The 280E refund gold rush just met the collections department. The Department of Justice is suing multistate operator TerrAscend for $8.3 million plus interest, arguing the refund it collected on amended returns was “erroneous” because the deductions were barred by Section 280E (the docket is here; MJBiz coverage here). TerrAscend received the money in June 2024 and maintains it was properly claimed. The suit was filed May 18 — and as CRB Monitor’s new analysis lays out, it’s the tip of a very large iceberg.
Quick primer for searchers: Section 280E bars businesses trafficking in Schedule I or II substances from deducting ordinary business expenses — rent, payroll, marketing — leaving only cost of goods sold. When medical cannabis moved to Schedule III in April, 280E stopped applying to state-licensed medical sales going forward. The fight is about the past: operators filed amended returns claiming refunds for prior years, and the IRS’s position since its June 2024 bulletin is that those taxpayers are “not entitled to a refund or payment.”
How big is the 280E refund bet?
Huge. A rough industry accounting puts potential MSO savings at $1.6 billion if 280E fell away entirely. Trulieve already collected $112 million in refunds. Curaleaf carries $96.5 million in uncertain tax liabilities tied to its no-280E position. TerrAscend expected up to $26 million across its amended claims. Verano’s CEO told investors that with almost 60 percent of retail revenue from medical sales, the company can “immediately benefit” from medical rescheduling. These aren’t accounting footnotes; they’re balance-sheet bets on how courts read a rescheduling order.
The first clawback case — against New Mexico Top Organics, filed in late 2024 — is still pending, with the IRS telling the Tax Court that federal courts have “consistently held that section 280E is constitutionally valid.” The operator’s comeback: the rescheduling order “reflects an understanding that medical marijuana has fit within the meaning of Schedule III… for a long time.” That argument — retroactive recognition — is the whole ballgame.
What operators should do
Two things are simultaneously true: prospective 280E relief for medical sales is real money, and retroactive refund claims are now litigation bait with interest running. If you took the refund and spent it, you have a contingent liability, not a windfall. Where the line lands depends partly on whether adult-use follows medical to Schedule III — and partly on test cases that will grind through Tax Court into 2027. It’s the same lesson mature markets keep teaching, from falling state tax revenue to hemp-beverage whiplash in Ohio: in cannabis, the tax and regulatory ground moves under your feet while you’re standing on it.
280E refund FAQ for operators
Does 280E still apply to my business? If you sell state-licensed medical cannabis: no, not since the April 2026 rescheduling order — prospectively. If you sell adult-use: yes, fully, unless and until adult-use joins Schedule III.
Can I amend prior-year returns to claim a 280E refund? You can file the claim — but the IRS’s stated position is that such claims are invalid, and it is now suing operators to recover paid refunds with interest. Treat any amended-return strategy as litigation, priced accordingly.
What should I do with a refund I already received? Talk to tax counsel before spending it. TerrAscend’s $8.3 million suit shows the government will come back years later, and interest accrues the whole time.
The deeper story is posture: for a decade, cannabis companies played tax defense — minimize 280E’s bite, survive the audit. The rescheduling order flipped the industry to offense, with MSOs booking positions the IRS never conceded. Some of that $1.6 billion will eventually be won; the question is which claims were built on the April order’s actual text versus which were built on hope. Courts, not earnings calls, will sort them — and the sorting has begun.
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