The US Department of Justice has filed a federal lawsuit seeking $8.3m plus interest from New Jersey-based cannabis multistate operator TerrAscend (TSX: TSND), in what appears to be the first known instance of the government attempting to recover 280E tax refunds made proactively by a cannabis company.
The complaint, filed 18 May in US District Court in New Jersey by the Justice Department’s Tax Litigation Branch, alleges that TerrAscend received an ‘erroneous’ refund in June 2024 after filing an amended 2020 tax return claiming $64.2m in deductions it was not entitled to under Internal Revenue Code Section 280E.
In its complaint, the government stated TerrAscend ‘was not entitled to take deductions for any amount incurred in carrying on its trade or business during tax year 2020.’
‘Meaningful upside’
On May 7, eleven days before the complaint was filed, Executive Chairman Jason Wild told investors that rescheduling had ‘resulted in the elimination of the 280E tax burden’ and described anticipated retroactive relief as ‘meaningful upside not reflected in valuations.’
TerrAscend’s Q1 2026 results show that the company generated $3.4m in income from continuing operations before taxes, marking the 15th consecutive quarter of positive cash flow, while provision for income taxes was $10.25m. The result was a $6.8m net loss.
According to its results, the company carries a liability on uncertain tax positions of $138.8m, up from $128.8m at the end of 2025.
While the government is chasing the $8.3m the company was refunded, TerrAscend’s own accounts show it has set aside $138.8m against tax bills it considers unresolved, a figure that grew by $10m in the first three months of this year alone. How much of that the company ultimately owes depends on Treasury guidance that has been promised but has not yet arrived.
TerrAscend held $39m in cash at 31 March 2026, against a market capitalisation of $236.5m.
The government’s claim
TerrAscend filed its original 2020 return in October 2021, claiming zero business deductions, as required under 280E. In April 2024, as several large multistate operators began challenging the provision, it filed an amended return claiming $64.2m in deductions, seeing $8.3m returned by the IRS in June 2024.
The complaint notes the refund was not reviewed by the IRS’s Joint Committee on Taxation as required, and that TerrAscend has ‘not voluntarily returned the erroneous refund.’
The IRS had made its position explicit. A June 2024 bulletin, issued the same month TerrAscend received its refund, stated that operators filing amended returns to claim 280E relief were ‘not entitled to a refund or payment’ and that ‘the IRS is taking steps to address these claims.’
On 6 March 2026, the agency reinforced that position in its Tax Court filing in New Mexico Top Organics v. Commissioner, the first case to test these arguments in court, arguing that rescheduling decisions rest with the DEA rather than HHS and that operators’ logic would produce an absurd result.
The industry-wide exposure, as Business of Cannabis has reported, runs well beyond TerrAscend. Trulieve carries approximately $445.2m in potential 280E-related tax exposure, including $412.6m explicitly tied to its 280E challenge. Verano shows approximately $378.3m on its balance sheet. Cresco Labs reported $171.5m in uncertain tax position liabilities at year-end 2025, up from $122.5m the year before. Curaleaf has disclosed a significant uncertain tax position but has not quantified it. Across publicly traded multistate operators, the total disputed figure has reached $1.6 billion.
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What Treasury needs to answer
April’s rescheduling order ended the 280E disallowance for state-licensed medical operators going forward. Acting AG Todd Blanche encouraged the Treasury Secretary to consider retrospective relief, and the Treasury has indicated it intends to act. The TerrAscend complaint sharpens a question that guidance has not yet resolved: whether the government will distinguish between operators who withheld 280E payments in anticipation of rescheduling and those who received and spent refunds the government now characterises as unlawful.
There is a further dimension that BoC contributor Deb Tharp identified in the days following rescheduling, which the TerrAscend complaint brings into sharp focus.
Tharp, a cannabis policy analyst and former Head of Legal and Policy Research at NuggMD, warned that operators rushing to claim 280E relief face a specific trap.
To claim the deduction, they must file detailed tax returns acknowledging they operate a medical cannabis business.
“If an IRS or DEA audit reveals their ‘medical’ program is actually a ‘recreational mill’ (sham certifications, no follow-up), they lose the Schedule III protection — meaning they’ve just handed the government a signed confession of trafficking Schedule I drug (since they failed the medical test). And the feds will add tax fraud as an insult to the injury.”
As Tharp concluded: “The ‘Wild West’ of medical recommendations is over. The federal sheriff is in town, and he’s using your own data to track you.’
