Consequences Associated with Selling Delta 8, a Schedule 1 Controlled Substance

Delta 8 is a relatively new cannabis product that has been gaining popularity. It is derived from hemp, which was legalized by the 2018 Farm Bill and is used to develop CBD products. That has led to a misinformed assumption that Delta 8 is a legal substance, but it produces a “high,” and as such, the Drug Enforcement Authority (DEA) has made it clear that it considers Delta 8 a Schedule 1 controlled substance. Retailers not licensed to sell marijuana who are selling Delta 8 products should be aware of its legal status and the potential consequences associated with violating the Controlled Substances Act (CSA).

Of course, selling a controlled substance without a license could create severe legal consequences for those selling Delta 8, including arrest, conviction, and jail. But there are also financial issues to be concerned about, including the ever-watchful eyes of the IRS. Provisions of Section 280E of the IRS code limit tax deductions for expenses to the cost of goods sold for purveyors of Schedule I controlled substances. Much of Delta 8 is being sold through convenience stores, gas stations and other retailers who aren’t licensed to sell marijuana. As such, the IRS could deem those retailers’ entire businesses subject to 280E, thereby eliminating all other ordinarily tax-deductible costs, such as real estate and salaries.

Some retailers have argued that because the drug comes from hemp it should be legal. Some have even taken their cases to court. But the rulings have been clear. Delta 8 is a synthetic form of THC, and according to the DEA, which is charged with administering the CSA, a controlled substance. Given the serious ramifications of violating the CSA, no retailer should be selling Delta 8 products without a license.

For more information, or to talk with a cannabis industry accounting specialist, contact HBK Cannabis Solutions at 239-263-2111, or by email at cmarrie@hpkcpa.com.

About the Author(s)
Chris is a Principal in the Naples, Florida office of HBK CPAs & Consultants and has been with the firm since 1998. He is also Director of the firm's Cannabis Solutions Group in the southern tier of the firm's service region. Chris has been instrumental in the growth of HBK’s Cannabis Solutions Group. He has worked extensively with clients in all facets of the cannabis industry. Among his credits:
  • Understanding of “care-giver” and licensing requirements for the State of Michigan from compliance and administrative standpoints, and engaged in prospect meetings with Michigan-based “care-givers” on the grandfather clause and their responsibilities for future licensing
  • Understanding of the State of New Jersey licensing requirements from compliance and administrative standpoints
  • Structuring agreed-upon procedures engagements for licensing requirements of the State of Michigan, which have been used successfully in the licensing process
  • Structuring of agreed-upon procedures engagements for licensing requirements for Canadian citizens in the State of Michigan, which have been used successfully in the licensing process
  • Review and analysis of corporate structures common in the industry to maximize efficiency and minimize administrative and regulatory issues
  • Review and analysis of licensing and intellectual property agreements for genetics-based cannabis businesses developing and marketing new plant strains
  • Consultation with oil pen cartridge manufacturers to refer supply chain agreements to legal counsel with industry knowledge and review tax implications and application of 280E to businesses indirectly supporting the cannabis industry
Chris also has extensive experience in auditing and business consulting. Chris provides a variety of accounting and assurance services to clients including individuals, businesses and non-profits. He is a member of HBK’s Construction Solutions Group and received the designation of Certified Construction Industry Professional (CCIFP) from the Institute of Certified Construction Industry Professionals, Inc. (ICCIFP). ICCIFP is a not-for-profit corporation established to promote the highest standards of construction financial management through the credentialing of construction financial professionals. He also serves as a member of the Quality Control Group reviewing audits as well as serving as Audit Principal on accounts in HBK’s southwest Florida offices.
Hill, Barth & King LLC has prepared this material for informational purposes only. Any tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or under any state or local tax law or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. Please do not hesitate to contact us if you have any questions regarding the matter.

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