Key Points:
- Trulieve’s recent $113 million refund has prompted other operators to reevaluate their past and future strategies as the punitive 280E tax continues to wreak havoc on the Cannabis industry.
- We hosted a webinar discussion to help investors better understand the Internal Revenue Service (IRS) process and position. The debate featured a partner from CohnReznick and an Attorney and partner with SunBank Legal, who, while serving at the DoJ, litigated cases involving constitutional challenges to federal law treatment of the cannabis industry (280E).
- There are compelling arguments to repeal 280E (consistent with the Boies Schiller case); however, the Trulieve refund does not set a precedent for other operators.
- It is unclear whether the refund was issued erroneously or subject to review by the IRS Joint Committee on Taxation (standard procedure). Truelieve acknowledges that it may be required to remit the funds back to the IRS.
- Curaleaf and Cresco Labs have yet to disclose their potential refunds, which could reach ~$75M and ~$38M, respectively based upon our estimates. Others will likely follow.
- 280E collections have brought billions of dollars to the U.S. Treasury, about 5-7% of cannabis retail revenues (per our estimates). Hypothetically, an industry-wide 280E refund (or savings) from 2020 – 2023 could total ~$5.8B. Considering the U.S. budget deficit is in the trillions, these lost revenues could influence the outcome.
- A retroactive repeal of 280E could trigger significant Net Operating Loss (NOL) carryforwards at the Federal level (and in states that have not decoupled 280E).