The DOJ just sued TerrAscend for $8.3 million. The lawsuit landed on May 18, 2026. And honestly? It’s the moment a lot of us in cannabis accounting have been waiting for.
This is the first known case where the government is trying to claw back a 280E tax refund. TerrAscend filed an amended 2020 return claiming $64.2 million in deductions. The IRS sent them $8.3 million back in June 2024. Now the Department of Justice wants it returned, with interest.
Here’s the thing. Plenty of cannabis operators rolled the dice on amended returns over the past two years. They saw rescheduling on the horizon. They figured they could claim back what Section 280E took from them. The IRS even cut some refund checks. Looked like easy money.
Surprisingly, the IRS warned everyone about this. A June 2024 bulletin made the agency’s position crystal clear. Operators who filed amended returns to claim 280E relief were not entitled to a refund. That bulletin went out the same month TerrAscend got their check. Awkward timing, right?
Why we never recommended amended returns
At High Rock Accounting, we never told clients to amend old returns to chase 280E refunds. Not once. The risk was always too steep.
Think about what TerrAscend just learned the hard way. They got their money almost two years ago. They likely put it to work. Now they have to figure out where $8.3 million plus interest is coming from. That’s not a small problem. That’s a balance sheet crisis waiting to happen.
The IRS made another move on March 6, 2026. The agency filed its position in New Mexico Top Organics v. Commissioner. They argued that rescheduling decisions sit with the DEA, not HHS. They also argued that the operators’ logic for retroactive claims would create an absurd result. The Tax Court hasn’t ruled yet, but the agency isn’t backing down.
So when an operator amends a 2020 or 2021 return, what are they really doing? They’re betting the IRS will treat cannabis as not-Schedule-I for a year when cannabis was, in fact, Schedule I. That’s a tough bet to win.
Prospective non-280E treatment is a different story
Now here’s where my opinion comes in: I believe prospective non-280E treatment can be defensible.
The law actually changed with Medical cannabis moving to Schedule III earlier this year and anticipated further potential rescheduling after the DEA’s June 2026 session. Section 280E only applies to trafficking in Schedule I and II controlled substances. So a state-licensed medical operator, filing a return for a period after the effective rescheduling date, has a real argument. This development (coupled with a legal letter laying out the basis for considering 280E unconstitutional) for medical and adult use sales provides a real opportunity for cannabis operators to finally feel some tax relief. The statute and the substance line up.
That’s a totally different posture than amending a 2020 return. In 2020, cannabis was Schedule I. Period. No legal change had happened yet.
BUT even prospective treatment isn’t risk-free. The US Treasury still hasn’t issued guidance on how this all plays out and there is yet to be formally settled IRS case law regarding non-application of 280E for state legal operators. That means we’re still advising our clients who take a non-280E approach to hold funds in reserve in the event this position is denied by the IRS. Additionally, we strongly advise that cannabis operators be transparent and upfront with shareholders, investors, and debt holders regarding the potential liability that exists under these uncertain tax positions.
What this case tells us about IRS thinking
Want to know what really stands out about the TerrAscend complaint? The government noted the refund went out without review by the Joint Committee on Taxation. That review is required for large refunds. The IRS is basically admitting it slipped up. Now it’s using a lawsuit to fix the mistake.
So if you received a tax refund via an amended cannabis return, you should be nervous. The IRS looks willing to claw back any refund it now considers issued in error. Even years after the fact.
The wider industry exposure is staggering. Trulieve carries roughly $445 million in 280E-related tax exposure. Verano shows about $378 million. Cresco Labs disclosed $171.5 million in uncertain tax positions. Across all public MSOs, the disputed figure has climbed to $1.6 billion. Will the DOJ take this same playbook to other operators? I’d bet yes.
The bigger lesson from TerrAscend? An IRS refund check is not the same as IRS approval. Cashing it doesn’t end the matter. It just starts a different clock.
Frequently asked questions
Did High Rock Accounting ever recommend amending past returns to claim 280E refunds?
No. We saw amended returns as too aggressive given the unsettled legal posture. The TerrAscend case validates that approach.
Can cannabis businesses skip 280E for the current year after rescheduling?
Possibly, but there are specific steps a cannabis operator needs to take to strengthen their position. Every situation needs its own analysis. Treasury guidance is still pending. High Rock Accounting can assist in walking through and explaining these steps one by one with you.
What should operators do if they already received a 280E refund?
Talk to your tax advisor immediately. The IRS may pursue clawback for years. Plan for the cash impact and document your position carefully. Need a cannabis specialized tax advisor? Reach out to our exceptional cannabis experts at High Rock Accounting.
Will the DOJ go after other MSOs that received 280E refunds?
That’s the working assumption. The TerrAscend filing reads like a template the government can re-use across the industry.
| Need help building a defensible cannabis tax strategy? Talk to High Rock Accounting → |
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