TerrAscend Joins the Ranks of Cannabis Firms Challenging Tax Obligations Under Section 280E

LOS ANGELES- TerrAscend Corp., a prominent cannabis multistate operator, has announced a bold strategy to contest taxes owed under Section 280E of the Internal Revenue Code, signaling a potential shift in the financial maneuvering within the cannabis industry. During the company’s fourth-quarter earnings call, Executive Chair Jason Wild revealed plans to amend tax returns, anticipating refunds of approximately $26 million.

The decision to contest the applicability of Section 280E, which prohibits cannabis companies from deducting ordinary business expenses due to the federal illegality of marijuana, has led TerrAscend to reclassify $59.2 million in tax liabilities as “long term liabilities and an uncertain tax position” on its balance sheet, as stated by Chief Financial Officer Keith Stauffer. This reclassification pertains to the fiscal years 2020, 2021, and 2022, for which the company, headquartered in Canada, will be filing amended returns.

The anticipated $26 million in tax refunds encompasses both federal and state levels for the years 2020 and 2021. Moving forward, TerrAscend plans to operate as an ordinary taxpayer, circumventing the punitive measures of Section 280E. This strategic pivot is reportedly aligned with legal interpretations similar to those employed in the ongoing Boies Schiller lawsuit, where four cannabis companies are challenging federal marijuana prohibition on the grounds that it unconstitutionally obstructs state-legal cannabis operations.

This development places TerrAscend among a growing list of cannabis firms adopting aggressive tax strategies in opposition to Section 280E. Other notable companies such as Trulieve Cannabis Corp., Ascend Wellness Holdings, and Jushi Holdings have also initiated actions to reclaim or avoid taxes under this provision, though the long-term viability and legal acceptance of these strategies remain uncertain.

TerrAscend’s financial results for the fourth quarter showed a net revenue increase of 25.4% year-over-year to $86.6 million, despite a quarterly net loss from continuing operations of $41.8 million. The company’s annual performance reflected a net revenue of $317.3 million for 2023, marking a 28% increase from the previous year, alongside a net loss from continuing operations of $82.3 million.

In a strategic move to enhance its market position, TerrAscend transitioned its shares from the Canadian Securities Exchange to the Toronto Stock Exchange in 2023, becoming one of the first U.S. multistate operators to switch stock exchanges in Canada.

TerrAscend’s challenge against Section 280E could pave the way for significant legal and financial precedents within the cannabis industry, potentially influencing the broader dialogue on cannabis taxation and regulation in the United States.