Cannabis Rescheduling: An Important Step Forward
On December 18, President Trump signed an executive order directing the Department of Justice to fast-track the process of moving cannabis from Schedule I to Schedule III under the Controlled Substances Act. While this does not immediately change cannabis’ federal status, it represents the most significant federal action on cannabis reform in decades and signals a bipartisan shift in how the government views the industry.
What Rescheduling Would Mean
If finalized, rescheduling to Schedule III would make Internal Revenue Code 280E inapplicable for cannabis, allowing state-licensed cannabis businesses to deduct ordinary expenses such as rent and payroll for the first time. Today, 280E drives effective tax rates of 70–80%. Eliminating it would save the industry an estimated $2–$3 billion annually, unlocking capital, supporting reinvestment in staffing and compliance, and improving long-term financial stability. Rescheduling could also ease restrictions on scientific research and may encourage additional states to move forward with reform.
What It Would Not Change
Rescheduling does not legalize cannabis federally, expand access to traditional banking (although risk tolerance may shift), open capital markets, allow interstate commerce, or undo criminal penalties. Cannabis would remain illegal under federal law unless Congress takes further action.
Timeline and Uncertainty
Even with an expedited directive, DOJ must complete formal rulemaking, publish a final rule, and address potential legal challenges. Implementation could take months or longer, and the effective date remains uncertain.
Considerations
Until rescheduling becomes final, nothing changes operationally, and 280E still applies. However, businesses could begin preparing by:
- Working with professional financial and tax experts to understand operating expenses that were previously disallowed that could potentially be deducted.
- Running financial scenarios for your businesses in a post-280E environment
- Identifying reinvestment priorities
- Strengthening compliance and reporting frameworks
- Anticipating potential shifts in market conditions, including M&A
Looking Ahead
The recent Executive Order is a formative step and builds real momentum for broader reforms. We’re committed to pushing for comprehensive solutions to address cannabis prohibition, and we’re confident that a final rule moving cannabis to Schedule III will help accelerate the next wave of progress for the industry.
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