Federal Bill Analysis: S.471/HR.1447 - "No Deductions for Marijuana Businesses Act"

The Incoherent 280E Permanence Act (2025)

Primary Sponsors: Sen. James Lankford (R-OK), Rep. Jodey Arrington (R-TX)
Status: Introduced 119th Congress (2025)
Official Title: "No Deductions for Marijuana Businesses Act"

Executive Summary

S.471 and its House companion HR.1447 represent one of the most transparently corrupt pieces of cannabis legislation introduced in modern Congressional history. The bills would permanently maintain Section 280E tax penalties on state-legal cannabis businesses—forcing effective tax rates of 50-70%—regardless of whether cannabis is rescheduled from Schedule I to Schedule III under the Controlled Substances Act.

This legislation is notable not for its policy coherence (it has none) but for the brazenness with which it serves pharmaceutical and private prison industry interests while simultaneously strengthening black market cannabis operations that sponsors claim to oppose.

What Section 280E Actually Does

Section 280E of the Internal Revenue Code prohibits businesses from deducting ordinary and necessary business expenses if those businesses traffic in Schedule I or II controlled substances. For state-legal cannabis companies, this means:

• No deductions for rent, utilities, salaries, marketing, insurance, or other standard business expenses
• Only Cost of Goods Sold (COGS) can be offset against revenue
• Effective tax rates of 50-70% or higher, compared to 21% corporate rate for other businesses
• $2.3 billion paid in federal taxes in 2024 specifically due to 280E

Normally, if cannabis were rescheduled to Schedule III (as the Biden administration proposed in 2024), 280E would no longer apply and cannabis businesses could deduct expenses like any other business.

S.471/HR.1447 would override this, creating a unique category: Schedule III but still taxed punitively as Schedule I.

The Policy Incoherence

From a drug policy perspective, this legislation is nonsensical:

If Cannabis Should Remain Schedule I:

• Keep it Schedule I (most dangerous, no accepted medical use)
• 280E applies automatically
• No new legislation needed

If Cannabis Should Be Schedule III:

• Reclassify it as Schedule III (accepted medical use, lower abuse potential)
• Allow normal business tax treatment
• Consistent with the reclassification rationale

What S.471/HR.1447 Actually Does:

• Creates a third category that violates basic principles of consistent regulation
• Says cannabis has "accepted medical use" (Schedule III) but should be taxed as if it doesn't (Schedule I penalty)
• Maintains punitive taxation specifically and exclusively for cannabis

This is not drug policy. This is industrial policy designed to handicap cannabis businesses in favor of their pharmaceutical competitors.

The Black Market Stimulus Effect

How 280E Strengthens Illegal Cannabis Markets

The economics are straightforward:

Legal Cannabis Business Under 280E:

• Effective tax rate: 50-70%
• Must charge higher prices to remain solvent
• Subject to strict testing, labeling, tracking requirements
• Additional state taxes and fees
• Result: $40-60/eighth in legal dispensaries

Black Market Cannabis:

• Zero federal tax burden
• Zero compliance costs
• No testing requirements
• No tracking or reporting
• Result: $20-30/eighth from unlicensed dealers

By maintaining 280E, S.471/HR.1447 ensures that legal cannabis remains artificially expensive, making black market products price-competitive despite their lack of testing or regulation.

The Consumer-Driven Black Market Displacement Framework Analysis

Under the CBDT Framework I developed (published through Harvard Dataverse), legal cannabis markets succeed when they can price-compete with black markets while offering superior quality and safety. The framework achieved 5% mean absolute error in predicting legal market outcomes across 24 states.

Key Finding: States where legal cannabis prices remain artificially inflated due to taxation or regulatory costs see:

• Persistent black market activity (30-50% of total consumption)
• Lower state tax revenue than projected
• Continued arrests and incarceration for unlicensed activity
• Public health risks from untested products

280E is the single largest artificial cost burden on legal cannabis businesses. S.471/HR.1447 would permanently enshrine this black market advantage, contradicting the sponsors' stated concerns about illegal cannabis activity.

The Sponsors' Documented "Illegal Cannabis" Concerns

Sen. Lankford sponsored the SOIL Act (2024) specifically to address what he called "Chinese-linked illegal cannabis grows" in Oklahoma. Yet he simultaneously co-sponsors legislation that makes illegal grows more profitable by keeping legal cannabis artificially expensive.

Sen. Ricketts spent over $500,000 on anti-medical cannabis ads claiming cannabis legalization would increase youth access and crime. Yet he supports legislation that ensures black markets remain price-competitive with legal, regulated, age-verified dispensaries.

This is not policy coherence. This is deliberate sabotage of legal cannabis markets.

The Pharmaceutical Industry Connection

Documented Financial Flows to Sponsors

Why Pharmaceutical Companies Want 280E Maintained

Cannabis directly competes with pharmaceutical products for:

1. Pain Management
   • Opioid prescriptions down 5-6% in states with medical cannabis (studies)
   • Cannabis as alternative to NSAIDs, muscle relaxants
2. Anxiety and Depression
   • Alternative to benzodiazepines (Xanax, Valium)
   • Alternative to SSRIs (Prozac, Zoloft)
3. Sleep Disorders
   • Alternative to Ambien, benzodiazepines
   • $1.4 billion U.S. sleep aid market
4. Seizure Disorders
   • CBD competes with traditional anticonvulsants
   • Ironically, GW Pharmaceuticals' Epidiolex (FDA-approved CBD) benefits from 280E on competitors
5. Nausea and Appetite
   • Competes with Zofran, Marinol
   • Chemotherapy-related nausea market

The pharmaceutical industry is "consistently near the top of all spenders when it comes to federal campaign contributions and lobbying" according to OpenSecrets.

By maintaining 280E, S.471/HR.1447 ensures cannabis products remain 50-70% more expensive, making pharmaceutical alternatives more price-competitive.

The Private Prison Industry Connection

Documented Financial Flows to Sponsors

Why Private Prisons Want Black Markets to Persist

CoreCivic's annual report explicitly states:

"The demand for our facilities and services could be adversely affected by the relaxation of enforcement efforts, the expansion of alternatives to incarceration and detention, leniency in conviction or parole standards and sentencing practices through the decriminalization of certain activities that are currently proscribed by criminal laws."

Translation: Private prison profits depend on maintaining high incarceration rates for drug offenses.

By keeping legal cannabis artificially expensive through 280E:

• Black markets remain price-competitive and persistent
• Unlicensed cultivation and distribution continues
• Arrests and incarceration for cannabis offenses continue
• Private prison contracts remain robust

Private prison companies donated over $1.8 million to political campaigns in 2018-2020, with the vast majority going to Republicans.

The "Law Enforcement" Political Cover

Sponsors receive additional funding from anti-cannabis advocacy groups that provide political cover:

Sen. Lankford:

• National Fraternal Order of Police PAC: $10,000
• Drug Free America Foundation: $5,000

Sen. Ricketts:

• Nebraska Sheriffs' Association PAC: $8,000
• Smart Approaches to Marijuana (SAM) Nebraska: $5,000 in-kind advertising support

These groups allow legislators to frame their industry-serving legislation as "tough on crime" rather than the pharmaceutical and private prison industry protection it actually represents.

Rep. Andy Harris has been called "Public Enemy No. 1" by marijuana activists for his decade-long crusade to block Washington D.C. from implementing voter-approved cannabis legalization, using Congressional appropriations riders since 2014.

The Federal Revenue Complicity

The federal government itself has become financially dependent on 280E:

• $2.3 billion collected in 2024 from cannabis businesses specifically due to 280E
• $1.8 billion collected in 2022
• Rapid growth as more states legalize

This creates a perverse incentive: The federal government now has a direct financial interest in maintaining punitive taxation of an industry it claims is engaged in illegal activity under federal law.

S.471/HR.1447 would permanently enshrine this revenue stream, regardless of rescheduling, creating a bizarre situation where:

• Federal policy acknowledges cannabis has "accepted medical use" (Schedule III)
• Federal tax policy treats it as having no legitimate use (Schedule I penalties)
• Federal budget depends on the revenue from this contradiction

The Co-Sponsors: A Who's Who of Industry-Captured Legislators

House Bill (HR.1447) Co-Sponsors:

From Congressional records:

1. Jodey Arrington (R-TX) - Primary Sponsor
2. Vern Buchanan (R-FL)
3. Andrew Clyde (R-GA)
4. Chuck Edwards (R-NC)
5. Andy Harris (R-MD) - "Top pharmaceutical donor recipient"
6. Blake Moore (R-UT)
7. Nathaniel Moran (R-TX)
8. Greg Murphy (R-NC)
9. Gary Palmer (R-AL)
10. Pete Sessions (R-TX)
11. Adrian Smith (R-NE)

Senate Bill (S.471) Co-Sponsors:

Primary sponsors appear to be Louisiana senators, with documented co-sponsors:

1. James Lankford (R-OK) - $145K pharmaceutical, $18.5K private prison
2. Pete Ricketts (R-NE) - $112K pharmaceutical, $12.5K private prison
3. Additional co-sponsors being confirmed

Historical Context: The Reagan-Era Drug War Relic

Section 280E was passed in 1982 during the Reagan administration to prevent a drug trafficker named Jeffrey Edmondson from deducting business expenses related to his illegal amphetamine, cocaine, and cannabis trafficking operation.

The 1982 context:

• Cannabis was federally illegal in all circumstances
• Zero states had medical cannabis programs
• Zero states had adult-use legalization
• The "War on Drugs" was escalating

The 2025 context:

• 38 states have medical cannabis programs
• 24 states have adult-use legalization
• 68% of Americans support legalization
• $7 billion+ in annual legal cannabis sales
• Federal government considering rescheduling to Schedule III

S.471/HR.1447 would freeze cannabis tax policy in 1982 while federal classification policy moves to acknowledge medical acceptance. This temporal contradiction reveals the bill's true purpose: protecting established industries from cannabis competition, not coherent drug policy.

How This Bill Violates Basic Tax Policy Principles

Principle 1: Tax Code Should Be Neutral Between Industries

Violated: S.471/HR.1447 specifically targets cannabis businesses for punitive taxation unavailable to any other industry, even after federal policy acknowledges cannabis's medical use.

Principle 2: Tax Treatment Should Align With Regulatory Classification

Violated: The bill maintains Schedule I tax penalties (no legitimate use) while federal policy moves to Schedule III (accepted medical use, lower abuse potential).

Principle 3: Tax Policy Should Not Create Competitive Distortions

Violated: By keeping legal cannabis artificially expensive, the bill creates a permanent competitive advantage for:

• Pharmaceutical companies (direct competitors)
• Black market operators (no tax burden)
• Adjacent markets (alcohol, tobacco face normal taxation)

Principle 4: Tax Code Should Not Incentivize Illegal Activity

Violated: By maintaining a 50-70% effective tax rate on legal cannabis, the bill ensures black market cannabis remains price-competitive, incentivizing consumers to purchase from unregulated, untested sources.

Real-World Impact: State Market Case Studies

Colorado (CBDT Framework Validation)

Colorado's mature market demonstrates what happens when legal cannabis can price-compete with black markets:

• Legal market share: ~75-80% of total consumption
• Black market: Reduced to ~20-25%
• State tax revenue: $423 million in 2021
• Youth usage rates: No increase post-legalization

Colorado cannabis businesses still pay 280E, but state-level policies (reasonable taxes, efficient licensing) partially offset it.

California (280E Plus High State Taxes)

California demonstrates what happens when 280E combines with high state taxes:

• Legal market share: ~50-60% of consumption
• Black market: 40-50% remains robust
• Lost state revenue: Billions in untaxed black market sales
• Public safety: Illegal cultivation operations persist statewide

280E is the foundation of California's black market problem. S.471/HR.1447 would ensure this problem can never be solved through federal rescheduling.

The Rescheduling Context: Why This Bill Exists Now

In August 2023, the U.S. Department of Health and Human Services recommended rescheduling cannabis to Schedule III. This would:

• Acknowledge cannabis's accepted medical use
• Reduce criminal penalties
• Automatically eliminate 280E applicability

The pharmaceutical and private prison industries recognized this threat. S.471/HR.1447 is their response: legislatively override the rescheduling tax consequences while maintaining the fiction of supporting drug enforcement.

In September 2025, the Republican-led House Appropriations Committee advanced a spending bill with a rider prohibiting the DOJ from using funds to remove cannabis from Schedule I - the same committee where private prison and pharmaceutical PACs have donated heavily.

The pattern is clear: When federal policy threatens pharmaceutical and private prison profits, industry-funded legislators intervene.

Comparison: What Other "Harmful" Industries Pay

Cannabis is the only industry denied standard business expense deductions, despite causing zero overdose deaths and having accepted medical use in 38 states.

The Constitutional Question: Equal Protection

S.471/HR.1447 raises serious constitutional questions:

Equal Protection Clause (14th Amendment): Does the government have a rational basis to tax cannabis businesses at 50-70% while taxing tobacco, alcohol, and pharmaceutical opioids at 21%?

The Current Rationale: Cannabis is Schedule I (no accepted medical use).

Post-Rescheduling Rationale: ???

If cannabis is rescheduled to Schedule III (accepted medical use), what constitutional basis exists for maintaining punitive taxation? S.471/HR.1447 provides none - because the real rationale (protecting pharmaceutical profits) cannot be stated explicitly.

Legal challenges to 280E are already underway, with New Mexico Top Organics, Inc. v. Commissioner being the first case to raise statutory construction arguments challenging Section 280E in Tax Court.

Quantifying the Black Market Stimulus

Under Current Law (280E Applies to Schedule I/II):

• Legal cannabis: $40-60/eighth (including 280E tax burden)
• Black market: $20-30/eighth
• Price differential: ~50-100%

Under Rescheduling Without S.471/HR.1447:

• Legal cannabis: $25-35/eighth (normal business taxation)
• Black market: $20-30/eighth
• Price differential: ~15-30%
• Result: Legal market captures 85-90% of consumption

Under S.471/HR.1447 (280E Permanent):

• Legal cannabis: $40-60/eighth (280E maintained)
• Black market: $20-30/eighth
• Price differential: ~50-100%
• Result: Black market maintains 30-50% market share

Conservative estimates of black market stimulus:

If S.471/HR.1447 passes and maintains black market at 30% of national consumption:

• Total U.S. cannabis consumption: ~$75 billion annually
• Black market share: ~$22.5 billion
• Lost state tax revenue: ~$4-5 billion annually
• Continued arrests: 200,000+ annually for unlicensed activity
• Continued private prison revenue: Hundreds of millions

What This Bill Actually Accomplishes

DOES NOT Accomplish:

FAILS TO: Reduce illegal cannabis activity
FAILS TO: Protect public health
FAILS TO: Reduce youth access
FAILS TO: Improve drug policy coherence
FAILS TO: Align with voter preferences (68% support legalization)
FAILS TO: Reflect current medical evidence

DOES Accomplish:

SUCCEEDS: Protects pharmaceutical companies from cannabis competition
SUCCEEDS: Maintains private prison revenue from cannabis arrests
SUCCEEDS: Ensures black markets remain price-competitive
SUCCEEDS: Generates $2.3 billion annual federal revenue from punitive taxation
SUCCEEDS: Rewards congressional sponsors' donors
SUCCEEDS: Maintains revenue for "law enforcement" lobbyist groups

Recommendations

For State Policymakers:

1. Document black market persistence in your state and attribute portion to federal 280E
2. Calculate lost state revenue from black market activity enabled by 280E
3. Lobby Congressional delegations to oppose S.471/HR.1447
4. Consider state-level 280E decoupling (following CA, NY model)

For Cannabis Industry:

1. Quantify 280E impact on pricing and market share vs. black market
2. Document how 280E prevents safety investments, employee benefits, community programs
3. Support legal challenges to 280E constitutionality
4. Educate consumers about how federal tax policy funds black markets

For Researchers and Advocates:

1. Track sponsor campaign finance for ongoing industry influence
2. Document correlation between 280E burden and black market persistence
3. Calculate societal costs of maintaining black markets (untested products, continued criminalization)
4. Publicize pharmaceutical industry self-interest in cannabis taxation

For Voters:

1. Contact your Congressional representatives to oppose S.471/HR.1447
2. Ask sponsors to disclose pharmaceutical and private prison industry contributions
3. Share this analysis with local media and community organizations
4. Support primary challengers to industry-captured incumbents

Conclusion: Policy Corruption as Legislative Text

S.471/HR.1447 - the "No Deductions for Marijuana Businesses Act" - is not drug policy. It is industrial policy written by pharmaceutical and private prison lobbyists to protect their profits at the expense of:

• State-legal cannabis businesses trying to compete fairly
• Consumers paying artificially inflated prices
• State governments losing billions in tax revenue to black markets
• Public health (untested black market products)
• Public safety (continued criminalization and incarceration)
• Policy coherence (Schedule III classification with Schedule I penalties)

The bill's true purpose is revealed not in its text but in who benefits financially:

Winners:

• Pharmaceutical companies (reduced competition)
• Private prison corporations (continued cannabis arrests)
• Black market operators (maintained price advantage)
• Federal government ($2.3B annual revenue)
• Congressional sponsors (campaign contributions)

Losers:

• Legal cannabis businesses (70% effective tax rate)
• Consumers (higher prices, continued criminalization risk)
• State governments (lost tax revenue)
• Communities of color (disproportionate arrests continue)
• Policy coherence (Schedule III with Schedule I penalties)
• American voters (68% support legalization)

When legislation this incoherent advances in Congress, the only explanation is systematic corruption: industry money has purchased policy outcomes that would never survive on their merits.

S.471/HR.1447 should be seen for what it is: a $2.3 billion annual payoff to pharmaceutical and private prison industries, disguised as drug policy, enabled by campaign contributions, and defended with "tough on crime" rhetoric that actually strengthens the criminal black markets sponsors claim to oppose.

This is not governing. This is graft.

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