BTA Cannabis CPA Tax recognizes the Department of Justice’s recent cannabis rescheduling order, signed by Acting Attorney General Todd Blanche, as a significant federal development for state-licensed medical cannabis operators. The order expressly addresses §280E of the Internal Revenue Code and makes reference to IRC 280E in two sections of the memo.
Internal Revenue Code § 280E has historically disallowed ordinary business deductions and credits for cannabis operators because marijuana was classified as a Schedule I controlled substance. By moving state-licensed medical marijuana into Schedule III, the DOJ order materially changes the federal tax posture for qualifying operators going forward.
In somewhat of a paradox, recreational cannabis will remain classified as a Schedule I drug. As end-use defines intended consumption, this is a peculiar way to designate one plant-derived substance from another under the Comprehensive Drug Abuse Prevention and Control Act of 1970 (aka the Controlled Substances Act of 1970).
However, the order also makes clear that it does not constitute a determination of any taxpayer’s federal tax liability and advises state licensees to consult tax counsel regarding the application of Section 280E to their specific circumstances.
From pages 17-18 of 34: “The Acting Attorney General further notes that, as a consequence of this rule, state licensees will no longer be subject to the deduction disallowance imposed by Section 280E of the Internal Revenue Code, which applies only to businesses engaged in ‘trafficking in controlled substances… in a schedule I or II,’ 26 U.S.C. § 280E. Nothing in this rule constitutes a determination regarding federal tax liability, and qualifying state licensees should consult with tax counsel regarding the applicability of Section 280E to their specific circumstances.”
“The Administrator further notes that, as a consequence of this rule, holders of state medical marijuana licenses will no longer be subject to the deduction disallowance imposed by Section 280E of the Internal Revenue Code, which applies only to businesses engaged in ‘trafficking in controlled substances … in a schedule I or II,’ 26 U.S.C. 280E. 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. Nothing in this rule constitutes a determination regarding federal tax liability, and state licensees should consult with tax counsel regarding the applicability of Section 280E to their specific circumstances.”
BTA Cannabis CPA Tax therefore cautions operators not to treat the order as self-executing tax guidance from the Department of the Treasury or the Internal Revenue Service. No accompanying Treasury or IRS implementation guidance was identified in the available federal materials reviewed. Operators should not alter federal tax reporting positions, estimated tax calculations, accounting methods, amended-return strategies, or refund-claim positions without individualized professional tax advice.
The order also discusses retrospective relief in measured and non-binding terms. Specifically, it 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. That language does not itself authorize amended returns, refund claims, abatements, or any enforceable right against the IRS. Rather, it invites the Treasury to evaluate whether limited retrospective relief should be made available.
Accordingly, BTA Cannabis CPA Tax’s position is that the DOJ order is an important and favorable federal tax development for state-licensed medical cannabis operators, but it should be implemented cautiously.
Until the Treasury or the IRS issues formal guidance, taxpayers should continue to evaluate Section 280E exposure, current-year reporting, prior-year refund opportunities, and financial statement implications on a case-by-case basis with qualified tax counsel and cannabis-specialized tax advisors.
