At the recent Benzinga Cannabis Capital Conference in Chicago (Oct. 8 and 9), Emily Paxhia, founding partner and managing partner of Poseidon Investment Management, shared her thoughts on one of the most pressing legal battles facing the cannabis industry.

Speaking shortly after her panel, Paxhia discussed a Supreme Court case that could have a transformative impact on how cannabis businesses operate within legal states, offering the industry a potential pathway to freedom from federal interference.

Supreme Court Battle

During the interview, Paxhia emphasized the importance of a Supreme Court case she is pursuing with David Boies, a renowned constitutional lawyer. This case could reshape the federal government's involvement in state-legal cannabis businesses.

"I would love it if we could get more industry support around this case because it would define boundaries around our businesses that would let them run without the federal government’s overreach," said Paxhia.

The case challenges a 2005 ruling on the Commerce Clause, which Paxhia believes is outdated. She explained the significance of the case: "All we're asking for is for the federal government to recognize that the industry exists within certain states, legal states, with programs, and that it would mean that the CSA [Controlled Substances Act] does not empower the DOJ [U.S. Department of Justice] to interfere with those businesses."

If successful, this case could lead to major changes for cannabis businesses. It could open up opportunities for banking access, insurance providers and credit card services — options that are currently denied to many cannabis operators.

Paxhia pointed out, "It would create opportunities for us to have banking access, insurance providers, credit cards, all of the things that other businesses enjoy that we are simply deprived of."

The Burden of Federal Tax Code 280E

Paxhia also touched on the ongoing challenges that cannabis businesses face due to the federal tax code 280E, which prevents them from deducting ordinary business expenses. This has resulted in an effective tax rate of around 70% for many companies in the industry.

She advised companies to remain financially cautious: "We are advising our companies to run lean and be very careful. We talk a lot about SG&A containment and being prudent about the efficiencies of the operations."

Though there is hope that rescheduling cannabis could eliminate 280E, Paxhia noted that this is not an immediate solution. She highlighted that the case she is involved in could lead to retroactive refunds for cannabis businesses if the ruling is favorable: "This case would create a look back where you would be able to get a refund for prior years of 280E."

With a Supreme Court case on the horizon and the ongoing burden of 280E, Paxhia's message was clear: the cannabis industry needs to continue its fight for legal recognition while remaining financially prudent to navigate the existing challenges.

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