Friends, readers of these Cannabis Musings know that a recurring theme is that we should always remember that the federal government is not going to do the cannabis industry any favors – they’re letting the state-licensed industry exist as a matter of grace, but you get what you get and you don’t get upset (their words (sort of), not mine). A shlekhter sholem iz besser vi a guter krieg. (“A bad peace is better than a good war.”)
Well, a gem of a get from Jennifer Benda, tax Partner extraordinaire at Holland and Hart, reminds us that the IRS hasn’t forgotten about cannabis, and still isn’t going to make it easy. Posting a summary of remarks made by Luke Ortner, senior counsel at the IRS, during a chat with Jennifer Benda at a recent cannabis tax conference, we learn that the IRS isn’t going to do the industry any favors when it comes to 280E:
Despite the rise in refund claims, IRS will continue to defend and enforce 280E unless the Supreme Court issues a different interpretation, like overruling Gonzales.
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Outside counsel opinions that 280E is unconstitutional are not “bulletproof.” An opinion has to be grounded in legal authorities, and be well reasoned. The IRS position is caselaw supports its interpretation that 280E is constitutionally valid based on the Taxation Clause, not the Commerce Clause.
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When 280E no longer applies to cannabis businesses due to rescheduling/ federal legalization, the IRS will continue to enforce 280E for years prior to rescheduling. The IRS’s policy is not to look the other way because things have changed going forward.
We talked back in July about how the IRS was signaling that it wasn’t going to take the issue of 280E refunds lying down. Not only do these comments reinforce that point, but they also suggest that rescheduling likely isn’t going to result in retroactive refunds for plant-touching operators (not legal or tax advice!).
This honestly should come as a surprise to absolutely no one. I mean, of all the federal agencies, why would anyone reasonably expect the Internal Revenue Service to be anything but unfriendly to the cannabis industry?
Speaking of the government, two quick updates on hemp. First, remember CBD drinks? For a year or two, they were going to be the next blockbuster consumer good. Riding the wave of post-2018 Farm Bill enthusiasm, the hemp industry geared up to fuel the beast that was going to be the next killer product. But they never got the chance to launch the equivalent of hard seltzer or oat milk, or even the brief supernova that was the cupcake store frenzy. If it wasn’t due to the meddling of that pesky FDA, we’d all be sipping on tasty beverages infused with hemp-derived cannabidiol (CBD) (to wash down that CBD knish, of course).
Last week, the FDA reminded the world that foods and beverages containing hemp-derived cannabinoids like THC (i.e., so-called “intoxicating hemp” - flawed, yet recognizable, terminology), are similarly subject to the Food, Drug, and Cosmetic Act. In other words, the FDA is saying that the latest generation of foods and beverages containing hemp-derived cannabinoids isn’t totally legal. The FDA didn’t enforce its own regulations when it came to CBD beverages, and it admits it still isn’t enforcing it with respect to “intoxicating hemp” products, unless you make some farkakteh claim like it cures dumdum fever, which is why there’s so little focus on this pesky little aspect of the law.
Second, in case you missed it, California effectively wiped out the “intoxicating hemp” product category with a single stroke of the pen, while, a few weeks ago, New Jersey halted all sales pending development of new regulations. With the 20234 Farm Bill now looking more like it’s going to be the 2025 Farm Bill, the short-term fate of the war of attrition between hemp and non-hemp will be increasingly dependent upon the decisions of the states. California has historically been a bellwether in cannabis, so we’ll have to see how this continues to develop.
© 2024 Marc Hauser. None of the foregoing is legal, investment, or any other sort of advice, and it may not be relied upon in any manner, shape, or form. The foregoing represents my own views and not those of Jardín.