This CLE course will provide an overview of the federal income tax issues facing a business operating in the state regulated cannabis industry. Some states allow a business to grow, manufacture and sell cannabis in a state regulated market. Under federal law, cannabis is a Schedule I controlled substance and remains illegal. Section 280E of the Internal Revenue Code disallows income tax deductions for a business trafficking in a Schedule I controlled substance. This course will examine what activities and expenses are not deductible. Specifically, the course will examine: the definition of trafficking; the treatment of expenses paid vs capital investments; relevant cases determining the applicability of 280E and the impact of the potential federal rescheduling of cannabis.