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A coalition of cannabis industry organizations has filed a groundbreaking amicus brief with the U.S. Tax Court in New Mexico Top Organics Inc. v. Commissioner. They argue that Section 280E of the Internal Revenue Code—which prevents state-legal cannabis businesses from claiming standard business deductions and forces effective tax rates exceeding 70%—does not apply to cannabis businesses because marijuana does not fall "within the meaning of' Schedule I or II substances of the Controlled Substances Act (CSA). This tax-specific interpretation could potentially benefit other cannabis businesses in similar disputes without affecting criminal law enforcement or other regulatory frameworks.
The amicus brief, filed by Holland & Hart on behalf of Colorado Leads, American Trade Association for Cannabis and Hemp (ATACH), Massachusetts Cannabis Coalition, and Nevada Cannabis Association, challenges Section 280E of the Internal Revenue Code. This coalition represents hundreds of licensed cannabis businesses committed to regulatory compliance and professional standards across multiple states with established legal cannabis markets. The coalition supports New Mexico Top Organics' petition challenging the IRS's application of Section 280E to deny standard business deductions.
The Coalition's Core Arguments
The coalition's amicus brief supports New Mexico Top Organics' "within the meaning of" argument by providing crucial historical context that has been largely absent from prior court proceedings. The brief traces 55 years of agency action—from the 1972 Shafer Commission through the 2023 HHS recommendation—showing a consistent pattern: scientific evidence has never supported marijuana's placement on Schedule I or II, yet the DEA repeatedly ignored this evidence using circular logic and overly restrictive tests.
The coalition documents how the DEA created catch-22 situations, arguing marijuana couldn't have accepted medical use because it was illegal, while keeping it illegal because it supposedly lacked accepted medical use. Multiple courts criticized this approach, and even DEA's own Administrative Law Judges concluded that marijuana met the criteria for medical use and should be rescheduled.
Post-Loper Bright Framework
The Supreme Court's 2024 Loper Bright decision fundamentally changes how courts must approach this issue. Rather than deferring completely to the DEA's interpretations, courts must now determine the "single, best meaning" of statutes by examining the evidence independently.
The coalition argues this historical analysis becomes critical under Loper Bright because it demonstrates that HHS—the agency Congress specifically tasked with making binding scientific and medical determinations—has now validated what the science showed all along: marijuana does not meet Schedule I or II criteria. The 2023 HHS recommendation, supported by 252 pages of scientific analysis and endorsed by the Justice Department's Office of Legal Counsel, represents the reasoned decision-making within the agencies' core expertise that courts should respect.
Why This Case Matters
Section 280E has been the cannabis industry's biggest obstacle to growth and profitability. Unlike other businesses, cannabis companies cannot deduct ordinary expenses like rent, salaries, or marketing costs, creating tax burdens that stifle expansion and job creation. The coalition represents cannabis businesses operating under comprehensive state regulatory frameworks across multiple states. "Removing Section 280E's stranglehold on the industry would allow regulated cannabis businesses to operate with the same tax benefits available to every other legal enterprise," said Chuck Smith, CEO of Colorado Leads. "Tax fairness is critical to sustaining this emerging industry and the billions of dollars in tax revenue and hundreds of thousands of jobs it creates for state and local economies."
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