On April 23, 2026, the U.S. Attorney General released an Order rescheduling FDA-approved marijuana products and products subject to state-issued licenses to Schedule III – effective immediately. The Order also provides a process for current medical license operators to apply for and receive a Schedule III license and thereby engage in interstate and foreign commerce. On the same day, the Department of the Treasury announced it would provide guidance regarding Section 280E tax implications, and the overall rescheduling process initiated under President Biden, and then stalled, was scheduled to re-commence under streamlined processes.
These governmental actions present a monumental change to the cannabis industry that will continue to take shape in the years to come. We are excited about the opportunities this Order provides in our continuing efforts to advocate for our clients’ rights and profits when facing the IRS and state tax authorities, and we encourage our current and future clients to reach out to us.
In addition to rescheduling medical marijuana, the Order provides that state licensees are no longer subject to Section 280E, and it asks the Secretary of the Treasury to consider retrospective relief. With our ongoing efforts to push for retrospective relief and the justification it represents, we are very excited about this opportunity. The Order states:
State licensees will no longer be subject to the deduction disallowance imposed by Section 280E of the IRC, which applies only to businesses engaged in “trafficking in controlled substances … in a schedule I or II.” 26 U.S.C. § 280E.
This clearly provides that medical cannabis licensees are no longer subject to Section 280E. The extent to which this and retroactive relief applies to mixed companies (medical and adult use) is a matter of federal law and, according to the Order:
Qualifying state licensees should consult with tax counsel regarding the applicability of Section 280E to their specific circumstances.
It is encouraging that the Department of the Treasury seems to acknowledge that mixed companies are not barred from benefiting, but they are subject to allocation between medical and adult use, a tool we often use for our clients. The Order and Treasury announcement recognizes that Section 280E has varied applicability and is not a blanket disallowance – it is a legal question that is specifically limited by statute.
There is also a compelling argument that mixed licensees should be considered fully medical. The industry is at its core medical, and the distinction between medical and adult use is just about state taxes and convenience for consumers. The federal government recognized long ago that cannabis has medical use, and Section 280E relief should have been concurrent with those earlier recognitions.
It is also true that the “licensee” can be a specific individual, and here, the case for applicability and retroactive relief for all 280E taxes may be even stronger. Individuals and families stuck with 280E liability, medical or not, received personal liability for a misunderstood tax, but did not receive the income that generated the tax.
The reference to Section 280E is also interesting as it echoes the government’s position in current litigation regarding whether Section 280E applies at all, but the Order does not accurately quote what Section 280E says! Section 280E states that it applies to trafficking in controlled substances “within the meaning of” Schedule I or II – not “in a Schedule I or II” – as the IRS would like. Perhaps they are trying to rewrite the law here.
The Order also asks the IRS to consider retroactive relief for medical licensees – perhaps a nod to the factual history and delays in recognizing the proper schedule. Specifically, the Order states:
The Administrator encourages the Secretary of the Treasury to consider providing retrospective relief from Section 280E liability for taxable years in which a state licensee operated under a state medical marijuana license.
The order encourages the Secretary to consider 280E relief, but it does not require it. But it clearly provides a pathway for medical licensees and individuals to receive retroactive relief, and it should also be available for mixed licensees – at least to the extent of their medical allocations. After all, many licensees started out medical and then expanded to also provide adult use products. And the Order is not limited by date.
The Secretary is authorized to provide retroactive relief under Section 7805(b) for various reasons, including to prevent abuse and to correct procedural errors. The Secretary is also authorized to accept Offers in Compromise for effective tax administration. The timing of government determinations and the lengthy and politically charged process necessary for the government to recognize the medical use of cannabis should support retroactive treatment and offers.
The tax attorneys at Greenspoon Marder have counseled and defended cannabis companies since the state legal industries began. We are here to help you understand these monumental changes and their impact on your business and personal tax liabilities, and to represent you before the IRS and state tax authorities.
