Horsford, Cohen Request IRS Guidance on Cannabis Tax Treatment

Congressional Request Targets Longstanding Tax Ambiguity

The lawmakers asked Treasury to clarify whether businesses operating under state cannabis laws remain subject to the federal tax disallowance that bars standard business deductions. Section 280E prohibits entities trafficking in Schedule I or Schedule II controlled substances from deducting ordinary business expenses such as payroll, rent, and marketing costs. Cannabis remains a Schedule I drug under the Controlled Substances Act despite legalization in 38 states for medical use and 24 states for adult use.

Horsford chairs the Congressional Cannabis Caucus. Cohen sits on the House Judiciary Committee, which has jurisdiction over controlled-substance scheduling.

Effective Tax Rates Exceed 70 Percent for Many Operators

Cannabis retailers and cultivators routinely face effective federal tax rates above 70 percent because they can't deduct cost of goods sold beyond direct production expenses. A 2024 analysis by the National Cannabis Industry Association found that the average MSO pays an effective tax rate of 74 percent. Conventional C-corporations pay 21 percent. The disallowance applies to ancillary expenses including employee benefits, facility maintenance, and compliance costs.

Industry groups estimate that 280E compliance costs U.S. cannabis operators $1.8 billion annually in excess federal tax liability.

Letter Follows Rescheduling Speculation

The May 28 request arrives amid ongoing DEA review of a Health and Human Services recommendation to move cannabis to Schedule III. If the Drug Enforcement Administration reclassifies cannabis to Schedule III, Section 280E would no longer apply because the statute explicitly targets Schedule I and Schedule II substances. The DEA published a notice of proposed rulemaking in August 2024 but hasn't issued a final rule.

Treasury hasn't issued formal guidance on 280E application to state-licensed cannabis businesses since the Cole Memo era ended in 2018.

Horsford Represents Nevada's Fourth District

Horsford's district includes parts of North Las Vegas and covers a state where adult-use cannabis sales exceeded $1.2 billion in 2025. Nevada legalized recreational cannabis in 2017. It currently licenses 75 retail dispensaries and 31 cultivation facilities. The state collected $105 million in cannabis excise taxes in fiscal year 2025, according to the Nevada Department of Taxation.

Cohen represents Tennessee's Ninth District, which includes Memphis. Tennessee hasn't legalized adult-use or medical cannabis.

Request Does Not Propose Legislative Fix

The letter asked for administrative guidance rather than statutory reform, signaling that the lawmakers view Treasury as having interpretive authority under existing law. Previous bills to amend or repeal 280E, including the Small Business Tax Equity Act introduced in six consecutive Congresses, haven't advanced past committee. The current version, H.R. 1210, has 23 cosponsors.

Neither Horsford nor Cohen sits on the House Ways and Means Committee, which has jurisdiction over tax policy.

Industry Awaits Treasury Response Timeline

Treasury has no statutory deadline to respond to congressional requests for guidance. The department hasn't issued a public acknowledgment of the letter as of May 28. The IRS typically responds to formal congressional inquiries within 60 to 90 days, though complex tax-policy questions can take longer. The agency's Office of Chief Counsel handles interpretive guidance on controlled-substance taxation.

For full background on this issue, see the CannIntel topic hub on 280E tax reform.

What Comes Next

The political variable is whether Treasury will issue guidance before the DEA finalizes its rescheduling decision. If rescheduling occurs first, the guidance request becomes moot. Industry observers are watching for any signal that Treasury will clarify 280E application to ancillary services such as testing labs, security contractors, and software vendors that serve cannabis operators but don't touch the plant.