Marijuana Rescheduling and Income Tax – Canna Law Blog™

The DOJ Remaining Order on marijuana rescheduling dropped final week. Performing Lawyer Common Todd Blanche ordered that “FDA-approved drug merchandise containing marijuana, as effectively [as] marijuana in any type coated by a state medical marijuana license, be positioned in schedule III of the CSA.”

The Order went additional than many people anticipated. It additionally features a quick part titled “Tax Implications.” Right here is that part, in complete:

“The Performing Lawyer Common additional notes that, as a consequence of this rule, state licensees will now not be topic to the deduction disallowance imposed by Part 280E of the Inner Income Code, which applies solely to companies engaged in ‘trafficking in managed substances . . . in a schedule I or II,’ 26 U.S.C. § 280E. Nothing on this rule constitutes a willpower concerning federal tax legal responsibility, and qualifying state licensees ought to seek the advice of with tax counsel concerning the applicability of Part 280E to their particular circumstances.”

There’s lots to unpack in that paragraph.

“State licensees”

The Order doesn’t outline “state licensee.” Nonetheless, “state medical marijuana license” is now outlined at 21 CFR § 1300.01 as:

“a license issued by a state entity (or by a District of Columbia entity or a federal territorial entity) authorizing the licensee to fabricate, distribute, and/or dispense marijuana or merchandise that comprise marijuana for medical functions.”

Taxpayers holding these licenses, presumably, are “state licensees.” Many of those medical marijuana sellers could lastly escape the stifling grasp of Part 280E.

Reader, I mentioned “could.”

In states that permit solely medical marijuana (e.g. Florida, Oklahoma, Pennsylvania), issues seem easy: that’s, state-licensed operators have turn out to be 280E-exempt beneath the Order. The marijuana being produced, processed, transferred and bought in these states all goes to cardholders—at the least theoretically—and all of that marijuana is now in schedule III.

In states with adult-use applications, the evaluation might be advanced. All states with adult-use marijuana applications even have medical marijuana applications. Most of those states have blended their applications to various levels. In some states, a plant could start in adult-use CTS, grown by a non-medical licensee, however evolve right into a medical marijuana merchandise someplace alongside the availability chain. The ensuing product could or might not be stronger, will doubtless be packaged otherwise, and will or might not be taxed. Invariably, although, it’s transferred or bought to a medical marijuana cardholder. It has undergone a definitional transformation, if not a bodily one.

The licensees in these combined provide chains could also be adult-use licensees, with “endorsements” or “registrations” or different permissions to create or deal with medical marijuana merchandise. On the develop stage, the excellence is just about meaningless—a marijuana plant is only a marijuana plant, in any case. However, are these hybrid operators “state licensees” throughout the that means of the Order? They deal with medical marijuana, however in addition they site visitors in non-medical marijuana. They could or could not segregate inputs; they could or could not segregate outputs. You may see the place I’m going with this.

“Nothing on this rule constitutes a willpower concerning federal tax legal responsibility”

On this respect, DOJ stays in its lane. Additional alongside, although, the Order repeats the paragraph on Part 280E that I quoted above, including one putting sentence:

“The Administrator encourages the Secretary of the Treasury to contemplate offering retrospective aid from Part 280E legal responsibility for taxable years during which a state licensee operated beneath a state medical marijuana license.”

Retrospective aid from Part 280E can be the final word prize for a lot of marijuana companies, wanting an entrée to interstate commerce. The likelihood is totally tantalizing. Might it truly occur?

It may, though the Treasury needn’t heed the “retrospective aid” suggestion—it operates impartial of DOJ within the govt department. That mentioned, the IRS has granted retrospective aid to taxpayers on quite a few events, most lately final month in relation to OBBA tax credit. OBBA was signed into regulation in July of 2025, but the IRS will permit taxpayers to amend returns way back to 2022 for functions of creating sure elections.

Nonetheless the Service proceeds, marijuana taxpayers can be sensible to heed the Order’s recommendation to seek the advice of with tax counsel. An exception includes tax counsel who argue that Part 280E doesn’t apply to any marijuana companies in anyway. In that case, please learn this.

What’s subsequent for marijuana rescheduling, and tax

I’ll be watching three issues.

First, I’ll be looking forward to Treasury steering. On Thursday, April 23, the Treasury and IRS promptly introduced such steering is forthcoming. The press launch forecasts:

“a transition rule offering that, for functions of Part 280E, rescheduling typically will likely be thought-about to first apply for a enterprise’s full taxable yr that features the efficient date of the Remaining Order…”.

For many marijuana companies, that will likely be calendar yr 2026.

Second, I’ll be looking forward to litigation. The Order will likely be litigated. The basic query is whether or not DOJ exceeded its authority in issuing the Order. Challengers will argue, inter alia, that: 1) the Order undercut an ongoing rescheduling course of, not but withdrawn; 2) that the Order’s heavy reliance on worldwide treaty compliance, and particularly, its permissive studying of a 2024 Workplace of Authorized Counsel opinion on that problem, is flawed; and three) that the bifurcation of marijuana into medical and non-medical channels by DOJ, outdoors of FDA purview, is statutorily incoherent.

Third, I’ll be looking forward to grownup use rescheduling. In its press launch asserting the Order, DOJ introduced it will additionally “expedite the continuing rulemaking course of required to totally take away marijuana from Schedule I and place it in Schedule III beneath the Managed Substances Act.” This rulemaking would apply to all marijuana, and never simply medical marijuana. DOJ says DEA will “begin a brand new administrative listening to starting June 26, 2026.” How that might work in an company that now not has an administrative regulation decide is an excellent query. We’ll reserve it for an additional day.

For now, medical marijuana is in schedule III. State licensees ought to watch these additional developments, but in addition deal with issues they’ll management. These embody: 1) consulting with tax counsel; 2) revisiting accounting practices, particularly the place allocations to medical marijuana could also be distinguishable from allocations to non-medical marijuana; and three) recall that native tax legal guidelines nonetheless apply—together with state legal guidelines limiting sure deductions for all marijuana companies.