The Trump administration’s continued inaction on its promise to push ahead with the highly anticipated cannabis rescheduling project is now presenting some real-world issues for many of the sector’s largest players.
In anticipation of the punitive 280E tax provision being scrapped, several major US Multi-State Operators (MSOs) moved to restructure their tax positions to reflect the incoming reform.
Earlier this month, the Internal Revenue Service (IRS) stated in no uncertain terms that this was a premature move, and one it intends to correct.
According to reporting from MJBizDaily, MSOs now collectively owe more than $1.6bn in back taxes to the IRS.
From as far back as 2023, major operators including Truelieve, Verano, Cresco and Curaleaf have withheld 280E payments, the IRS code section that bars ordinary business deductions for Schedule I/II drug operations.
The legal argument at the heart of these challenges is technical but consequential. Section 280E applies to substances ‘within the meaning of’ Schedule I and II of the Controlled Substances Act, the federal framework that classifies drugs by their potential for abuse and medical value.
As such, these companies contend this wording means the law applies not simply to drugs that are listed on Schedule I, but to those that genuinely belong there.
Since the Department of Health and Human Services concluded in 2023 that cannabis meets the criteria for Schedule III, a less restrictive classification reserved for drugs with accepted medical use, some operators argue it no longer qualifies as a Schedule I substance for tax purposes, even without formal rescheduling having taken place.
The IRS has now moved forcefully to reject that position. In a March 6 filing in the Tax Court case of New Mexico Top Organics v. Commissioner, the first case to test these arguments in court, the agency made three key points.
- It argued that the Tax Court has no business second-guessing how cannabis is classified under federal drug law.
- It noted that rescheduling decisions rest with the Drug Enforcement Administration, not the Department of Health and Human Services, making the HHS recommendation insufficient grounds for changing a company’s tax position.
- It said the operators’ logic would produce an absurd result, seeing cannabis treated as Schedule I under federal drug law but somehow exempt from a tax provision written specifically for Schedule I substances.
Critically, the filing signals that operators who have taken non-280E positions may face penalties beyond the underlying tax bills, on the basis that their legal reasoning does not meet the IRS’s “reasonable basis” standard. More than 40 cannabis operators have challenged 280E in US Tax Court, and so far all have been unsuccessful.
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Each of these companies now faces staggering, uncertain tax positions reaching well into the hundreds of millions, though it’s unclear how much of the listed positions relate to revised 280E tax payments.
Verano appears to have about $378.3m of potential 280E-related back-tax exposure on its balance sheet, with a further $12.1m of current income tax payable that may include, but is not clearly identified as, 280E-related amounts.
Trulieve appears to have about $445.2m of potential tax exposure tied to disputed 280E positions, including $412.6m explicitly related to 280E, while also claiming $121.1m of prior tax payments as overpayments.
Curaleaf says it has recorded a significant uncertain tax position related to its challenge to 280E, after ceasing to accrue 280E taxes from 2024 and filing refund claims for 2020 and 2022, but the Annual Information Form does not disclose the amount.
Cresco Labs has recorded a growing liability tied to uncertain tax positions related to US. cannabis tax rules. In its 2025 consolidated financial statements, the company reported $171.5m in uncertain tax position liabilities, up from $122.5m in 2024, reflecting the potential risk that some of its tax interpretations, including those linked to Internal Revenue Code Section 280E, may not ultimately be sustained.
The company notes that 280E restricts cannabis businesses from deducting most ordinary operating expenses at the federal level, creating permanent tax differences and ongoing uncertainty around tax treatment.
