'No Error To Correct': Why The High Court Turned Down Alpenglow Botanicals' 280E Petition

In late June, the Supreme Court declined to hear a petition concerning federal tax code 280E. The petition, brought on by Alpenglow Botanicals of Breckenridge, Colorado, concerns numerous business deduction claims that 280E prevents cannabis companies from claiming.

A State Vs. Fed Issue

Dixie Brands (USA) Inc DXBRF CEO Chuck Smith said that one of 280E's key provisions — to curtail illegal trafficking of controlled substances — leaves the Supreme Court in a bind.

The issue reflects the conflict between federal and state governments, he said.

"Until federal law is changed or legislation such as the STATES Act is implemented, the cannabis industry will continue to face the same challenges it does today, including the current 280E taxation," Smith told Benzinga in a written response.

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'No Error To Correct'

Lisa Pittman is a cannabis attorney in Colorado and Texas. Pittman is also the Instructor for the American Bar Association's continuing education in cannabis law.

She's unsurprised by the High Court's decision, and told Benzinga that roughly 100 of the 5,000 appeals made to the court are heard each year.

"The Supreme Court only selects cases to hear where there was [a] clear error in the lower court's decision or where there is an unsettled or novel area of law,” Pittman said.

Describing 280E as "well settled," Pittman pointed out that several additional courts have consistently ruled on the matter.

Cannabis remains a Schedule 1 drug, making it impossible for businesses to make ordinary deductions unless it is rescheduled, she said.

"It is undisputed that marijuana is still Schedule 1, and that engaging in the marijuana trade is considered "trafficking" in violation of federal law, despite the state legality of marijuana. Accordingly, the U.S. Supreme Court found no error to correct."

Alpenglow’s attempt to be heard by the Supreme Court was dealt additional blows when several lower court courts disagreed with the plaintiffs, Pittman said.

Even if the case had been heard by the Supreme Court, she said the ruling would not invalidate 280E. Instead, the only way the Supreme Court could make such a change would be if it were to find that the tax code was unconstitutional, the attorney said.

Dixie Brands CEO: Treat Us Like Other American Industries

Dixie Brands' Smith said that the ruling leaves cannabis ventures at an effective tax rate ranging between 70-90%.

"As long as 280E in place, the industry will always be handcuffed."

The industry could be stuck with this status quo for some time, said cannabis attorney Pittman. "Politics are not swinging in this direction right now," she said.

"or the foreseeable future, absent a significant lobbying effort to the leaders of Congress, IRC 280E is here to stay for a little while, unfortunately."

Smith and others don't see this outcome as acceptable: he said the sector employs over 200,000 individuals and cannot grow due to state and federal legal discrepancies.

"It’s a really important time for our industry to be treated just like any other industry in the U.S."

Pittman said the next steps for the industry should include increased lobbying efforts from significant cannabis businesses.

In the meantime, she recommends that cannabis businesses keep detailed records and be forthright with the IRS.

Cannabis companies can still make some legal deductions, including those related to the creation of a product for sale, the attorney said.

"A qualified CPA can advise on strategies to minimize the crushing IRC 280E tax burden as much as possible ... but this tax code provision is going to continue to bog down American cannabis businesses for some time to come."

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