Lawmakers and industry leaders are pushing hard for Congress to dump Section 280E, a tax rule that slams cannabis small businesses with sky-high bills. This outdated code blocks them from claiming standard deductions, crippling their growth in a booming market. But could relief finally be on the way? Dive in to see why this fight matters now more than ever.
The Heavy Toll of 280E on Small Cannabis Owners
Section 280E, part of the U.S. tax code, stops cannabis businesses from deducting everyday costs like rent, wages, and utilities. It treats them like drug traffickers, even in states where pot is legal. This rule jacks up their effective tax rates to over 50%, sometimes hitting 70%, while other firms pay around 20-30%.
Small operators feel the pain most. A family-run dispensary in Colorado might fork over thousands extra in taxes each year, money that could go to hiring staff or expanding stock. According to a 2024 report from the National Cannabis Industry Association, this burden has forced many startups to shut down, with failure rates climbing 15% in the last two years.
The rule dates back to 1982, aimed at illegal drug dealers. But today, with cannabis legal in 38 states for medical or recreational use, it feels like a relic punishing legit entrepreneurs.
Experts say ending 280E could save the industry billions. One analysis from tax firm Mondaq in 2024 showed that without it, businesses could reinvest savings into better products and jobs.
Push for Reform Gains Steam in Congress
Bipartisan bills are popping up to fix this mess. In April 2025, lawmakers reintroduced the STATES Act, which would deschedule cannabis federally and kill 280E for good. Rep. Earl Blumenauer has led the charge, filing measures to let marijuana firms claim deductions like any other industry.
If passed, this could level the playing field, letting small businesses compete with big players who dodge some taxes through complex loopholes.
Advocates like Michelle Rutter Friberg from the National Cannabis Industry Association argue it’s a fairness issue. In a recent op-ed, she called 280E a “punishment” that favors illicit markets over regulated ones. Black-market sellers avoid taxes altogether, undercutting legal shops.
Recent data backs this up. A 2025 study by Marijuana Moment found that states with high cannabis taxes see 20% more illegal sales, as buyers skip pricey legal options.
Momentum is building. Hearings in Congress last month drew testimony from small business owners sharing stories of near-bankruptcy due to 280E.
What Rescheduling Could Mean for Tax Relief
The DEA’s potential move to reclassify cannabis from Schedule I to Schedule III could zap 280E overnight. Under Schedule III, it’s no longer seen as a top-tier controlled substance, opening doors to normal deductions.
This shift, proposed in 2024 and still under review as of September 2025, might not need full legalization to deliver big wins for the industry.
But it’s not a sure thing. If rescheduling happens, tax experts predict a drop in effective rates from 70% to under 30%, per a Jefferies analysis earlier this year. That could pump fresh cash into small firms, helping them weather economic dips.
Still, some worry about new regs. Schedule III might bring FDA oversight, adding costs for testing and labeling.
Here’s how it could play out:
- Immediate tax breaks: No more 280E barriers.
- Banking access: Easier loans without federal stigma.
- Market growth: Projections show a 25% industry boost by 2027, per a JD Supra report.
One thing is clear: Without action, small businesses keep struggling.
Real Stories from the Front Lines
Meet Sarah Thompson, who runs a small edibles shop in Oregon. She told reporters last week that 280E ate up 60% of her profits in 2024, forcing her to lay off two employees. “It’s like fighting with one hand tied,” she said.
Stories like hers are common. A 2025 survey by the Cannabis Business Times polled 500 owners, finding 68% cited taxes as their top hurdle. Many delay expansions or cut corners to survive.
This tax penalty doesn’t just hurt owners; it stalls job creation in communities that need it.
On the flip side, states like California have tried workarounds, but federal rules override them. Owners there report paying double the taxes of similar businesses.
Industry groups are rallying. Petitions to Congress have gathered over 100,000 signatures since July 2025, demanding swift change.
| Impact Area | With 280E | Without 280E |
|---|---|---|
| Effective Tax Rate | 50-70% | 20-30% |
| Annual Savings per Small Business | N/A | $50,000+ |
| Job Growth Projection (2025-2027) | Stagnant | 15% increase |
This table shows the stark difference reform could make.
The fight against 280E highlights broader issues in U.S. drug policy. As more states legalize, the gap between federal and state laws grows, confusing consumers and investors alike.
In this heated debate, small cannabis businesses stand at a crossroads, their survival hanging on Congress’s next move. Ending this tax punishment could spark real growth, foster innovation, and bring fairness to an industry long in the shadows. It might even curb illegal markets by making legal options more viable. As one owner put it, “Give us a fair shot, and we’ll thrive.”