Harborside Appeals Cannabis Tax Ruling in Federal Court

California cannabis company Harborside is continuing its legal challenge to federal tax code 280E but is taking a different approach to the case along with a new legal team, MJBizDaily reports. The company argues that 280E is unconstitutional, running afoul of the 16th Amendment, which allows for income taxes, but attorney James Mann of Greenspoon Marder says 280E, “results in a tax that’s not on income, it’s not an income tax, so therefore it’s unconstitutional.”

The arguments come in a May 26 appeal filed by Mann on behalf of Harborside. In short, 280E prevents standard business deductions by companies that deal federally illegal drugs, including cannabis even when state-approved. In 2018, the U.S. Tax Court ruled against Harborside calling the firm “a giant drug trafficker, unentitled to the usual deductions that legitimate businesses can claim” because cannabis remains federally illegal.

Mann told MJBizDaily that decision “is just wrong” and calls the determination by the Tax Court and the Internal Revenue Service that state-legal cannabis businesses aren’t afforded the same cost of goods sold deductions “crazy.”

Former IRS officer William Fowler, now a senior adviser with Nevium Intellectual Property Consultants, told MJBizDaily that Harborside is “dreaming” and “grasping at straws” and that the lawsuit risks further entrenching the IRS’s position on 280E.

“They’re really pushing the industry to have some really tight rulings on this. The IRS is preparing more guidance on this, so (Harborside) should have waited until they got that guidance. To me, those arguments are weak, and it’s not good for everybody else.” – Fowler to MJBizDaily

Mann argues that the legal issues in the case are ripe for appeal and that the 2018 opinion was “ill-considered.”

The case is in the U.S. Court of Appeals for the 9th Circuit in San Francisco and a decision on the matter could take years. The original lawsuit by Harborside was filed in 2016 and a decision wasn’t issued until 2018.