Cannabis cross-border tax: the 280E landmine, and the excise file at home

The domestic file is the real workload

Canadian cannabis is legal, heavily taxed, and administratively unforgiving — and that excise file is where we spend most of our time with producers. A licensed producer holds a CRA cannabis licence under the Excise Act, 2001, on top of the Health Canada licence, and duty on dried flower works out to the greater of a flat rate of $1.00 per gram or 10 percent of the dutiable amount once the federal and additional provincial components are combined, with some provinces layering a further adjustment on top. Duty becomes payable when packaged product is delivered to a purchaser — usually the provincial wholesaler — which is earlier than the cash arrives.

Every package needs the right province-specific excise stamp before it ships into that province, and the duty return (Form B300) reconciles production, inventory and deliveries — monthly for most licensees, quarterly for smaller ones under the $1 million duty threshold. Retailers live one layer down: an AGCO licence, purchases from the OCS with excise already embedded in cost, and HST on every sale. The bookkeeping that keeps stamps, duty and inventory tied together is its own discipline, and it is the backbone of our cannabis tax work.

280E: what the US tax code does to a plant-touching business

Section 280E of the Internal Revenue Code denies all deductions and credits to a business trafficking in Schedule I or II controlled substances. Because adult-use cannabis remains Schedule I federally, a state licence changes nothing at the IRS: rent, wages, marketing, professional fees — all denied. The only relief is cost of goods sold, which survives because it is an adjustment to gross receipts rather than a deduction, computed under the section 471 inventory rules. The IRS publishes guidance saying exactly this.

Retailers are hit hardest, because a store's cost of goods sold is thin relative to its payroll and rent. Cultivators fare somewhat better only because more of their spending capitalizes into inventory. Either way, a US plant-touching subsidiary of a Canadian company files and pays on 280E math, and the losses that math creates are real cash, not timing.

The April 2026 rescheduling is narrower than the headlines

In April 2026 the US Department of Justice issued a final order moving state-licensed medical cannabis and FDA-approved cannabis products to Schedule III — and for those operations, 280E stopped applying. Adult-use cannabis stayed on Schedule I, so recreational operators remain fully inside 280E while a broader rescheduling proceeding continues. Our advice is blunt: do not build a US entry model on a rescheduling that has not happened. Price the expansion on current law, and treat any future relief as upside.

The border itself carries risk beyond tax

US Customs and Border Protection has taken the position that Canadians who work in, or even invest in, US plant-touching cannabis businesses can be found inadmissible to the United States, because the activity remains a federal offence. That is a personal risk for founders and executives, separate from the corporate tax math, and it deserves legal advice before anyone signs a US deal. Banking friction compounds it: US cannabis businesses still operate with limited access to mainstream financial services, which complicates intercompany flows, payroll and simple cash handling.

What a saner US strategy looks like

There are lanes that avoid the landmine. Hemp-derived products under the 2018 Farm Bill sit outside the Controlled Substances Act, though FDA rules still constrain what you can sell and claim. Licensing your brand, genetics or know-how to a US operator keeps you out of plant-touching activity — the income comes home as royalties, which raises Canada-US treaty withholding questions we plan for rather than discover. And if you do take equity in a US operation, structure matters: where the entity sits, how losses are trapped, and how cash gets back to Canada. That analysis runs through our cross-border tax practice before it runs through anyone's pitch deck.

Source: CRA — Cannabis duty.