The Internal Revenue Service (IRS) is pushing back against multi-state operators, just as they have grown more bold when it comes to writing off cannabis-related business expenses in the wake of last spring’s rescheduling of medical cannabis.
A little more than two years ago, a few multi-state operators grabbed headlines with their claims that they figured out legal loopholes around article 280E of the U.S. tax code, which forbids companies from writing off expenses when the business is involved with a Schedule I or II drug. These loopholes would allow companies to recoup hundreds of thousands, if not millions of dollars in lost revenue from the IRS.
Since then, the IRS has started filing cases in attempts to claw back erroneous cannabis-related tax returns, which was further complicated when acting Attorney General Todd Blanche officially announced medical cannabis would be moved to Schedule III, making it exempt from 280E.
“The Attorney General’s announcement made clear that state licensed medical cannabis sales are no longer subject to 280E taxes,” said George Archos during Verano’s (VERNOF) April 30 quarterly earnings call. “With almost 60% of our retail revenue derived from medical cannabis sales in the first quarter, we are in a position to immediately benefit from the medical rescheduling ruling from a tax perspective which we are actively evaluating as more information and guidance from the Treasury Department and IRS becomes available.”
Verano was just one of several companies that seem to be banking on tax savings in the wake of the rescheduling announcement.
A rough accounting of potential tax savings if 280E did not apply to the top multi-state operators (MSO), would reach a reported $1.6 billion.
Curaleaf (CURLF) has about $96.5 million in uncertain tax liabilities related to the enforcement of 280E, according to the company’s interim financial report from May 5, 2026.
“The Company has adopted a tax position, supported by legal interpretations, asserting that the restrictions of Section 280E do not apply to its cannabis operations,” said the 59-page filing. “While the Company believes the Section 280E Position is supported by sound legal interpretations, the cannabis industry operates in a complex and evolving regulatory environment.”
TerrAscend (TSNDF) and Ascend Wellness (AAWH) both filed quarterly earnings reports for the first quarter of 2024 that included announcements the companies submitted revised tax returns for prior years in order to claim business expenses. At the time, neither company was explicitly about their respective legal strategies supporting their claims.
TerrAscend expects up to $26 million in tax returns for their amended claims, while Ascend Wellness did not disclose how much they expect back.
The previous month, Trulieve announced it received $112 Million in tax refunds after resubmitted claims.
The IRS attempts to claw back cannabis tax returns
Despite the increasingly bullish approach MSOs appear to have toward writing off business expenses, the federal government has begun challenging those attempts in court.
The IRS sued TerrAscend on May 18, 2026, seeking repayment of tax returns that it claims were erroneously paid.
Prior to that, the IRS filed what is likely the first lawsuit attempting to claw back cannabis tax returns that were prohibited under 280E, when the government filed suit against New Mexico Top Organics at the end of 2024.
Recently in the New Mexico Top Organics case, the IRS argued on March 6, 2026, that federal courts up to that point have been consistent in how the law regards cannabis, particular in terms of the U.S. tax case.
“Despite many taxpayer challenges, federal courts have consistently held that section 280E is constitutionally valid and have created a robust legal authority supporting its validity and applicability to sellers of marijuana,” said the IRS in a 45-page seriatim answering brief before the U.S Tax Court.
About six weeks later, on April 22, the federal government moved medical cannabis to Schedule III, meaning 280E no longer applied. The proposed rule was published in the Federal Register on April 28.
New Mexico Top Organics answered the IRS’s argument on May 18, with a 27-page response.
“The rescheduling order reflects an understanding that medical marijuana has fit within the meaning of Schedule III (rather than Schedule I) for a long time,” said the response.
The case remains pending, just as the federal rescheduling process continues. Hearings pertaining to the scheduling of adult-use cannabis are expected to last as late as July 15.
