A Deeper Dive into 280E

Chair of Clark Hill's Cannabis Industry Group, Sander Zagzebski sits down with Clark Hill Member, Adam Ansari, and highly recognized cannabis tax attorney,  James Mann of the Law Office of James B. Mann, to comprehensively explore Section 280E of the Internal Revenue Code; strategies for how cannabis businesses have navigated the burdens of 280E; and how the landscape of cannabis taxation may change given the recent news that the U.S. Drug Enforcement Administration has moved to reclassify marijuana to a Schedule III substance. 

This podcast is intended for general informational purposes only and does not constitute legal advice or a solicitation to provide legal services. The information in this podcast is not intended to create, and receipt of it does not constitute, a lawyer-client relationship. Listeners should not act upon this information without seeking professional legal counsel. The views and opinions expressed in the podcast represent those of the individual speaker only and are not necessarily the views of Clark Hill PLC.

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This podcast is intended for general information purposes only, and does not constitute legal advice or a solicitation to provide legal services. The information in this podcast is not intended to create and receipt of it does not constitute a lawyer client relationship. Listeners should not act upon this information without seeking professional legal counsel. The views and opinions expressed in the podcast represent those of the individual speaker only and are not necessarily the views of Clark Hill, PLC. Welcome to the Clark Hill Cannabis Industry Group podcast. My name is Sander Zagzebski, I'm a corporate securities lawyer at Clark Hill and chair of our Cannabis Industry Group. Joining me are my partner, Adam Ansari, tax, uh, tax lawyer in Chicago. Adam handles tax planning and tax controversy work. As well as audit work. Also joining Adam is our good friend, James Mann. James is a tax lawyer with his own firm, and he's one of the nation's leading 280e experts. James is an appellate counsel in one of the most closely watched 280e cases, and since the conversation today is about 280e, we invited James to join us. Thanks, Adam and James for joining us. Thanks for inviting me. Thank you. Adam, can you give us a quick overview? Of, uh, 280E. What does it say? What does it mean? Sure. So, 280E is a section of the Internal Revenue Code, uh, that actually forbids, uh, businesses from deducting otherwise ordinary business expenses from gross income, um, associated with the, quote, trafficking of Schedule 1 or Schedule 2 substances, um, as defined under the Controlled Substances Act. All right. Uh, the IRS has applied two a DE to state legal cannabis businesses, um, since those businesses are technically schedule one substances and involve schedule one substances, uh, two a DE is actually a throwback to the Reagan administration. Um, it originated, uh. From a 1981 court case in which a convicted cocaine trafficker asserted his right under federal tax law to deduct ordinary business expenses. A year later, Congress enacts 280E to prevent other drug traffickers from trying to deduct ordinary and necessary business expenses. So that's kind of the Background of 280 and a little bit about it. So, um, Adam or James, I mean, I, I, I'm a corporate lawyer, so I know the basics of 280. I know that you can deduct your cost of goods sold, but otherwise you're forbidden from taking ordinary business expenses. Uh, are there any basic strategies that people employ to try to, uh, minimize their 280e exposure? Uh, in other words, try to maximize their ability to deduct costs of goods sold and, and sort of minimize their other, um, ordinary business expenses? Well, one thing, as you just alluded to, is maximizing The cost of goods sold, which reduces gross income, which reduces tax. And there are various tax counting regs that you allocate as much as you possibly can to the cost of goods sold, including in some circumstances, indirect overhead costs. So that's, that's 1 thing. Um, the 2nd thing is separating plant touching from non plant touching entities. So you can keep as many deductions as possible in the non plant. Touching groups, um, Adam, what would you add? No, I mean, I think I 100 percent agree with those 2, those 2 ways of kind of getting around to 80. it is trying to look at the rules and regulations and determine how much cost of goods sold. You can potentially add to that bucket. Um, as probably every listener on the podcast is aware. Um, cogs aren't maybe as valuable as ordinary business expenses because you need the inventory of the cog to be sold to sort of realize the, um, the deduction, but there's. You know, beggars can't be choosers, so if you can't have 280E, cogs are great. Um, and then I completely, I completely agree with James there about, you know, another great strategy is making sure that if your business, if your cannabis business is Doing a lot of ancillary work that isn't necessarily plant touching, trying to separate out these businesses. So the non plant touching business isn't tainted by the plant touching business. And when I say tainted, I'm really saying 280e tainted. Um, so trying to make sure you keep, you know, separate books and records, separate accountings, um, and really within your organizational structure, um, setting it up so it's different is a very wise move. Uh, yeah, I appreciate that. I mean, as a corporate lawyer, we have created, um, Uh, corporate structures of varying degrees of complexity for cannabis clients. And a big motivation for that, in most cases, is 280E and trying to implement a 280E, uh, strategy. And I think, uh, you know, the reason we're talking about 280E today is because, uh, Is, um, uh, two big, big, big reasons. Actually, the 1st is obviously the most recent announcement last week from the Drug Enforcement Administration that they are moving forward with the rescheduling process that started. Eight months ago when health and human services announced their recommendation to reschedule marijuana from schedule one to schedule three. So that has obvious implications on 280, which we're going to talk about. The 2nd is a few weeks prior to that. Truly, if 1 of the larger, uh, announced that they. Had, um, applied for and obtained, uh, I don't know if applied for is correct that they had that they had filed amended tax returns and and obtained tax refunds for previously paid, uh, uh, 280 e taxes and that certainly, uh, they didn't provide a lot of details about it, but it got a lot of folks talking in the industry because the amount was substantial. And we're going to dive into. What happened and do a little reverse engineering of, uh, what they likely did and talk about what others are doing, uh, doing in response. So, uh, as we dive in, by the way, I, I, uh, forgot to mention 1 disclaimer, uh, the stuff we're talking about here. Uh, these are just the opinions of the panelists. They're not the opinions of Clark Hill, uh, uh, or, or, or the other, uh, partners of Clark Hill. Uh, we're also, this is not legal advice. We're not counsel to people who listen to this. Uh, this is just, uh, this is education and opinions only. Uh, we're also not providing tax, accounting or investment advice. Uh, so, uh, listen at your own risk. But as we go forward, let's talk about this rescheduling announcement. Uh, James, uh, James, what is the, uh, what do you expect the timeline to be for actually moving from this DEA announcement to, uh, an actual rule that goes into effect rescheduling marijuana from one to three? It's unclear, um, apparently the rescheduling, uh, notice of proposed rulemaking is under review by OMB. Now, once OMB clears it, the notice of proposed rulemaking is issued and would be We'll have the proposed rule involved the rescheduling. Uh, there'll be a comment period of 30 to 90 days, maybe 60 days. Then people who comment will probably request a hearing before an administrative law judge. So there'll be that hearing, the administrative law judge will come to her own conclusion and issue a decision. And then the administrator of the DEA will make her own decision and issue a decision. And that will be. Embodied in the promulgation of the final reg, and 30 days after the promulgation of the final reg, it will become effective. So, the total timeline, I mean, some people say, well, gee, this administration wants this whole thing done and tied up before the election. That seems a bit of a reach to me, but I don't, but no one really knows. Yeah, Adam, is that. Consistent with what, uh, what, what you understand in terms of, yeah, yeah, I think, you know, there's a lot of unknowns with this potential rescheduling process. Uh, and there are. Lots of groups that are potentially trying to oppose it. Uh, so I think we just kind of wait and see here. So, I mean, 1 thing I think, uh. We may have glossed over, but as, as I understand it, like, what do you do to correct me if I'm wrong? But the reason the reason rescheduling is such a such a significant event is that under 280 E drug trafficking is defined as. Trafficking and substances that are on schedule 1 or schedule 2. So if marijuana drops to schedule 3, then 280E by its terms no longer applies to cannabis companies. Is that, is that a correct way to understand it? Yeah, sure, I mean, the, That's exactly my understanding of this. I mean, the big benefit is going to be that 280E, the ordinary business deductions kind of goes out the window and all of our, everybody's thoughts on COGS being the best way forward. We don't necessarily have to deal with that anymore. I mean, cannabis businesses can treat their expenses similar to a bar buying plates and alcohol. So, and 1 important point here is that 2 80 will cease to apply only at the time that the final rank becomes fact. So cannabis goes from schedule 1 to schedule 3 until then. You have to 80 in operation, so 2 80 is clearly going to apply to 2023 and probably all 2024 tax returns. So, 1 question sort of, I have for for James, you know, my understanding with potentially the rescheduling is that it may not do anything for the banking industry. So, um, marijuana companies may not be able to get, uh, I mean, really, banking institutions may not see any sort of difference. And I know that that Safe Banking Act has, uh, went through the House, installed in the Senate, and that's what was potentially going to get cannabis into the banking system. Do you have any opinion about whether banks are going to change their philosophy on cannabis companies? If I think that changing from schedule 1 to schedule 3 doesn't change. Anything in defense, send guidance to banks and now and banks have a lot of compliance burdens that bank, uh, cannabis customers. It may make an attitudinal difference on the part of banks. Um, the other thing is people talk about uplisting and the, for example, on NASDAQ and NASDAQ, it's just a self imposed rule that it won't list canvas companies because they're engaged in federally illegal activity. It'll still be a federally illegal activity. It goes from schedule 1 to schedule through schedule 3, but NASDAQ is free to change its mind. There's no statute that keeps NASDAQ or any other exchange from listing these companies. As far as I know. Yeah, I, I think you're, you're, you're, you know, being the securities lawyer on the call. I agree with you there, James. I mean, the, the, the interesting part about capital markets is that for cannabis companies, uh, there's this incorrect, um, view. That the federal securities laws prohibit, uh, listing of cannabis companies. The reason cannabis companies don't trade on, uh, cannabis companies with U. S. operations don't trade on NASDAQ or the New York Stock Exchange is because NASDAQ in the New York Stock Exchange. Using their discretion, choose not to list those companies. And it also, there are also a lot of players in the wall street system. Uh, the broker dealers, the, the, the, the custodians, uh, the depository trust corporation, seating company, the folks that actually, that actually, uh, affect the trades and, and insurers, things like that. Those folks. Um, all of those folks need to be comfortable that they're, you know, that they can touch a cannabis stock, uh, before, before capital markets will open up in the United States. And frankly, there isn't a law, uh, absent, uh, completely, um, removing marijuana from the Controlled Substances Act altogether. I don't see a law that's going to force them to to list, uh, U. S. plant touching cannabis companies. In fact, a lot. I'm pretty familiar with. Uh, the climb act was introduced in. I believe it was, uh, 2022, uh, by, uh, uh, Congressman Troy Carter. And that had language that would have, um, uh, uh, given some comfort to, to, uh, uh, the market participants to list cannabis companies, allow broker dealers to trade in cannabis stocks, allow the custodians to take custody of cannabis securities, things like that. But absent that, I don't think, uh, I don't think schedule 1 to schedule 3 is going to have any impact. Certainly not in the near term, uh, on on capital markets. But 1 question for you guys is, um, I've heard, uh, you know, we've been talking about rescheduling now again for, for 8 months, because health and human services made their announcement back in September and I had heard, uh. Folks speculate that, uh, the IRS would allow cannabis companies to, um, they would provide 280e relief effective January 1, 2024 or that there was the potential to do that. Um, I think that's, uh, unlikely to happen. Uh, what do you guys think? I don't see where the IRS has the power to do that, right? The IRS has to enforce the tax law as written. And I don't see retroactive relief, of course, if the IRS gave some sort of retroactive relief, I don't see people raising the class about it. Certainly. But I find it unlikely. Yeah, I would, I would agree with that. I mean, I, I think retroactive relief, um, here. Seems just a I agree with James, but I don't think that it has the ability to do that. Um, and also just them trying to do this retroactively will cause a cause a host of issues from like, you know, An administration sort of standpoint. Yeah, I mean, I 1 thing I'm fairly confident. I had even heard people speculate that the that rescheduling would would essentially mean that that companies that had accrued to 80 liabilities would not would no longer Oh, those back taxes. And that seems enormously farfetched to me. I mean, those taxes were owed when they were incurred. And, uh, I can't imagine the IRS would, would, uh, would be, would be, uh, forgiving those accrued back taxes if only because other other folks have actually paid those taxes and they would undoubtedly cry foul. But it sounds like. Uh, James, you don't even think they would have the statutory authority because 280E remains in effect, right? It's not it's not as if it was declared unconstitutional Right, and 280 was in effect for those years where companies filed their tax returns that we're not going to pay. So, even if Burano chooses not to pay federal tax, that's, they're going to have to pay it sooner or later. It seems to me, unless it's struck down and as in violation of commerce class or something like that. So, so let me ask a question, let's say, hypothetically, December 1st of 2024, the rule goes into effect and. Uh, cannabis marijuana is rescheduled from schedule 1 to schedule 3. So what happens to the, in the, in the 24, 2024 tax return? Do taxpayers, I mean, I'm assuming taxpayers are going to try to, to continue all their to 80 minimization strategies. Up through the end of November and that hypothetical and then in December, they would try to shift into some, some, uh, uh, try to shift their strategy into a more, more normal strategy where they can take ordinary business expenses. Is that right? But in many cases, that's easier said than done because we're talking about allocations to cost of goods sold. That's a method of accounting. And they will then have to change their methods of accounting and file. Of form 31 15, or if they've been filing separate entity returns, like lots of the, they want to move to a consolidated return. They'll have to file consolidated return election. Right? So it's, it's. There's a lot of thinking that needs to go into that. So it sounds like it sounds like taxpayers in 2024. Are 2024 to 80 is largely going to remain in effect, even if rescheduling. Happens, um, before the end of the year. Is that is that fair? I mean, as a general statement, I think that's fair. Yeah. So, I guess to summarize this rescheduling announcement, right? That the good news is the 280 by its terms, it will 280 stays in effect. It just no longer applies to to marijuana companies or cannabis companies going forward. Assuming that rescheduling. Uh, uh, recommendation and an announcement, assuming the agencies follow through and get it done. Uh, you know, some sometime soon in, in other words, it's not, it's not set aside by a court, uh, or it's not, you know, it, it isn't, um, stalled through some other, uh, uh, uh, some other hiccup in the process. So, assuming it gets done though, two 80 e going away, go, uh, or 2 82 80 e. Uh, going away on a going forward basis, I think is very big news. So why don't we move to the other, uh, the other issue also 280E related that got everybody, everybody's chin wagging, uh, about three, four weeks ago. And that was the announcement by Trulieve that they had amended a few years of tax returns and received a. Tax refund on previously paid 280e taxes of a pretty large number. Um, James or Adam, actually, James, why don't you start? What, give me a little more detail with what did Trulieve say? And what do you, since it was, in my view, a little bit vague in terms of the, the legal position on, that they took in order to make this refund claim. What did they what is your kind of reverse engineering of what they you think they likely did in order to get this money back? Well, they are deliberately opaque and the 10 K. they say they got refunds of, um, of 62M dollars in the 4th quarter and 50M dollars. The 1st quarter of 2024. But they don't say that it was this is related to, but they don't say really the refunds from from the IRS or state tax authority. It could be. They just asked for their estimated tax payments back. Now, it's clear. They had, I mean, they said, I take it at face value. They have filed amended returns for 1920 and 21, claiming refunds of all the tax they pay. And it's also clear that for 2324 going forward, they are going to say 280 doesn't apply to us and because truly, of course, has nothing but else as far as the, I can see. They won't pay any federal tax, but other than that, it's not entirely clear what they're doing in the 10 K. they do talk about how they have a reasonable basis for not paying tax in the future, which suggests they have a reasonable basis opinion of some sort, which we can talk about later. Well, let's talk. Yeah, go ahead. Real quick question. You know, I, my understanding too, is that the accountant, um, had indicated that several of the positions, uh, being taken were, um, potentially uncertain tax positions, like, and I'm not sure if Exactly if I heard that right, but maybe you could expand on that. That's a great point, Adam. And in the 10 K, it says their accountants Markham made them put up an uncertain tax position reserve for the entire amount of those 3 funds. So, what Markham is saying is they believe it is more likely than not. 51 percent they're going to have to give the money back, which suggests strongly that it's their refunds. We're not the IRS saying. Oh, yeah, and it's a great argument. You win. Here's here's the money. It suggested something else is going on, but that is a great point. The fact that there is a is. Interesting. So, so, um, so when the accountants, uh, when the accountants make an uncertain tax position note, it's their, that's, that's them saying it's their view that it's, that the, that the most likely outcome is that the, um, uh, that the, that the company that they're auditing, in other words, in this case, truly, most likely truly will have to pay that money back. That's, That's your interpretation of the uncertain tax opinion, um, notation by the auditors. It's mine. Yeah. Okay. I mean, I think, look, as a corporate lawyer in the space, um, you know, I can, I can certainly see, for example, that, um, if, if a taxpayer can take a, has a reasonable basis for taking a reporting position, um, that may ultimately not. Not prove to be the winner with, uh, with IRX or in tax court, uh, they still may want to make that take that reporting position. Uh, if it, if it helps them from a, just from a operational basis from a cash flow basis, because, I mean, let's explain to me either James or Adam, if the taxpayer has a, is, has a reasonable basis, and they actually have an opinion from a law firm that says, you know, You have a reasonable basis to take this position with respect to 280 E. Um, what does that mean if they ultimately are unsuccessful in persuading a tax court that they, uh, that they have the proper position? No, I think, you know, the simplest answer is penalties. Um, if you, if you get to rely on a reasonable basis, uh, standards, and you can, and the IRS asserts that you do in fact owe the liability, uh, the penalties asserted, you should be able to get, um, get abated because you relied on a reasonable basis tax opinion letter. I got it. So, so in that case, then they may have, they may be. Avoiding penalties for underpayment. Um, and essentially, they'll have, they'll have to pay the money back with interest that that's what ultimately would happen if they were unsuccessful. Right? Got it. I'll also wait. 1 other point, the reasonable basis opinion and actually protects the tax return preparer from a preparer penalty. Under 6694, so somebody has to sign the tax return and the preparers want to see a reasonable basis opinion for that reason as well. Interesting. So, um, so what I've heard and, and James, you can potentially expand upon this is that the, um, that truly in, in making their. In making their refund claim, and it has essentially taken the position that 280 is unconstitutional, at least as applied to them. And so, therefore, they don't, they don't need to, uh, they don't need to pay the tax and in all likelihood. They got a reasonable basis opinion from, uh, from a law firm that says they have a reasonable basis for taking that position. Is that, is that your understanding as well, James? Yes, and I, I define reasonable basis. I mean, it's, it's less than more likely than not, which means you would have a. 51 percent chance of prevailing if challenged by the IRS. I think a reasonable basis opinion saying you have, like, a 20 percent chance of prevailing if challenged by the IRS. So it's a 1 in 5 chance. There's, there's nothing in a reg that says that, but that's sort of, I think, commonly accepted 1, 1 out of 5. So what are the, I mean, without getting too technical legal, you know, I'm putting my law student hat back on. I mean, I know. There's, you know, if, if you, if you, if you go into a tribunal of some type and you make a frivolous argument, then you can, you could usually get penalized for that in some, in some context. So. Having a good faith basis or a, you know, a non frivolous argument is, I think, a very low bar, right? More likely than not seems to be, you know, that's a 51 plus percent, right? You, you are likely to prevail. So it sounds like reasonable basis is somewhere in between those 2 extremes. Is that right? Right, it means it's not frivolous, but it does, but it's also below what some people call what a substantial authority opinion. So, and that's whatever, 35 percent chance prevailing. So, it's goes in descending order or more likely than not substantial authority. Reasonable basis, I think. Interesting. Um, so I do know, James, that after to leave made this announcement, it certainly generated a lot of excitement in the industry and other folks, um, started looking at their own, uh, their own, uh, tax returns and started calling their own tax advisors to see if they could make a similar claim for, um, Uh, for a refund under two 80 E. Um, is I, I, I, I realize you can't disclose client confidential information, but, uh, what are you seeing and, and are you doing this sort of thing for any of your, uh, your two 80 e clients? Those are two different questions. 1, 1, 1 is we, we, we do know that there's a court case called Canner provisions v Garland. Where Verano, one of the big companies is, is a plaintiff and it's also been funded and no secret by some of the other big companies and that court case in the Western district of Massachusetts. Is a child, it says that applying schedule 1 to. Interstate legal cannabis exceeds Congress's authority under the interstate commerce clause. The schedule 1 shouldn't apply to them. And then by implication that a 280 shouldn't apply to them. And a lot of these companies, the reasonable basis opinion, 1 of the pillars of it is this commerce clause argument. Um, 1 issue with that is, of course, that can, but there's a case there's a Supreme Court case called Gonzalez be rash. In 2005, that directly says, it's okay that schedule 1 cannabis, that's a valid exercise of Congress's power under the interstate commerce clause. And so what they're arguing and can provisions is that. The factual premises on which, on which can be arrested cannabis being fungible and so forth and so on. All of that has changed. So, that, uh, decision, which was 6 3, um, would be overturned if heard by the current court, and canon provisions is just a vehicle to overturn it. So, that's 1 of the big arguments being, being used in the reasonable basis opinions. And are, are you seeing other taxpayers, um, trying to seek similar relief to TrueLeaf? Are other taxpayers filing these claims? Um, they all are who can't afford to pay their taxes, which is most of them. Um, so a bunch of my clients, for example, my, my existing client base, uh, has said, gee, we're, we're in a lot of trouble. We're, we're hoping better times are ahead. They'll be rescheduling, but, um, they want a reasonable basis opinion. So, so a, they're filing for refunds, like, truly. And B, on their 2023 and 2024 returns, they're going to say 280 doesn't apply to us, and thus we're going to take deductions just like a normal company. And keep in mind that reasonable basis is 1 out of 5 chance. I think. Yeah, that's seems okay to me. There are also other arguments, like the 16th amendment. That you would add to that opinion, but I think the commerce clause is sort of the newly. Is the current flavor of the month. So tell me a little bit about the difference between a, a protective refund claim versus, you know, an actual refund claim. And when is, I've heard both of those terms being used and I'm not sure I understand what the difference is. Well, a refund claim is where you file an amended return for past year and says, Give me the money back. There's the submitted return. I'm taking the deductions because 280 doesn't apply. So I want the money back a protective refund claim is where you file a letter with the IRS with respect to a particular year for a particular taxpayer saying in the event of some specified contingent event. We are going to apply for refund. So the specified contingent event in this case will be 2 80 gets struck down as unconstitutional for this reason or that reason. And if that happens. Then we want to file a refund for this past year for 2020 or 2021 or whatever, but we're going to file that claim for refund if and only if this contingent event, which is outside of our control occurs. Yeah, I think I think of a similar as well in just that the protective claim is going to potentially suspend the statute of limitations for the actual refund claim. So you're, you're indicating that IRS that you, you want the statute of limitations for your refund to be extended because potentially the contingent event may occur. Yeah, that was my question. Does it total the statute of limitations? Sounds like it does. That's great. Um, so, uh, so, in, in terms of a, of a, of a reasonable basis opinion, um, you know, I'm, uh. Uh, I'm a corporate lawyer. I've rendered legal opinions, you know, since I started practicing in the late 90s. I sat on opinion committees at other law firms, although I don't sit on our own firms opinion committee, but I, I know kind of what goes into. A legal opinion, I also know that reliance on a legal opinion itself has to be reasonable. So, um, uh, James, since I think, you know, more about these reasonable basis opinions specific to this to leave, or to this to 80 refund, um, what are these opinions? Look like, and, uh, uh, you know, is it how would somebody figure out whether it's reasonable to rely on 1 of them or not? Well, they can't be conclusory opinions. They have to tell you why they're reaching this conclusion. And why and what is their evidence? And what are the arguments against it? Reasonable basis opinions that I'm drafting, like, are 60 pages long. So they're really long. And the other thing is, you want the author are authors of reasonable basis opinion to actually have expertise in the field and, like, have litigated with the service about these issues. And in generally speaking, the taxpayer has to be able to make a credible claim that the author of the opinion kind of. New would hear she was talking about. I also think it's important to point out that, you know, the, the taxpayer must provide the attorney with absolute, you know, all facts, whether they're good, bad, et cetera. And, and, uh, the author needs to analyze everything. Everything that was provided from the taxpayer and you can't, you can't gloss over the bad facts to the author needs to analyze those and present a compelling argument to the IRS or to the reader about why those bad facts don't necessarily matter. Right, exactly right. And when you're signing that opinion, you're saying, I've looked at all the real facts and here's what I think. Given knowledge of all the real facts. So, um, 1 other thing that, you know, again, I, it's, um, really don't want to pick on truly if it's just that they made the announcement. And so they're the ones who started this process and got everybody looking at their 10 K and their public disclosures around their, their tax refund claims and got everybody trying to reverse engineer or deduce what, what they did and what positions they took in order to, you know, In order to make those claims, one thing you mentioned to me, James, and, and, uh, uh, conversation was, um, the, the joint committee on taxation. Um, and it was something I hadn't even heard of prior to this refund claim. Um, uh, what is that and, and how does it work? And what impact does that have on, on say the true leave, uh, refund? Well, the Joint Committee on Taxation, as the name suggests, is a joint committee of the House and the Senate of, like, tax staff and tax writers in both, in both chambers, and the Joint Committee on Taxation has to approve refunds issued by the IRS of more than 2 million in the case of an individual taxpayer and 5 In the case of corporate taxpayer, so the IRS has to write up like a little report to send to the J. C. T. saying, here's what we intend to refund to this taxpayer. And here's why. And there's at least a 30 day review by the J. C. T. which could not possibly have occurred with truly right? The J. C. T. isn't going to say, oh, yeah, just give back all this money because we believe to 80 isn't valid. That. That doesn't seem right somehow. And so it sounds like if, if I sort of pull back on the stick and go, you know, kind of high altitude on the truly of opinion, it sounds like what they most likely did was they got a reasonable basis opinion. To claim refunds, it seems like they were able to get a return of the estimated probably were able to get a return of the estimated tax payments they've made for 2023 and 2024 thus far and but it probably is. A stretch to say that they obtained some sort of favorable ruling by the IRS that, uh, 280E doesn't, that 280E doesn't apply to them. It sounds like what they got was much more of a procedural, um, return of money as opposed to some substantive review by the government that they have a decent claim to get it back. Does that sound right to you? That's my guess, but it's only a guess. They aren't saying. Right? Right. Um, well, it's very interesting. I mean, this is, this is, uh, you know, 280E is all people have been talking about in the cannabis industry for the last month and change, and, uh, I don't think we're going to stop talking about it going forward. So, uh, let's finish up with this. Um, in terms of, um, You know, James or Adam with with everything we just talked about, you know, what are what are people doing now? In other words, uh, the rescheduling announcements happened to leave the, you know, issued their press release. So, the truly stuff is sort of old to 80. I kind of look at it and the rescheduling will be new to 80 going forward if and when rescheduling happens. So if you're a taxpayer, um, what are you supposed to take out of all this? What are you supposed to do? You know, I, I think we, for a taxpayer, you kind of carry on as you've been doing. Um, I, I don't think anything changes with the ordinary necessary business expenses subject to you getting a reasonable basis opinion letter from someone like James. Um, and, but if it is in fact changes. I think that changes a lot of things. I think that changes how some structures are going to, how we're going to structure some of these in the future, how we might be changing structures for entities that we've already created. Maybe the ones that we've had separated, we're going to be determining whether we're going to put it under a C corp or a pass through or really just how we're going to combine these without other non 280 e tax related issues. I've also heard, which I found interesting, is that if, if 280E goes away, I think we're going to see a lot more investment within cannabis as well. I was, I was talking with somebody who said that their research and development costs are going to go, are potentially going to go through the roof. I, I, It seems logical that after 280 goes away, we're going to have human research for cannabis on and testing different strains. Um. And and that's going to be a perfectly reasonable deduction. I don't know if James has an opinion on that subject, but I would think that. Just more money is going to flow into this now. Sure. I agree. And, uh, you know, they can apply for. Various kinds of employer credits that they. Couldn't before, and another thing I was thinking about the other day is that. The IRS says that to 80 taxpayers are not under 263 cafe, which is the big unit cap, how you calculate cost of good sold for a technical reason. But if 2 80 goes away, all of a sudden. Then they're back under calculating possible good soul the way everyone else does. There are a lot of things that would occur and you sort of need to think through a lot of what a lot of what's going on. Yeah, I mean, it strikes me that, you know, um, uh, 2 80 is 1 of these things. It's so significant from a tax perspective that it's sort of like, uh. Like a, a 1 note instrument for, for cannabis taxpayers, it's all it's all about 2 80. and now they have to start thinking about, you know, playing the rest of the instrument. I mean, it, you know, I think, uh, people can, can look at accelerated depreciation analysis on their cultivation facility, for example, and, and, and they can, you know, They can now deduct salaries, so I wouldn't be surprised to see C suite salaries actually go up as people start realizing that they have to do more sophisticated tax planning and and implementing more sophisticated legal structures. Uh, so I could see them actually spending a little bit more on their C suite for finance professionals, accounting professionals, lawyers to kind of help move them from this sort of, uh, very 1 dimensional, uh, Uh organization all centered around dealing with 280e to a much more three dimensional organization like their non cannabis neighbors, so Uh, I don't you know, I suspect that the larger cannabis taxpayers are going to start thinking about that sooner rather than later Because as you mentioned earlier james that's Not, you know, you're not going to turn that ship on a dime, right? I mean, that's a Probably a lot of work is going to go into making that shift. Uh, and it, it probably doesn't happen, you know, on immediately as soon as rescheduling goes into effect. Any, uh, any parting thoughts before we, uh, we wrap up guys? I appreciate you hanging out with me for the last 30 minutes or so. Thanks for having us. Um, you know, one thing about the two, sort of the rescheduling is, I think it's really important for all taxpayers, uh, and all these entities to, to really just understand that this doesn't get rid of every, every prohibition for cannabis. I had a, I had a taxpayer that asked me, Oh, well, you know, we're a large cannabis, we're a large operating, uh, company operating in six different states. Can I now. lie some cannabis from one state to another one. No, you know that that doesn't change. Um, that is under a different law. So I think, you know, really, we're really advocating and for our taxpayers and our clients to understand what does reschedule? If it's rescheduled, what does it actually change? Because it's not going to change everything. Well, it really doesn't change anything in the near term other than 288. I mean, it's, it's, uh, it, it, it, you know, schedule 1 to schedule 3, it's still illegal to, uh, to, to, to, um, cultivate, manufacture, distribute, and purchase schedule 3, um, schedule 3 drugs. It's just, uh, schedule 3 drugs have a medical benefit. You can, you can get them with a prescription. Pharmaceutical companies can sell them with a prescription, but, um, none of our cannabis, no, no cannabis company is, uh, is, is, is a pharmaceutical company and, and is compliant with that regulatory regime. In fact, it's not possible for them to do that. As far as I know, there are people getting prescriptions for. For medical cannabis in certain states. So in that sense, arguably, uh, they, they, uh, on that end of the transaction, they, they may, they may have a better argument vis a vis, uh, uh, violations of federal law, but nobody's, you know, the DEA is not out there arresting people buying dispensary right now anyway. So I don't really think the, the lay of the land changes, uh, in the near term. Other than 280E, but I think it's also important to, to, to point out that this is the first substantive change in federal marijuana law in 54 years. So that, that you can't really overstate that significance. It's, it, to me, it means it's likely, That there is some, um, additional relaxation of rules that's going to come from, uh, you know, not immediately, and maybe not even in a year, but over time, it should hopefully usher in some additional relaxation of rules, whether it's on the banking side, um, or even capital markets. Some of the things we talked about earlier, uh, and for for later podcasts, we can talk about other things, like. Restructuring because you all know cannabis companies can't go bankrupt and we're, we're likely going to have a conversation about that topic soon. Um, and, uh, you know, uh, interstate commerce interstate commerce is something that people always have on the back of their minds as well. At some point in time, we're likely to see a world where interstate commerce is permitted. But right now, that's, uh, it's really not permitted under any of the. Any of the, uh, state legal marijuana regimes. Uh, you have anything to add James before we sign off? Um, no, except maybe 1 thing people ought to think about in terms of rescheduling is, it is rescheduling forever. Things might happen in November that cast doubt on it. So there are a lot of moving pieces here. There's no question about it. Well, we don't need to talk, we don't need to become political analysts, but, uh, yes, that's true. There's a, I heard there's a election coming up in November, which, uh, uh, could potentially impact things, but, uh, let's, let's save that for a later day. Hey Adam, thank you very much for signing in from Chicago. James, thank you very much. Uh, thank you Sandra Delight to have you all listening to the Clark Hill Cannabis Industry Group podcast, and we will see you next time. Thanks so much.