Cannabis Industry Faces Wave of Federal Litigation Over 280E, DEA Rules

280E Tax Challenges Target IRS Enforcement

Cannabis companies are challenging the IRS's continued enforcement of Section 280E tax penalties despite the DEA's proposed rescheduling of marijuana to Schedule III. At least two federal district courts received complaints in the past seven days from multi-state operators arguing that the IRS can't enforce a tax provision tied to Schedule I or II substances while the DEA's rulemaking process remains pending, according to filings in the U.S. District Court for the District of Columbia and the Northern District of California.

Section 280E of the Internal Revenue Code prohibits businesses trafficking in Schedule I or II controlled substances from deducting ordinary business expenses. The provision has cost state-legal cannabis operators an estimated $1.8 billion annually in additional federal tax liability, according to industry trade group estimates. Plaintiffs in the new cases argue that the DEA's August 2024 notice of proposed rulemaking to move cannabis to Schedule III creates a legal gap. That gap renders 280E unenforceable during the interim period, they say.

The IRS hasn't publicly responded to the filings. Tax Court precedent from Olive v. Commissioner (2015) and Alterman v. Commissioner (2018) has consistently upheld 280E enforcement against cannabis businesses, but no court has ruled on the rescheduling-interim question now before federal judges.

DEA Registration Delays Spark Administrative Procedure Act Claims

A coalition of hemp-derived cannabinoid manufacturers filed suit against the DEA on June 2, 2026, alleging the agency has unlawfully delayed processing registration applications for over 18 months in violation of the Administrative Procedure Act. The complaint, filed in the U.S. District Court for the District of Columbia, names DEA Administrator Anne Milgram and Attorney General Merrick Garland as defendants.

Three companies producing delta-8 THC and THCA products under state hemp programs applied for DEA registration in November 2024 after the agency issued guidance requiring registration for certain hemp-derived intoxicating cannabinoids. The DEA has neither approved nor denied the applications, according to the complaint. The Administrative Procedure Act requires agencies to conclude matters presented to them within a reasonable time, typically interpreted as 12 months or less for registration decisions.

The lawsuit seeks a court order compelling the DEA to issue final decisions on the pending applications within 60 days. It doesn't seek damages. DEA spokesperson Katherine Pfaff said the agency doesn't comment on pending litigation. For full background on DEA cannabis rulemaking, see the CannIntel topic hub on cannabis federal litigation.

Reverse Split Litigation Targets SEC and NASDAQ Approvals

Shareholders of at least two publicly traded cannabis companies have filed federal securities-fraud complaints challenging reverse stock splits approved by the SEC and executed on NASDAQ in May 2026. Filed in the Southern District of New York, the lawsuits allege that the companies misrepresented their financial condition to obtain SEC approval for the splits and that the transactions diluted shareholder equity in violation of the Securities Exchange Act of 1934.

Reverse splits consolidate shares to boost per-share price, often to meet minimum listing requirements. NASDAQ requires companies to maintain a $1.00 minimum bid price. At least 14 cannabis companies executed reverse splits between January and May 2026 to avoid delisting, according to public filings. Complainants argue the splits were executed without adequate disclosure of the companies' cash-burn rates and imminent capital needs, rendering the proxy statements materially misleading.

The SEC hasn't commented on the litigation. Defense counsel for the named companies didn't respond to requests for comment by press time. Securities class actions face high pleading standards under the Private Securities Litigation Reform Act, requiring plaintiffs to allege facts giving rise to a strong inference of scienter: knowledge of wrongdoing or reckless disregard for the truth.