Document ID: ./input/supremecourt_opinions/opinions/20pdf/20-645_9p6b.pdf
Page Number: 3

Cite as:  594 U. S. ____ (2021) 

3 

Statement of THOMAS, J. 

has broad ramifications given that 36 States allow medici-
nal marijuana use and 18 of those States also allow recrea-
tional use.5 

Given  all  these  developments,  one  can  certainly  under-
stand why an ordinary person might think that the Federal
Government  has  retreated  from  its  once-absolute  ban  on 
marijuana.  See, e.g., Halper, Congress Quietly Ends Fed-
eral Government’s Ban on Medical Marijuana, L. A. Times, 
Dec. 16, 2014.  One can also perhaps understand why busi-
ness  owners  in  Colorado,  like  petitioners,  may  think  that
their  intrastate  marijuana  operations  will  be  treated  like 
any other enterprise that is legal under state law. 

Yet,  as  petitioners  recently  discovered,  legality  under 
state law and the absence of federal criminal enforcement 
do not ensure equal treatment.  At issue here is a provision
of  the  Tax  Code  that  allows  most  businesses  to  calculate 
their taxable income by subtracting from their gross reve-
nue the cost of goods sold and other ordinary and necessary
business expenses, such as rent and employee salaries.  See 
26 U. S. C. §162(a); 26 CFR. 1.61–3(a) (2020).  But because 
of a public-policy provision in the Tax Code, companies that 
deal in controlled substances prohibited by federal law may 
subtract only the cost of goods sold, not the other ordinary
and  necessary  business  expenses.    See  26  U. S. C.  §280E. 
Under this rule, a business that is still in the red after it 
pays its workers and keeps the lights on might nonetheless
owe substantial federal income tax. 

As things currently stand, the Internal Revenue Service
is investigating whether petitioners deducted business ex-
penses in violation of §280E, and petitioners are trying to 

—————— 
(2016). 

5 Hartman, Cannabis Overview, Nat. Conference of State Legislatures 
(June  22,  2021),  https://www.ncsl.org/research/civil-and-criminal-jus-
tice/marijuana-overview.aspx.  The state recreational use number does 
not include South Dakota, where a state court overturned a ballot meas-
ure legalizing marijuana.  Ibid.