Potential Tax Impacts of DOJ Rescheduling Order

On April 23, 2026, the Department of Justice (“DOJ”) announced that it had issued an order, effective April 22, 2026, placing FDA-approved marijuana products and products containing marijuana subject to a qualifying state-issued license in Schedule III (the “Rescheduling Order”). See order here. Below is a summary of the tax impact of the Rescheduling Order on companies operating medical cannabis businesses, companies operating adult use cannabis businesses, and companies operating both medical and adult use cannabis businesses.

For companies that operate medical cannabis businesses, the Rescheduling Order provides that medical cannabis produced and sold by a state licensed medical cannabis company that hold a federal Drug Enforcement Agency (“DEA”) registration is, effective April 22, 2026, a Schedule III drug.  The Rescheduling Order acknowledges that the impact of the order is that IRC 280E, which only applies to businesses trafficking in a Schedule I or Schedule II drug, no longer applies to such businesses. On April 23, 3026, the Treasury Department issued a press release announcing its intent to issue guidance addressing the tax consequences of the Rescheduling Order (“Treasury Press Release”). See press release here. In the Treasury Press Release, the Treasury acknowledges that rescheduling a substance to a Schedule III, IV, or V or descheduling a substance generally removes the bar to claiming deductions and credits under IRC 280E and, thus, IRC 280E no longer applies to business subject to the Rescheduling Order.  The Treasury Press Release also provides that the effective date of the Rescheduling Order for purposes of the applicability of IRC 280E, will be the start of the tax year in which the Rescheduling Order was issued. We’d suggest that medical cannabis companies wishing to take the position for the 2025 or back tax years that IRC 280E does no longer applies to medical cannabis, obtain a tax opinion and make a disclosure on their tax return.

Of critical importance is that fact that it is not sufficient to just hold a state license to operate a medical cannabis business for cannabis sales to be considered as Schedule III under the Rescheduling Order and thus clearly not subject to IRC 280E you must also have a DEA registration.  Applications for DEA registrations must be filed within 60 days of the date of the Rescheduling Order and can be denied by the DEA so must be filed in compliance with applicable laws.  These registrations were not previously available to state licensed operators, but we have experience working with biotech and pharmaceutical companies who filed applications for DEA registrations and have deep understanding of the process. We will be assisting cannabis businesses as well.  Please let us know if you have clients who would like to schedule a call to discuss the application process.

For companies that operate adult use cannabis businesses, the Rescheduling Order does not apply to cannabis and cannabis products produced pursuant to a state adult use license. The rationale in the Rescheduling Order for bifurcation between medical and adult use is that the Rescheduling Order was issued pursuant to the Attorney General’s authority under the Controlled Substances Act to reschedule drugs to carry out the United States’ obligations under the Single Convention on Narcotic Drugs and such authority only extended to the cannabis being produced and sold for medical purposes under state or federal law. The DEA has scheduled a new administrative hearing to continue the process for rescheduling cannabis generally.  That hearing has been scheduled for June 29, 2026.  We continue to expect that the DEA will adopt a final rule rescheduling cannabis generally to a Schedule III.  Further, based on the Treasury Press Release, if cannabis is rescheduled to a Schedule III, we anticipate that the Internal Revenue Service may, as it has for medical, consider the effective date of the rescheduling for purposes of the applicability of IRC 280E as the tax year in which that rescheduling is effective.  While we think that the Rescheduling Order and Treasury Press Release further strengthen the non-280E position for adult use companies, we expect anticipate the IRS’s position to continue to be that IRC 280E applies to adult use companies until a rescheduling order is issued.  We’d suggest that adult use cannabis companies wishing to take the position obtain a tax opinion and make a disclosure on their tax returns.

For companies that hold licenses to operate both adult use and medical cannabis businesses, including combined operations, cannabis and cannabis products produced and sold pursuant to a state adult use license continue to be listed on Schedule I and, thus, we anticipate the IRS’s position to continue to be that IRC 280E continues to apply to those adult use cannabis operations. The Treasury Press Release indicated that it intends to issue guidance for companies operating both medical and adult use cannabis businesses.

This update, “Potential Tax Impacts of DOJ Rescheduling Order,” was originally published by Hannah King, Partner at Dentons and is republished with permission.