Current federal law clearly stipulates that CBD (a cannabis derivative) is only legally sold at the federal level when it is a component of a drug approved by the U.S. Food and Drug Administration (FDA). Currently, Epidiolex is the only approved drug containing CBD. If CBD is not part of an FDA-approved drug, it is classified as a Schedule I controlled substance under the Controlled Substances Act.

Section 280E of the Internal Revenue Code explicitly states that any business "trafficking in controlled substances (as defined in Schedule I and II of the Controlled Substances Act)" may not deduct related expenses. For cannabis businesses in states where cannabis has been legalized, this provision is generally interpreted to mean that businesses can only deduct the cost of goods sold (COGS), which often results in a tax burden exceeding 100% of their profits.

Furthermore, several accountants I have consulted insist that this tax burden also extends to the parent companies of cannabis businesses; isolating cannabis-related operations into a subsidiary does not shield the parent company from the tax implications of Section 280E.

However, several major national retailers are currently selling CBD products, including GNC, Amazon, Walgreens, CVS, and others. Should these actions subject these companies to Section 280E? Does the burden apply not only to their cannabis-related sales but also to all their sales, effectively erasing the potential profitability of retailers, which typically operate on thin margins?

Is there a factor I have not considered, or are these companies simply gambling that they will not face enforcement actions?