CRS Weighs 280E’s Constitutionality for Cannabis Businesses

OG article by Tony Lange

February 12, 2026

The Congressional Research Service (CRS) issued a February 6, 2026, report examining the constitutionality of Internal Revenue Code Section 280E for state-legal cannabis businesses. Section 280E bars deductions for ordinary expenses like payroll and rent due to marijuana's federal Schedule I status, resulting in effective tax rates often nearing 80%. Businesses may only offset costs via cost of goods sold.

The report confirms 280E's ongoing applicability amid federal prohibition, despite state legalization and inconsistent enforcement. Rescheduling efforts continue following President Trump's December 2025 executive order, but no updates have emerged.

A key debate centers on potential Eighth Amendment violations under the Excessive Fines Clause. A 2019 Tax Court case largely upheld 280E, though dissenting judges viewed it as punitive. CRS references proportionality tests but notes unresolved questions given lax federal enforcement.

Enacted in 1982 to deter drug trafficking, 280E predates state reforms and contrasts with current public support (64% favor legalization per Gallup). It contributes to industry struggles, with only 27.3% of operators profitable in 2024 per Whitney Economics. The report highlights differential tax treatment and persistent constitutional challenges without clear resolution.