An executive order signed by President Trump on December 18, 2025 directs the Attorney General to expedite and complete the rulemaking process of reclassifying cannabis from Schedule I to Schedule III of the Controlled Substances Act (CSA). The process, which began in 2023 when the Department of Health and Human Services (HHS) recommended rescheduling to the Drug Enforcement Administration (DEA), was delayed for much of 2025.
What the Order Does & Does Not Do
While the order does not itself effectuate immediate rescheduling – it green lights the involved agencies (DOJ, DEA, and HHS), spearheaded by the AG, to accelerate completion of the CSA scheduling rulemaking needed to make rescheduling official. Rescheduling does not federally legalize recreational cannabis, but will reduce barriers to cannabis medical research, while cannabis remains a substance subject to federal criminal enforcement. Notably, the announcement follows signing of the November 12, 2025, spending bill that included language restricting intoxicating hemp-derived THC consumable products after a one-year transition period.
Tax Implications for Cannabis Operators
For cannabis operators, the most significant impact of rescheduling will be freedom from applicability of Section 280E – the provision in the federal tax code that prohibits businesses that “traffic” in Sch 1 or Sch 2 controlled substances from deducting business expenses and claiming federal tax credits; currently only a subtraction for cost of goods sold is permitted. Once cannabis is a Sch 3 substance, Sec. 280E will no longer apply, allowing cannabis businesses to be taxed under the normal rules applicable to any other farm, manufacturer, or retail store. Many valuable tax planning strategies and incentives previously blocked by Sec. 280E could be possible, including cost segregation studies, accelerated and bonus depreciation asset expensing, and lucrative credits for research and development or hiring certain employees.
Rescheduling Q&A: What Businesses Need to Know
With more to come on these opportunities, the executive order raises a number of questions:
Q: When is 280E no longer effective to cannabis businesses?
A: 280E remains in place, applicable until the effective date of the final Schedule III rule.
Q: Will 280E relief be retroactive?
A: Absent an explicit transition or retroactivity language in the final rule or Congressional action, relief seems unlikely for a few reasons: this is an administrative change to the CSA scheduling, which Sec. 280E references, rather than a change to tax law, and the IRS stated publicly in 2024 that amended refund claims in anticipation of rescheduling were not valid. That said, there are other tax planning strategies and positions that may be available, including Sec. 471(c), that can potentially bridge the gap.
Q: What steps can my business take now to plan for rescheduling?
A: Maintain current compliance with Sec. 280E, while keeping an eye on updates. Ensure your expenses are tracked by date to prepare for a cut-off and consider the timing of discretionary costs in relation to the final effective date. Confirm whether your business follows cash basis or accrual basis tax accounting (for cash basis, the expense is taken into account when paid, whereas for accrual, the expense is generally taken into account when incurred. For accrual basis businesses, delaying vendor payments will not shift the recognition date).
What Comes Next
Because rescheduling requires publication of a final rule (and an effective date), timing remains uncertain and could be affected by administrative process and potential judicial review. Our cannabis team is here to help and will continue to publish alerts as the landscape changes.
If you need further guidance or have any questions on this topic, we are here to help. Please do not hesitate to reach out to discuss your specific situation.
This material has been prepared for general, informational purposes only and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. Should you require any such advice, please contact us directly. The information contained herein does not create, and your review or use of the information does not constitute, an accountant-client relationship.
