One of the biggest problems of the legal marijuana industry is the inability to take tax deductions for normal business expenses. That’s because of IRC Section 280E, which KOs the deductions because marijuana is illegal under federal law. Cannabis is legal in many states, and that’s the thrust of the latest challenge to the tax law.

New case: Harborside Healthcare Center is in Tax Court with the IRS arguing that Sec. 280E should not apply to businesses that are legal under state law. The argument is that this was not the intent of Congress—the intent is to target illegal drug dealers. Harborside is the country’s largest cannabis dispensary ($30 million in sales) and is facing a $2.4 million bill from the IRS.

There have been several court cases on this issue, and the industry is now able to deduct COGS, but this case propels the fight to a whole new level. In the meantime, this industry is faced with effective tax rates of 60% to 90% because of the taboo on business expense deductions.

Extra: BVR has a new guide, What It’s Worth: Value and Business Challenges in the Budding Cannabis Industry.