There may be no greater thorn in the side of a cannabis producer, processor or retailer than section 280E of the Internal Revenue Code.  Section 280E prohibits businesses engaged in trafficking substances prohibited under the Controlled Substances Act (CSA) from claiming certain deductions and credits on their federal income-tax returns.

In October 2017, a Colorado cannabis retailer, the Green Solution Retail, Inc. petitioned the U.S. Supreme Court to review a decision which held that federal laws, specifically the Anti-Injunction Act and the Declaratory Judgment Act, preclude challenges to the IRS assessments of taxes, as such challenges to disputed sums must be determined in a suit for a refund or deficiency.  Green Solution argues in its petition that its claims against the IRS are not challenging the IRS’s assessment or seeking to restrain it, but rather its claims are challenging the IRS’ administrative authority to make determinations as to whether Green Solution is criminally culpable under the CSA.  Green Solution pleads that it is concerned about the IRS sharing information it gains as part of the assessment with the Department of Justice (DOJ) potentially triggering criminal repercussions for the dispensary under the CSA.  Last week, the Government filed its response to Green Solution’s petition, urging the Supreme Court to deny the request for review.  The Government takes the position that any investigation by the IRS of Green Solution’s activities is part and parcel of its assessment of the retailer’s allowable deductions and tax liability.  Consequently, the Government argues that such a challenge to the IRS’s assessment activities is barred by the Acts.

This is not the only case against government entities involving  cannabis issues before the courts.  A case commenced by Marvin Washington and other plaintiffs seeking to hold the Controlled Substances Act unconstitutional is scheduled to be heard next week (in connection with the Government’s request that the court dismiss that case).  Could these two cases be the pressure at the judiciary level that result in a reevaluation of the social and political positions on federal drug laws criminalizing cannabis? While Justice Neil Gorsuch, during his tenure on the Tenth Circuit, ruled against owners of another dispensary that were fearful of the IRS sharing information with the DOJ in connection with an IRS audit, Justice Gorsuch also stated in that decision that the federal government was sending mixed messages about distribution of cannabis and he was skeptical about the IRS not divulging information with the DOJ.