Still, the new tax strategy isn’t solving everything for the marijuana industry, and there are several possible pitfalls.
Verano, for instance, still reported a net loss in 2024 of $341.8 million, and the company still has long-term liabilities of $859.7 million as of March 31 this year. The taxes that Verano hasn’t paid to the IRS are still included in its balance sheet as an “uncertain tax position,” Mann noted, a move that many other cannabis companies have taken, because it’s uncertain as to what — if anything — the IRS may do to counteract the wave of marijuana businesses claiming exemption to 280E.
Both Verano and MariMed are also already being audited by the IRS; Verano for the 2021 and 2022 tax years, and MariMed for the 2022 tax year, according to securities filings.
Mann also predicted that 280E exemption claims by many cannabis companies will likely prove only a delay tactic, and noted there has been a wide range of legal tax theories and justifications that have been used to justify the 280E exemption.
Not all of those rationales are equally effective, Mann said, and not all will be successful.
The entire reason public marijuana businesses such as Verano are still listing their 280E tax bills as “uncertain tax positions” on their balance sheets is specifically in case the IRS ultimately rejects their reasoning and demands that their 280E obligations be paid in full, he noted.
Mann’s opinion is that the strongest legal rationale for the 280E exemption is a legal argument based on the 16th Amendment and the Constitution’s Dormant Commerce Clause. The argument asserts that the IRS has no right to impose 280E on the marijuana industry because the entire “legal” industry is all siloed within state boundaries, meaning there’s no interstate commerce for the federal government to regulate or tax.
Another factor is the cannabis rescheduling proposal by the Biden administration, to reclassify marijuana to Schedule III from Schedule I — a move that, if completed, would nullify 280E for cannabis companies. But the federal rescheduling process has been stuck in limbo since President Donald Trump took office in January, with its future unclear, leaving marijuana businesses to rely on more speculative tax theories for financial relief.
There are also other legal tax arguments that marijuana attorneys and CPAs have been relying upon, such as Botillier’s approach of relying on a formal opinion from the U.S. Department of Health and Human Services last year that stated cannabis doesn’t fit the definition of a Schedule I or Schedule II drug, and more properly belongs in Schedule III. That, Botillier said, is very arguably enough to justify cannabis companies’ claims of 280E exemption, because 280E is only supposed to apply to those who deal in the most restrictive of narcotics, not in drugs that are categorized in Schedule III. Botillier said he’s been filing amended tax returns since the middle of last year with that rationale for marijuana businesses.
The primary question, sources agreed, is what will the IRS do next? The agency has three years to audit any given tax return, and so far, few cannabis companies have passed that mark and kept their refunds.
“The big question around all this stuff is what is the IRS ultimately going to do with this? What position are they going to take?” Karnes said. “Because they came out twice publicly on two different IRS bulletins, saying pot companies have to pay 280E basically. And every company's kind of looked the other way in terms of that directive. And it's not a big secret that people are not paying. So it's like, well, why haven't they done anything?”
The IRS has already rejected many of the 280E exemption positions taken by cannabis companies, Mann added, and a clear consensus on an anti-280E industry playbook hasn’t yet really emerged.
“Some of my clients have gotten refunds back from the IRS on amended returns and significant amounts, and others in the industry report that as well,” Mann said. “But there are also reports of amended returns that were filed that were not accepted by the IRS. And so no refund was issued.”
Businesses whose 280E exemption claims are rejected may then try to negotiate some sort of payment plan with the IRS, or simply threaten to shut their doors and not pay the government a dime, depending on how bad their financial situation is, Mann said. Which begs the question, he said, how will the situation play out for those with whom the IRS disagrees?
“I think they're hoping that even if they are challenged by the IRS on audit, and even if the IRS ultimately prevails, the cannabis companies will say, ‘Okay, you win. And we can't pay the full amount, including penalties and interest. Now what we have to do is compromise,’” Mann said.
Mann pointed out that such a play worked for the now-defunct California cannabis company StateHouse Holdings, which was put onto a 10-year payment plan by the IRS in 2022 for an unpaid $22 million tax bill, before it went belly-up last year and was auctioned off to repay creditors. Many in the industry cite the StateHouse example as a potential worst-case scenario, Mann said.
But that, Mann said, is probably not the most sound business strategy for long-term success.
“They're taking a very big bet on an untested tax position,” Mann said. “They're betting the farm on a bet that you might not make at a casino. They're betting the farm on something that's going to pay off 20% of the time. Well, if it doesn't pay off 80% of the time, their companies go under.”
Whether the IRS will be willing to actually compromise with cannabis companies on their tax bills is also an open question, Mann emphasized, especially given the multi-million-dollar salary levels of some marijuana company executives.
“If these big MSOs are going to enter into offer in compromised proceedings (with the IRS), they will have to justify their expenses, including amounts paid as compensation to people at the company, which in some cases are very, the compensation package is significant,” Mann warned.
All of the cannabis companies identified in this story declined to comment or did not respond, with the exception of MariMed.
MariMed CFO Pinho said that most public cannabis companies have been transferring their 280E debts to an “uncertain tax position” and listing them on their balance sheet as long-term liabilities, but he also agreed that doing so could invite an IRS audit, meaning the tax savings trend is on notably thin ice from a legal perspective.
“They might still be subject to further audits. I know there's a lot of cases out there, and most of them are a constitutional type of argument,” Pinho said, adding that MariMed has thus far filed only one restated tax return. “They probably still have the true tax liability because they're hedging, saying, ‘Hey, we're going to file our tax returns based on our view,’ but the IRS might come back and say, ‘Hey, I don't believe you. The tax rules still say you can't deduct these expenses, so then you actually have to pay all these taxes.’”
At least some of those businesses are clearly ready for a fight with the IRS over the matter, however.
“We've said all along that the likely outcome here is litigation, which we again are ready for,” Trulieve CEO Kim Rivers said during the company’s fourth quarter earnings call.
Earlier in the year, Trulieve CFO Wes Getman also warned investors on an earnings call, “Final resolution to our approach may ultimately take years to conclude.”
Las Vegas-based Planet 13 Holdings Inc.'s CFO Dennis Logan also said during his company’s third quarter earnings call last year that he’s expecting “a $35 million tax refund that the IRS will then fight us for.”
Pinho and others repeatedly noted that the specific legal justifications for the 280E exemption vary greatly between different companies, and it’s not even clear which rationale Trulieve used to obtain its nine-figure refund from the IRS.
“It’s company by company,” Pinho said.
But, he agreed, the cumulative financial effect for the sector as a whole is “huge.”
by Crain's New York Business
