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

Date November 12, 2021
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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.

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