Section 280E of the Internal Revenue Code (IRC) explicitly prohibits businesses engaged in the trade or distribution of either Schedule I or Schedule II controlled substances from deducting expenses on their federal taxes.
Because marijuana is still federally recognized as a Schedule I substance under the Controlled Substances Act, state-legal cannabis businesses that operate in adult and medical-use markets cannot deduct their ordinary business expenses from their federal taxes. In short, these businesses, despite being authorized under state laws, are still considered drug traffickers in the eyes of the IRS, and as such, are liable under the provisions of Section 280E.
This translates to entirely state-legal cannabis businesses paying astronomically higher taxes than any other business. According to one recent economic analysis, in 2022, cannabis operators paid in excess of $1.8 billion in additional taxes. This excess tax burden is destroying cannabis businesses financially.
https://norml.org/blog/2023/06/20/280e-is-harming-legal-cannabis-businesses-these-states-are-legislating-change/