Section 280E has been the single most expensive sentence in cannabis. It denies ordinary business deductions to businesses trafficking in Schedule I or Schedule II controlled substances, which is why operators have paid tax on gross profit rather than net income.
Its application follows the schedule. So when part of cannabis moved to Schedule III, the obvious question followed immediately. The answer deserves more care than it is getting.
What moved
The DOJ final rule at 91 FR 22714, effective 28 April 2026, orders:
“that FDA-approved drug products containing marijuana, as well marijuana in any form covered by a state medical marijuana license, be placed in schedule III of the CSA.”
And it is equally explicit about the remainder:
“any form of marijuana other than in an FDA-approved drug product or marijuana subject to a state medical marijuana license remains a schedule I controlled substance”
So the tax question does not have one answer. It has an answer per business, depending on what that business is licensed to handle.
What the order says about 280E
This is the part worth quoting, because it is more restrained than most commentary about it. The rule states that licensees:
“should consult with tax counsel regarding the applicability of Section 280E to their specific circumstances”
That is the language of an agency declining to resolve something. It is not “280E no longer applies”. Treasury and the IRS separately indicated on 23 April 2026 that they intended to issue guidance on the federal tax consequences of the order.
If the Department of Justice is telling licensees to go and ask their own tax counsel, that is the appropriate posture for anyone else writing about it too.
The practical shape of it
Three groups, three different positions.
Businesses operating under a state medical marijuana license are handling material the order placed in Schedule III. That is the group with the strongest reason to be having a detailed conversation with a tax adviser right now.
Adult-use businesses are handling material that expressly remains Schedule I. Nothing in this order changed their position.
Businesses that do both, which is a very large share of the licensed market, have the most complicated version of the question, because the schedule now depends on which licence the material sits under. That is an accounting and record-keeping problem before it is a tax outcome.
The wider change is still unresolved
Rescheduling all marijuana remains in progress. The DEA published a notice of hearing at 91 FR 22777 with proceedings beginning 29 June 2026, having withdrawn the earlier 2024 hearing notice the same day to restart the process faster.
Until that concludes, the split above is the operative reality. Planning a tax position on the assumption that the broader rescheduling completes, on a particular date, would be optimistic.
The terpene angle
For terpene suppliers the interesting consequence is downstream. If margin structurally improves for state medical licensees, input budgets tend to follow, and quality-led inputs compete better against the cheapest available option. That is a reasonable expectation rather than a certainty, and it is worth watching over quarters rather than weeks.
Do not confuse this track with the hemp one. The November hemp definition change comes from a different statute entirely and moves in the opposite direction.
About this article
Written 9 July 2026 and checked against the statute, the Federal Register and the published papers rather than against secondary coverage. Regulatory positions in this area are moving, so check the date before relying on it. Nothing here is legal, tax or medical advice.
