Internal Revenue Code section 280E is a Selling Expense Tax – denying income tax deductions for any amounts paid other than cost of goods sold. It applies only to sales of federally illegal drugs.
So marijuana sellers cannot deduct, for instance, advertising expenses.
The marijuana consumer organization NORML says this as of March 19, 2021:
“NORML supports regulatory controls that seek to limit youth exposure to adult-use cannabis-related advertising and marketing as well as efforts to not incentivize advertising cannabis products through the tax code.” https://norml.org/marijuana/fact-sheets/core-attributes-of-adult-access-regulations/
(Note: The hotlink on “efforts” in that NORML statement links back to this web page.)
An earlier NORML posting pointed out that advertising is a red flag for prohibitionists, and that maintaining non-deductibility of advertising costs can work against “well funded corporate controlled marijuana companies, which can afford extensive advertising.”
Here’s that full NORML statement, furnished by Political Director Justin Strekal, https://norml.org/about-norml/staff/, twitter @justinstrekal, about earlier legislation that had faded from view, but indicating NORML’s ongoing view of section 280E:
“The marijuana industry is an economic generator for America. Businesses in this space should be regulated by the federal tax code in a manner that is fair, that will help stimulate economic growth, and that allows the marijuana industry and those who operate in it to avoid unjustified tax penalties.
“However, this legislation could be improved.
“As part of a potential compromise package to allow these deductions, NORML supports the continuation of non-tax-deductibility of marijuana business advertising expenses. For some citizens, advertising is a distraction, or can be a red flag that can cause them to hesitate to support the sound policy of legalization.
“Allowing deductions for rent and employee costs would help the bottom line of small businesses and give incentives for further hiring, while maintaining the non-deductibility of advertising costs can act as a preemptive move against well funded corporate controlled marijuana companies, which can afford extensive advertising. This development would encourage the proliferation of a more diverse array of smaller businesses, as opposed to the consolidation by large corporate interests. A legal industry dominated by smaller businesses in turn would create more competition, thus leading to higher quality and better priced products for the consumer.”
Here is a link to article detailing some of the benefits of 280E. https://www.brookings.edu/blog/fixgov/2015/12/18/how-bob-dole-got-america-addicted-to-marijuana-taxes/#disqus_thread.
In support of the proposition that advertising helps big businesses more than Mom & Pops, $1 out of every $6 spent on restaurant advertising in America [in one recent year was] done by McDonald’s. https://www.businessinsider.com/this-one-statistic-shows-how-much-mcdonalds-tries-to-entrench-itself-in-everybodys-minds-2012-3.