Here’s the introduction to their piece

For decades, cannabis, derivatives of cannabis, and associated substances such as hemp and marijuana have been classified as Schedule I narcotics beneath the 1970 Controlled Substances Act. Federally, the production and sale of marijuana have been and stay illegal, though a marijuana small business remains obligated to spend federal revenue tax on its taxable revenue beneath Sec. 61(a).

Sec. 280E limits revenue tax deductions for companies that visitors in controlled substances. The origin of Sec. 280E dates to 1981 with the Tax Court case Edmondson,T.C. Memo. 1981-623. The court decided that a seller of cocaine, amphetamines, and marijuana could deduct most of his price of goods sold (COGS) packaging, telephone, and automobile costs and a portion of his rental expense of his residence, all relating to the seller’s illegal business.

In 1982, Sec. 280E was enacted to reverse the Edmondson decision and deny sellers of Schedule I or II controlled substances the ideal to deduct small business costs. Considering that marijuana is classified as a Schedule I drug, marijuana companies are unable to deduct most ordinary small business costs. On the other hand, COGS is allowable as an adjustment to gross receipts.

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