Legal cannabis operators paid $2.24 billion in excess federal taxes in 2025. The illicit market paid zero. That is not a coincidence. That is policy.
If you run a legal cannabis business and you feel like the system is working against you, the numbers back you up.
A refreshed analysis from Whitney Economics, released this week, puts hard figures on what operators across the country already know in their bones. Because cannabis remains a Schedule I controlled substance under federal law, state-licensed cannabis businesses cannot deduct ordinary business expenses on their federal tax returns. No labor deductions. No legal fees. No marketing, security or banking costs. Nothing that any other American business takes for granted.
The result is an effective federal tax rate that can approach 70% or more, particularly for retail operators. And the cumulative damage is staggering.
The cost of 280E — by the numbers
$2.24B
Excess federal taxes paid by legal cannabis operators in 2025 alone
Due to IRS 280E policy, which bars standard business deductions
$15B
Total excess taxes paid by the industry since 2018
Over seven years of legal operators absorbing punitive federal tax policy
70%+
Effective federal tax rate some retail cannabis operators face
Compared to standard corporate rates available to every other US industry
Source: Whitney Economics, April 2026. The illicit market pays none of this.
What 280E actually means for your business
Section 280E of the Internal Revenue Code was written in the 1980s to prevent drug traffickers from deducting business expenses. It was punitive by design, intended as a financial weapon against the illicit trade. Four decades later, it is being applied to state-licensed, tax-paying, compliance-following legal cannabis businesses while the illicit market it was designed to target operates completely outside its reach.
The legal operator files taxes. The illicit operator does not. The legal operator absorbs 280E. The …
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Author: Javier Hasse / High Times
