Lankford’s “No Deductions for Marijuana Businesses Act” Would Preserve 280E Restrictions Despite Cannabis Rescheduling
Last Friday Senator James Lankford (R-Okla.) introduced the "No Deductions for Marijuana Businesses Act," a bill aimed at preventing cannabis businesses from qualifying for federal tax deductions or credits–even though 280E already prevents their qualification.
Senator James Lankford’s “No Deductions for Marijuana Businesses Act” claims to address a “potential loophole” in federal tax law for cannabis businesses by amending the Internal Revenue Code to maintain the prohibition on allowing any deduction or credit associated with a trade or business involved in “trafficking” marijuana.
To be very clear: there is no tax loophole and there’s no potential loophole for legal cannabis businesses. Cannabis businesses are taxed at exorbitant rates under Section 280E, which was created to target drug traffickers—not legitimate state-legal operations.
Lankford’s bill is a preemptive move ahead of the potential rescheduling of cannabis. If cannabis were rescheduled to schedule III under federal law, it wouldn’t be subject to 280E as it is written today. However, that’s not a potential loophole—it’s an intended outcome of reclassification.
Section 280E of the Internal Revenue Code prohibits businesses from deducting ordinary expenses from their gross income if those expenses are tied to the "trafficking" of Schedule I or II substances, as defined by the Controlled Substances Act. Since cannabis remains classified as a Schedule I substance under federal law, the IRS applies Section 280E to state-legal cannabis businesses despite their compliance with state regulations.
This tax provision was created in response to the 1981 Tax Court case Edmondson v. Commissioner, where Jeffrey Edmondson who was “self-employed in the trade or business of selling amphetamines, cocaine and marijuana” successfully claimed deductions for ordinary business expenses such as rent, packaging and travel related to his illegal trafficking operations. In 1982 Congress enacted Section 280E to prevent similar cases from allowing deductions for businesses engaged in drug trafficking. The law explicitly states that no deductions or credits are allowed for any business involved in the trafficking of controlled substances.
Today, with 39 states and Washington, D.C., legalizing some form of marijuana—whether for medical or recreational use—Section 280E disproportionately impacts state-regulated cannabis businesses far more than the illicit market movers it was originally designed to target. These businesses are forced to operate under an unfair tax burden, unable to deduct normal expenses like rent, payroll or marketing, which severely limits their ability to grow and reinvest in their operations.
Many legal cannabis businesses have effective tax rates of 70% or higher, forcing small operators to shut down or operate in the red. Meanwhile, corporations like Amazon and Netflix exploit actual legal loopholes to pay $0 in federal taxes.
Lankford’s bill doesn’t address this disparity—it entrenches it.
The “No Deductions for Marijuana Businesses Act” attempts to ensure that even if cannabis is reclassified under the Controlled Substances Act, legal businesses will still face 280E’s punitive tax treatment. This preemptive move is unprecedented and undermines the intent of reclassification.
This legislative effort should ultimately face challenges for unfairly targeting a single commercial industry. But for now, it’s a clear message to cannabis businesses in Oklahoma and across the country: “We don’t want you to succeed.”
Backing Lankford’s bill is Smart Approaches to Marijuana (SAM), a group that infamously peddles fear-mongering claims about cannabis. Lankford’s bill was introduced with wild claims such as cannabis users were “were 10 times as likely to die by suicide as those in the general population” and that 63% of heavy users showed reduced brain activity. SAM’s rhetoric—that cannabis “poisons kids” and “reduces brain activity”—is straight out of the 1930s Reefer Madness playbook.
Modern science tells a different story. Studies show that cannabis legalization:
Reduces opioid-related deaths.
Creates jobs and boosts state economies.
Has overwhelming public support, with 60% of Americans in favor of legalization.
SAM’s outdated propaganda has no place in today’s policy discussions.
Instead of doubling down on punitive policies backed by propaganda, lawmakers should focus on:
Fair Taxation: Allow cannabis businesses to deduct ordinary expenses.
Banking Reform: Pass the SAFE Banking Act to ensure businesses can operate safely and transparently.
Federal Legalization: Resolve the conflict between state and federal laws, creating a fair regulatory framework.
Bills like Lankford’s do nothing but harm small businesses and keep the illicit market thriving.
Senator Lankford’s “No Deductions for Marijuana Businesses Act” ignores the realities of the growing commercial cannabis industry and cannabis as medicine. While these small businesses struggle under crushing tax burdens–some being Lankford’s own constituents–billion-dollar corporations exploit loopholes to pay nothing. What’s really causing harm to our society?
It’s time for lawmakers to listen to voters, embrace real science and create a fair system that supports small businesses instead of punishing them.
Our law firm is here to help cannabis businesses navigate these challenges. From compliance and tax issues to regulatory defense, we’re fighting for fairness in the cannabis industry.
Contact us today to ensure your business has the support it needs to thrive.
