Congress must end 280E’s punishment of cannabis small businesses

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Section 280E isn’t just unfair — it’s a small-business car crusher.

This decades-old provision of the federal tax code was created in the 1980s to stop illegal drug traffickers from writing off their expenses. But today, it’s being used against licensed, state-legal cannabis businesses that play by the rules. Unlike every other small business in America, cannabis operators can’t deduct the ordinary costs of running a company — things like rent, utilities, payroll, insurance, or marketing. They can only subtract the cost of goods sold, leaving them with punishingly high tax bills.

The National Cannabis Industry Association (NCIA) recently published a white paper, Leveling the Playing Field: The Case for 280E Reform and Retroactive Relief, detailing the devastating consequences of this outdated law:

Pulling directly from the findings, “Section 280E strips away the ability to deduct ordinary business expenses, forcing compliant operators to pay effective tax rates that can exceed 70%.”

Think about that — more than 70% effective tax rates, not on net profit but on something closer to gross revenue after minimal deductions. For small businesses, that makes growth impossible and reinvestment in employees or communities a nonstarter.

The NCIA, whose mission is to advance the interests of legitimate cannabis businesses and promote a responsible, equitable, and sustainable legal cannabis industry, is at the forefront of advocating for these reforms. The NCIA was the only pro-cannabis trade association to gain status as a “designated participant” in the previous administration’s efforts to reschedule cannabis, a unique position to make the case for reform going forward.

In the case of 280E, while larger, multi-state operators can sometimes absorb its costs or hire teams of accountants to minimize their exposure, NCIA’s recent paper details how small operators — many of which are women-, veteran-, and/or minority-owned — are being squeezed the hardest. They deserve a fair shot and should not have their compliance taxed like crime.

I’ve been working on cannabis policy for more than a decade, and I’ve seen firsthand how 280E has shut doors and stunted dreams for entrepreneurs who followed every rule asked of them. Each year, I hear from NCIA members who are forced to lay off staff, delay expansion, or close entirely because of the financial vise created by 280E.

If President Trump moves forward with the rescheduling of cannabis to Schedule III, it would ease some of the tax burden. But it doesn’t go far enough. We need Congress to act in order to provide retroactive relief and extend access to the tax credits that every other American company enjoys. Without that step, years of punishing over-taxation will remain unaddressed.

Fortunately, there’s bipartisan recognition of the problem. Lawmakers across the aisle have already put forward solutions, including efforts from then-Senator Cory Gardner (R-CO) who attempted to attach reform to the GOP’s tax bill in 2017 (and went so far as to have it scored by the Joint Committee on Taxation) and former-Congressman Earl Blumenauer (D-OR) who introduced the Small Business Tax Equity Act (along with a handful of Republican cosponsors) over multiple congressional sessions (most recently in 2023). From Democrats who champion fairness and equity in the industry to Republicans who understand the severe impact on small businesses, there’s common ground and an opportunity for Congress to finally act.

Every day that passes without reform tilts the playing field further in favor of the illicit market, sidelines equity owners, and keeps legitimate cannabis entrepreneurs trapped in a cycle of punishing taxation that stifles growth and innovation.

Congress must act now: exempt state-legal cannabis businesses from 280E, deliver retroactive relief, and allow these businesses to access the same deductions and credits every other small business takes for granted. That’s how you protect the people who took the risk, followed the rules, and built the legal market.

Michelle Rutter Friberg is director of government relations for the National Cannabis Industry Association (NCIA), where she’s represented the interests of small businesses and industry priorities on Capitol Hill for over a decade.

Michelle has been instrumental in the advancement of bills like the bipartisan SAFE Banking Act (which she named) and the MORE Act, which was the first piece of comprehensive, descheduling legislation to pass the House of Representatives. She was also the primary author of NCIA’s public comments to the DEA, which resulted in NCIA being selected as one of only 25 participants in the rescheduling process initiated by former President Biden.