// Definition
A provision of the US Internal Revenue Code that prevents businesses trafficking in controlled substances — including state-legal cannabis — from deducting ordinary business expenses. Cannabis businesses pay taxes on gross income rather than net income, creating an effective tax rate far higher than any comparable industry. The provision was originally designed to target drug cartels but now punishes legal, state-licensed cannabis operators who comply with all local laws.
// From the Episode
Section 280E was explained in Episode 17 by Tony Verzura, who described its impact on Colorado cannabis businesses: "We're penalised for even being the type of business that we are." The practical effect is devastating — a cannabis company with $1 million in revenue and $800,000 in operating costs pays taxes on the full $1 million, not the $200,000 profit. Todd McCormick highlighted the irony: ammunition and alcohol manufacturers face no equivalent tax burden despite selling products with arguably greater public health impact. The 280E discussion connected to the broader theme of Episode 17 — that legal cannabis businesses operate in a regulatory environment designed to be punitive, where the tax code itself functions as a tool of prohibition even in legal states.
// Source
Ep. 017 Hash Church XVII →