Journal of Law and Policy


26 USC § 280E of the Internal Revenue Code (“§ 280E”) prohibits the deduction of ordinary business expenses for businesses deemed by the federal government to be drug traffickers as defined by the Controlled Substances Act (“CSA”). The tax enactment is specifically designed to serve as a disincentive to socalled drug traffickers who might otherwise deduct “ordinary and necessary business expenses” from their taxes. However, this harms legitimate cannabis businesses by promoting unintended consequences, such as under-reported income. For three decades, there has been a patent incongruity between § 280E’s congressional purpose and the expansion of state-legalized cannabis businesses in the United States. Federal tax policy penalizes cannibis businesses that operate legally by taxing them at a rate of 70 percent or more. This article illustrates the unintended and abusive use of § 280E, which like many legislative pronouncements, came about from good intentions, but has morphed into a tax provision that torments compliant cannabis businesses, and has long since strayed from its original objective.