As we enter Q2 of 2025, the cannabis industry has become increasingly pessimistic about the elimination of Section 280E of the Internal Revenue Code, whether via rescheduling or otherwise. Rescheduling appears unlikely in the foreseeable future, and certain members of the Senate have filed a bill that would make 280E continue to apply even if rescheduling were to occur
Cannabis ESOPs (employee stock ownership plans) can provide a structure to avoid 280E, as well as federal and state income tax, entirely.
At its most simplistic level, an ESOP transaction allows the company’s owners to sell their stock to an ESOP trust (the “Trust”) and to defer capital gains taxation of the sale proceeds. The Trust then owns the stock with the company’s employees as beneficiaries of the Trust. The ESOP transaction is financed in multiple ways, including through the use of cash on hand, third-party debt, and providing promissory notes to the sellers. Significantly, the company’s tax savings can be used to pay down the transaction debt. Given the scarcity of debt financing or institutional capital available to the cannabis industry, the ability to finance the sale of the company with tax savings is an enormous benefit.
To read the full post, please visit our Cannabis Industry Insights blog.
