It may not be until 2026.”
Greenspoon Marder Partner Nick Richards is a cannabis tax lawyer and former Internal Revenue Service counsel. He agreed with King’s assessment, but said that marijuana companies continue to test out a number of different tax strategies in order to minimize the burdens associated with 280E.
Richards pointed out that a court case is still pending in Massachusetts by Canna Provisions. The company wants to reverse a Supreme Court precedent on cannabis from 2005, Gonzales v. Raich. He said that if the case succeeds, marijuana will be removed from federal Controlled Substances Act for states who have legalized it. 280E would also cease to be applicable.
Richards noted that the ruling of a federal appeals court in this case should be coming any day. The plaintiffs will then have the option to either enjoy a win or prepare themselves for an anticipated appeal at the U.S. Supreme Court. This means that there is hope the industry can also win big through the judiciary.
It’s fun to fight. Richards stated that the Canna Provisions lawsuit, spearheaded by a nationally renowned law firm Boies Schiller Flexner LLP, could be successful.
Richards & King also explained how marijuana businesses are using several legal tax theories in order to obtain exemption from 280E. Trulieve for instance, obtained an IRS refund worth more than $100,000,000. Others rely upon the legal status of hemp or THCA at the federal level to claim that tax burdens are excessive.
King says marijuana companies have a “spectrum of arguments” to use to tell the IRS 280E is not applicable to them or doesn’t need to be applied to their business.
King and Richards acknowledged that the taxation of marijuana remains murky because none have been thoroughly vetted by tax courts.
Despite this, panelists stressed the importance of having professionals qualified to deal with IRS issues and the 280E.
Calvin Richards of BGM, an advisory firm with a CPA as a member, joined King and Richards on the panel.