Cannabis Operators Face Federal Court Wave Over 280E, DEA Registrations

280E Challenges Dominate Federal Tax Court Docket

At least seven multi-state operators have filed Tax Court petitions since May 15, 2026, contesting IRS notices of deficiency totaling an estimated $340 million in disallowed deductions under Section 280E. The statute bars businesses trafficking in Schedule I or II controlled substances from deducting ordinary business expenses. Cannabis remains Schedule I. DEA's rescheduling review sits incomplete.

Petitioners include Curaleaf Holdings, Trulieve Cannabis, and four undisclosed MSOs operating in California and Michigan, according to Tax Court docket entries. Each case argues that state-legal cannabis operations don't constitute "trafficking" under the Controlled Substances Act, a threshold question the Ninth Circuit hasn't definitively resolved.

The IRS has historically prevailed in 280E disputes. These new filings, though, cite DEA's August 2024 notice of proposed rulemaking to reschedule cannabis to Schedule III—a proceeding that remains open but inactive—as evidence the agency's own analysis undermines the trafficking classification.

DEA Registration Delays Trigger APA Lawsuits

Three hemp-derived cannabinoid manufacturers filed Administrative Procedure Act complaints in May 2026, alleging DEA violated statutory deadlines by failing to process registration applications within 90 days. The complaints, filed in the District of Columbia and Eastern District of Virginia, seek writs of mandamus compelling the agency to issue or deny registrations for THCA and delta-8 THC production.

DEA's Hemp and Cannabis Division has processed fewer than 200 registrations since its formation in January 2025, despite receiving over 4,800 applications, according to agency data released under FOIA in April 2026. Applicants sit in regulatory limbo. They can't operate lawfully under the Controlled Substances Act, yet face state-level pressure to demonstrate federal compliance.

Nasdaq Reverse-Split Orders Draw Shareholder Suits

Four cannabis companies—Jushi Holdings, Ayr Wellness, Clever Leaves, and one undisclosed operator—face shareholder derivative suits filed in Delaware Chancery Court over board-approved reverse stock splits executed to maintain Nasdaq minimum bid-price compliance. Plaintiffs allege the splits, ranging from 1-for-10 to 1-for-25, constituted breaches of fiduciary duty by diluting shareholder equity without exhausting alternative capital strategies.

The reverse splits, executed between March and May 2026, reduced outstanding share counts by an aggregate 82%, triggering shareholder losses that plaintiffs estimate at $67 million across the four cases.

Nasdaq's $1.00 minimum bid-price rule has forced at least 11 cannabis operators into reverse splits since January 2025. Sector-wide stock declines—driven by federal rescheduling uncertainty and capital-market contraction—pushed share prices below compliance thresholds.

Coordinated Strategy or Coincidence?

The litigation surge follows a February 2026 strategy memo circulated by the National Cannabis Industry Association urging members to "exhaust administrative remedies and preserve federal-court options" amid stalled rescheduling. No formal coordination has been disclosed. Still, three of the Tax Court petitions share lead counsel from Duane Morris LLP's cannabis practice, and two of the DEA registration suits were filed by the same Washington, D.C., administrative-law boutique.

Timing suggests operators are hedging against legislative inaction. Congress hasn't advanced comprehensive cannabis reform since the SAFE Banking Act stalled in Senate committee in September 2025, and DEA's rescheduling NPRM remains in indefinite administrative review with no published timeline for a final rule.

What Comes Next

Tax Court proceedings typically take 18-24 months to reach trial, meaning no 280E precedent is likely before 2028. The APA mandamus petitions move faster—district courts must rule on writs within 90 days under the statute—but DEA has successfully argued in prior cases that registration decisions are committed to agency discretion and unreviewable.

For context on the broader federal legal landscape, see the CannIntel topic hub on cannabis federal litigation. Shareholder suits face Delaware's business-judgment rule, a high bar for derivative claims absent evidence of self-dealing or gross negligence. We'll be watching three dockets: the lead 280E case in Tax Court, the D.C. mandamus petition against DEA, and Jushi's motion to dismiss in Delaware Chancery.