The DOJ Final Order on marijuana rescheduling dropped final week. Appearing Lawyer Normal Todd Blanche ordered that “FDA-approved drug merchandise containing marijuana, as properly [as] marijuana in any kind 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 entire:
“The Appearing Lawyer Normal additional notes that, as a consequence of this rule, state licensees will not be topic to the deduction disallowance imposed by Part 280E of the Inside 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 dedication 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 loads to unpack in that paragraph.
“State licensees”
The Order doesn’t outline “state licensee.” Nevertheless, “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 enable solely medical marijuana (e.g. Florida, Oklahoma, Pennsylvania), issues seem simple: that’s, state-licensed operators have turn out to be 280E-exempt underneath the Order. The marijuana being produced, processed, transferred and offered in these states all goes to cardholders—a minimum of theoretically—and all of that marijuana is now in schedule III.
In states with adult-use applications, the evaluation might be complicated. 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 provision chain. The ensuing product could or might not be stronger, will probably be packaged in a different way, and should or might not be taxed. Invariably, although, it’s transferred or offered 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 nearly meaningless—a marijuana plant is only a marijuana plant, in spite of everything. However, are these hybrid operators “state licensees” inside the which means of the Order? They deal with medical marijuana, however in addition they site visitors in non-medical marijuana. They might or could not segregate inputs; they could or could not segregate outputs. You possibly can see the place I’m going with this.
“Nothing on this rule constitutes a dedication 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 think about offering retrospective reduction from Part 280E legal responsibility for taxable years through which a state licensee operated underneath a state medical marijuana license.”
Retrospective reduction from Part 280E could be the last word prize for a lot of marijuana companies, in need of an entrée to interstate commerce. The likelihood is totally tantalizing. May it really occur?
It may, though the Treasury needn’t heed the “retrospective reduction” suggestion—it operates unbiased of DOJ within the government department. That mentioned, the IRS has granted retrospective reduction to taxpayers on quite a few events, most just lately final month in relation to OBBA tax credits. OBBA was signed into legislation in July of 2025, but the IRS will enable taxpayers to amend returns way back to 2022 for functions of constructing sure elections.
Nevertheless the Service proceeds, marijuana taxpayers could be clever to heed the Order’s recommendation to seek the advice of with tax counsel. An exception entails tax counsel who argue that Part 280E doesn’t apply to any marijuana companies by any means. In that case, please read 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 announced such steering is forthcoming. The press launch forecasts:
“a transition rule offering that, for functions of Part 280E, rescheduling typically will probably be thought of to first apply for a enterprise’s full taxable yr that features the efficient date of the Last Order…”.
For many marijuana companies, that will probably be calendar yr 2026.
Second, I’ll be looking forward to litigation. The Order will probably 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 process, not but withdrawn; 2) that the Order’s heavy reliance on worldwide treaty compliance, and particularly, its permissive studying of a 2024 Office of Legal Counsel opinion on that difficulty, is flawed; and three) that the bifurcation of marijuana into medical and non-medical channels by DOJ, exterior of FDA purview, is statutorily incoherent.
Third, I’ll be looking forward to grownup use rescheduling. In its press release asserting the Order, DOJ introduced it could additionally “expedite the continuing rulemaking course of required to totally take away marijuana from Schedule I and place it in Schedule III underneath the Managed Substances Act.” This rulemaking would apply to all marijuana, and never simply medical marijuana. DOJ says DEA will “start a brand new administrative listening to starting June 26, 2026.” How that may work in an company that not has an administrative legislation choose is an excellent query. We’ll put it aside for an additional day.
For now, medical marijuana is in schedule III. State licensees ought to watch these additional developments, but additionally deal with issues they will management. These embrace: 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.
