Big Marijuana’s Next Target: Texas Compassionate Use Program

A Cautionary Tale of Federal Taxes and Recreational Lobbying

Originally passed by the Texas Legislature and signed by Governor Abbott in 2015, the Texas Compassionate Use Program was structured with the intent of a “right to try” limited program. Similar to other state medical cannabis programs, the intent was to allow patients with a handful of qualifying conditions, such as epilepsy or cancer, to “try” an alternative substance – strictly under physician supervision. Oversight of this program was given to the Texas Department of Public Safety, to ensure proper regulations were enacted and enforced. To be clear, the Texas Compassionate Use Program is not a recreational marijuana program.

The Department of Public Safety is currently holding an open RFP to expand the number of licensed organizations allowed to participate in the program to facilitate stronger patient access under House Bill 46. A wide array of applicants are expected to apply, including not only Texas based medical operators, but also multi-state operators (“MSOs”) located outside of Texas – many of which trade on Canadian exchanges and distribute recreational marijuana across various foreign and domestic markets. Texas DPS should be wary – inviting such MSOs, or their affiliated entities (“Affiliates”), into the Compassionate Use Program will set the stage for a strong push toward a recreational marijuana market in the State of Texas.

Florida Market: Recreational Foresight

The State of Florida provides a perfect case study. Initially signed into law by Governor Rick Scott in 2014, the Florida medical market has grown in leaps and bounds. Estimated reports show that in 2024, the medical market surpassed $2B in gross annual sales, making Florida one of the largest medical markets in the country. But this has not been enough. Since 2019, a gang of MSOs have continuously pressured the market to become recreational, with the intent of rivaling the California recreational market of today.

Most recently, this effort was defeated in November 2024 by Governor Ron DeSantis and the Florida Freedom Fund PAC. At the time, MSOs had spent over $150M on the rec campaign. The primary supporter of this campaign, Trulieve LLC (Tallahassee, FL), even sued the Republican Party of Florida itself in October 2024, claiming that the FL GOP published material intended to convince Florida voters to vote against a measure that would “…legalize the recreational use of cannabis in Florida…”. Trulieve has been one of the largest domestic MSOs in the United States since its late 2021 acquisition of Harvest Health & Recreation, a recreational company out of Phoenix, AZ. Select leadership of Harvest has since started a new recreational MSO – Story Cannabis Co.

A review of the Florida Division of Election’s contribution records for the Make It Legal Florida PAC and the Smart & Safe Florida PAC shows the breakdown of capital donated to turn Florida recreational.

Compare these donations to the expenses incurred by Las Vegas Sands in its attempt to bring gambling to the State of Texas. According to Texas Monthly, Las Vegas Sands spent roughly $13 million between January 2024 and July 2025, spread across over one hundred different lobbyists, to push their agenda. Imagine what out-of-state MSOs, both foreign and domestic, are willing to spend to bring recreational marijuana to Texas.

Federal Legalization

Perhaps equally as concerning as efforts to turn red states into recreational marijuana meccas are the efforts being made at the federal level. Led by MSOs and Canadian operators, efforts to reschedule or legalize marijuana use continue through a dizzying array of efforts, including spending millions on lobbying and various lawsuits across the federal government.

As an example, the lawsuit filed against the United States Attorney General by certain parties (including the Chicago MSO Verano Holdings Corp.) in October 2023, which claimed that cannabis prohibition in state markets was unconstitutional. A press release for the lawsuit lists several “foundational supporters”, including Green Thumb Industries (Chicago, IL), Ascend Wellness (Morristown, NJ) and TerrAscend (Ontario, CAN). The case was dismissed by a federal district judge in July 2024.

 

Federal Taxes & 280E

Despite all such efforts, marijuana remains a Schedule I substance in the United States. The question is then asked “If cannabis is federally illegal, why is the federal government not shutting down all state licensed cannabis companies?”. This is because of the Rohrabacher-Blumenauer Amendment (previously the Rohrabacher-Farr Amendment), which has been adopted every year since 2014. This amendment prohibits the Justice Department from spending funds to interfere with state medical cannabis programs. Note: This amendment only applies to state medical programs – not recreational programs. Out-of-state MSOs operating in recreational markets with the perception of nigh impunity continue to do so at the risk of DOJ enforcement.

Notably, this exception for state medical cannabis operators only affects USDOJ enforcement and does NOT extend to the mandatory payment of federal taxes under the purview of the IRS. Since the case of Edmondson v. Commission (1981) which considered whether or not an amphetamine, cocaine, and cannabis dealer could deduct business expenses, the IRS has enforced IRC Section 280E. Section 280E stipulates that any business that trafficks in controlled substances prohibited by federal law is not allowed to deduct business expenses from its federal taxes. This policy has stringently applied to the entirety of the marijuana industry (both medical and recreational) and has been enunciated as such by the IRS as recent as its IR-2024-177 announcement on June 28, 2024, stating “…the Internal Revenue Service today reminded taxpayers that marijuana remains a Schedule I controlled substance and is subject to the limitations of Internal Revenue Code…Section 280E disallows all deductions or credits for any amount paid or incurred in carrying on any trade or business that consists of illegally trafficking in a Schedule I or II controlled substance within the meaning of the federal Controlled Substances Act. This applies to businesses that sell marijuana, even if they operate in states that have legalized the sale of marijuana…”. As Benjamin Franklin would say “nothing can be said to be certain, except death and taxes”.

Unfortunately, it would seem that Benjamin Franklin did not consider out-of-state marijuana companies when he made this statement. To showcase this, one needs to look no further than the reported billions in accrued federal taxes owed by publicly traded MSOs, most of whom have publicly announced their intent to disregard the official position of the Internal Revenue Service. Consider Curaleaf Holdings, a leading international MSO founded by Boris Jordan (past CEO of Gazprom Media and founder of the Sputnik Group), which counts the Russian oligarch Roman Abramovich as an original investor. As stated in their Q2 2024 filing: “As of June 30, 2024, the Company has adopted a new federal and state income tax position, asserting that the restrictions of Section 280E of the Internal Revenue Code (“Section 280E”) do not apply to the Company’s cannabis operations”. Instead, such companies have implemented terms, such as “uncertain tax liabilities” or “deferred tax liabilities” to separate out federal taxes on the balance sheet and present a certain financial picture.

An abridged list of similar companies is provided below.

State Market Reaction

Medical cannabis markets have started to notice. The State of Alabama conducted a similar RFP to that as the State of Texas back in late 2022, with the intent of issuing licenses in Summer 2023. Administered by the Alabama Medical Cannabis Commission (“AMCC”), the option was provided to have all applicants evaluated by a third-party agent, but the AMCC reserved the right to “…act independently of any third-party evaluation…” and award licenses at their discretion.

In June 2023, an article was published in the Alabama Political Reporter (APR) “Questions Surround Medical Cannabis Scoring: No. 1 Reportedly Owed $150 Million to IRS”. In the article, APR writes that Verano Holdings Corp. had “…$161.4 million owed to the IRS compared with its $92.8 million cash on hand – meaning it owes 78 percent more in taxes that it had in cash at the end of its second quarter…”. The article goes on to quote Verano leadership as having stated that “The cost of penalties and interest for this are significantly below the available cost of debt”. This means that Verano consciously decided that not paying federal taxes was cheaper than raising more debt. Despite receiving a high score from third-party agents, Verano was not awarded a license in the most recent licensing round conducted by the AMCC. The company has since doubled down with a tax approach similar to that of Curaleaf, stating in its Q4 2024 call earnings presentation that “From a tax perspective consistent with many of our peers, we’ve taken a position that we do not owe taxes attributable to the application of Section 280E of the Internal Revenue Code.” The Q3 2025 report for Verano now reports projected federal tax liabilities of approximately $419.2MM (summation of $14.3MM in “Income tax payable”, $333.907MM in “Uncertain tax positions” and $71.023MM in “Deferred income taxes”).

Equally as disturbing is the crushing debt owned by such companies. State medical markets seek ownership information from applicants to analyze qualifications, as well as to take preemptive measures against future diversion and criminal involvement. Such a measure appears somewhat futile if a third-party debtor, removed from such analysis, could potentially call such debt in the near future.

This is no new development. In recent years, multiple MSOs have shuttered or been reorganized due to debt, including AYR Wellness, which in July 2025 declared it was entering into a Restructuring Support Agreement, having owed roughly $622.0MM to outside parties at the time (see MJBizDaily article “Debt-saddled Marijuana MSO Ayr Wellness to Sell Off Assets, ‘Wind Down Operations’ , and MedMen, the OG cautionary tale of cannabis collapses, which in April 2024 declared bankruptcy, having owed roughly $411.0MM to outside parties at the time.

Texas Compassionate Use Program

Thankfully, the leadership at TXDPS Regulatory Services Division (“RSD”) already appears to be aware of many of these issues. A review of the FAQs published by the department instructs applicants to “…report any outstanding state or federal tax liabilities or debt obligations…” when describing the financial situation of the company. Although the State of Texas has no income tax, it does have similar tax laws (such as regarding franchise taxes), under Texas Tax Code, which applies to companies and their “affiliated groups” or parent companies. Willful nonpayment of such constitutes a felony under Texas Penal Code Chapter 71. And Rule §12.3 of the Compassionate Use Program already stipulates offenses under which any individual can be deemed unfit for participation in the program, while also stating that “…the department may find that an offense not described in this subsection also renders an individual unfit…” for participation.

The Alabama scenario does provide an interesting issue with competitive RFPs, especially those that pertain to controlled substances and subsequent evaluation of applicants. The intent of a statewide RFP, such as that for the Compassionate Use Program, is to solicit applicants that will best serve the purposes of the program in question – but beyond the rose-colored picture provided by applicants, how is an agency expected to receive the full picture? It is unlikely that companies and their Affiliates applying to the Compassionate Use Program would openly declare their aggressive positions on recreational marijuana or deferred taxes to the statewide law enforcement agency of the State of Texas that is responsible for protecting Texas communities and citizens from cartels and organized crime.

It is even less likely that the same applicants will provide evaluators sufficient information to ascertain between (a) true Texas based companies, (b) MSOs and (c) the various other applicant entities (“Affiliates”) that are already affiliated with active MSOs as well – such affiliates are typically identified as having current or ex-MSO leadership on their team, or private leadership with a catch and release history of securing state licenses, only to offload to an MSO in the imminent future. Possible examples would be Texas Patients Group, LLC, RNF Texas, LLC, and Lonestar Compassionate Care Group, LLC, each showing TXSOS management persons that appear to have the same names as current or ex-MSO leadership at Curaleaf Holdings Inc. (Samford, CT), MariMed Inc. (Norwood, MA), and Green Thumb Industries Inc. (Chicago, IL) respectively. Such a strategy can be used to backdoor publicly traded MSOs into states that wish to avoid recreational lobbying and work with local interests. Should the RSD therefore consider allowing public comments on the application process?

The Texas Compassionate Use Program is not a recreational program – and Texas is not a recreational marijuana state. This state embraces law and order, a position firmly taken by our Governor, our Lt. Governor and our State Legislature. TXDPS should be wary of foreign and domestic MSOs, as well as their Affiliates, to mitigate bad actors and ensure this great state can continue to protect our communities. Let’s make sure Texas stays Texas.