Lane Powell PC: “Section 280E provides: ‘No deduction or credit shall be allowed for any amount paid or incurred during the taxable year in carrying on any trade or business if such trade or business (or the activities which comprise such trade or business) consists of trafficking in controlled substances (within the meaning of Schedule I and II of the Controlled Substances Act) which is prohibited by Federal law or the law of any State in which such trade or business is conducted.’ Section 280E will cease to apply to cannabis businesses if and when cannabis is no longer classified as a Schedule I or Schedule II controlled substance.
Cannabis businesses have developed two approaches to minimize the impact of section 280E: First, taxpayers have tried separating their trade or business activities into two sets of businesses: businesses that consist of “drug trafficking” and businesses that do not. . . . The second approach to minimizing the impact of section 280E is characterize as many costs as possible as COGS rather than operating expenses.