Introduction: Medical Cannabis Tax Relief and Section 280E
A New Mexico business is pursuing federal medical cannabis tax relief for previous operational years, leveraging the recent reclassification of medical cannabis to Schedule III under the Controlled Substances Act (CSA). Ultra Health, operating as New Mexico Top Organics Inc., is challenging the Internal Revenue Service’s (IRS) application of Section 280E of the Internal Revenue Code. The company filed a seriatim reply brief on May 18, 2026, asking the U.S. Tax Court to consider the implications of state-licensed medical cannabis now being listed as a Schedule III substance.
The lawsuit, New Mexico Top Organics Inc. (d/b/a Ultra Health) v. Commissioner of Internal Revenue, originated from Ultra Health’s petition in December 2024, when cannabis remained in Schedule I. This legal action seeks to allow the company to deduct ordinary and necessary business expenses for tax years 2017, 2018, and 2019, arguing that medical cannabis did not meet the definition of a Schedule I or II substance in those years, despite its official listing.
Arguments for Retrospective Tax Relief
Ultra Health’s core argument centers on the specific wording of Section 280E, which disallows deductions for expenses incurred in the trafficking of controlled substances “within the meaning of Schedule I and II” of the CSA. The company contends that the federal government’s recent actions confirm that medical cannabis has not, for some time, aligned with the meaning of Schedule I, which denotes substances with no currently accepted medical use and high potential for abuse.
Key points supporting Ultra Health’s position include:
- HHS Determination: In August 2023, the U.S. Department of Health and Human Services (HHS) determined that cannabis has accepted medical use in the U.S. and its potential for abuse is less than substances in Schedules I and II of the CSA.
- Acting Attorney General’s Order: Acting Attorney General Todd Blanche’s Schedule III order from April 22, 2026, formally reclassified state-licensed medical cannabis, further solidifying its status outside the meaning of Schedule I.
- Congressional Intent: Ultra Health argues that Congress intentionally included the phrase “within the meaning of Schedule I and II” in Section 280E, suggesting a distinction between a substance’s formal listing and its actual pharmacological meaning.
Nathaniel Pollock, counsel for Ultra Health, stated in the May 18 brief that the court’s recognition that medical cannabis does not fall “within the meaning of Schedule I” would align with the conclusions already reached by HHS, the President, and the Acting Attorney General.
IRS Opposition and Ultra Health’s Rebuttal
The IRS, in its March 2026 answering brief, opposed Ultra Health’s claims. IRS Acting Chief Counsel Kenneth Kies argued that Ultra Health was attempting to compel the U.S. Tax Court to conduct an
Disclaimer: This article is for informational purposes only and does not constitute medical advice. Hemp Gazette does not provide medical recommendations, diagnoses, or treatment plans. Always consult a qualified healthcare practitioner before making any decisions regarding your health or any medical condition. Statements concerning the therapeutic uses of hemp, cannabis, or cannabinoid-derived products have not been evaluated by Australia’s Therapeutic Goods Administration (TGA). Medicinal cannabis products in Australia are accessed via prescription pathways under TGA regulation.
