The U.S. has roughly 38,000 licensed marijuana businesses, yet many are struggling to meet federal tax obligations. Eleven of the largest operators collectively owe over $2.3 billion in federal income taxes. Smaller firms are facing similar pressure, largely due to Section 280E of the federal tax code, which blocks marijuana businesses from deducting most expenses.
That burden has pushed a growing number of companies to take a risky step. Cannabis businesses are submitting tax returns that challenge the IRS’s position on what they owe.
Whether that pushback will succeed is far from clear. Previous attempts by Americans to mount large-scale tax rebellions offer historical context, and most did not end well for the people involved.
One of the first major confrontations over taxes came in the early 1790s, when farmers in western Pennsylvania rejected a federal levy on distilled spirits meant to help the young nation pay down its war debt. President George Washington responded by leading troops into the region in 1794, and the Whiskey Rebellion fell apart almost immediately.
Only two participants were convicted, and both were later pardoned. Although residents continued resisting the tax until it was eliminated in 1802, the public largely backed the government’s actions.
Another revolt came in the 1990s, when thousands filed for a supposed “Black Inheritance Tax Refund.” It was based on the idea that the federal government had promised former slaves land and livestock after the Civil War. While the IRS stated that no such refund existed, it acknowledged that it had mistakenly paid out over $30 million and moved aggressively to alert the public and shut down the scheme.
Every major tax revolt has ended with the government prevailing, which does not bode well for today’s cannabis operators. Still, this modern dispute has its dynamics. Many marijuana companies argue they want to settle, but only for amounts they can realistically afford.
Supporters often cite the 2022 Harborside case in which the IRS accepted far less than the $22 million it claimed was owed and agreed to a ten-year payment plan. That deal was shaped by Harborside’s bleak finances and the likelihood that the company would collapse without leniency.
It also included a provision adjusting payments every two years so that any future profit would flow largely to the IRS. Harborside, later rebranded as StateHouse Holdings, ultimately failed anyway.
Others point to potential changes in federal drug policy or a retroactive fix to Section 280E. However, the Treasury Department has historically resisted retroactive tax changes, and such amendments are rare as taxpayers rely on the law as it stands when they file returns.
Some observers also raise the idea of a settlement program similar to the recent employee retention credit initiative, which allowed participants to repay most of what they received without facing penalties. Still, even an offer requiring repayment of 85% of the tax owed would be unreachable for many marijuana businesses already operating on thin margins.
For now, there is no close comparison in American tax history to a revolt where enforcing the law as written could threaten an entire industry. The outcome of the marijuana tax rebellion remains uncertain, and the stakes are only getting higher.
A more fair tax system would enable companies like Green Thumb Industries Inc. (CSE: GTII) (OTCQX: GTBIF) to grow a lot faster than they are currently doing.
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