Medical cannabis is now Schedule III. And the window to walk through that opening closes on June 26, 2026.
Here’s what’s happening: Section 280E of the tax code only applies to businesses that traffic in Schedule I or Schedule II controlled substances. Medical cannabis just moved to Schedule III. So if you register your medical cannabis license with the DEA, you can make a real, defensible argument that 280E no longer applies to those sales going forward.
That’s not a loophole, that’s the law working exactly as written. But what about vertical, wholesale, and adult-use only licenses? I believe there is a path forward on each that optimizes your 280E strategy.
If You’re in a Medical-Only State, This Is Urgent and Obvious
Honestly, this is the clearest win available to cannabis operators right now. If your state has a medical-only program and every sale you make is clearly medical cannabis, registering with the DEA means 100% of your revenue is no longer subject to 280E. Think about what that means for your tax bill.
But here’s the thing you need to understand before you get too excited: This applies to prospective treatment only. That means you cannot go backwards and claim tax refunds on prior years where medical cannabis was taxed under 280E. The legal ground just isn’t there for retroactive relief, and we’ve seen what happens when operators push the IRS on that front (looking at you, TerrAscend). So don’t wait. The deadline is rapidly approaching and there is no indication future opportunities to register will be provided.
What If You Have a Vertically Integrated and Wholesale Licenses?
This is where it gets interesting. And honestly, a little murky, which I believe works in your favor. If you operate in a state like Arizona, most cannabis licenses are “vertically integrated”. That means 1 license allows operators to cultivate, process, deliver, and sell to both medical and adult-use populations.
The DEA has not issued specific guidance on what qualifies as a “state medical license” under the rescheduling framework. That language could reasonably be interpreted to cover sales of products with a medical application through any state-licensed operation. I believe vertically integrated licenses offer one of the best opportunities to generate the most advantageous treatment under rescheduling.
Here’s another area where the gray area can help shape strategy: If you’re a cannabis wholesaler, you supply dispensaries but have no control over who those dispensaries ultimately sell to. You cannot force a retailer to sell only to medical patients. So how can the IRS hold you to a 280E standard for sales downstream that you never directed? That argument has real teeth and is key for all wholesale and vertical operators.
The registration fee is nominal. The potential upside is enormous. So even if you’re not certain sales across your whole supply chain will hold up, the risk-reward calculation is hard to ignore. At minimum, it creates a documented record that you took the steps required under the new framework.
What if you hold only Adult-Use Licenses?
I don’t think you’re cut off from the opportunity to register and here’s why: As mentioned above, the DEA has not issued specific guidance on what qualifies as a “state medical license” under the rescheduling framework. In fact, the language from the DEA specifically states: a license issued by a state entity (or by a District of Columbia entity or a federal territorial entity) authorizing the licensee to manufacture, distribute, and/or dispense marijuana or products that contain marijuana for medical purposes.
I would argue that all marijuana products serve a medical purpose and adult use licenses allow for the state legal sale of marijuana. Further, a medical patient who enters an adult use dispensary can still legally purchase product (assuming they meet the adult use age criteria). I attribute this ambiguity to the overall federal misunderstanding of state-legal cannabis programs across the US. And where I see ambiguity, I see opportunity.
Does this argument hold up when it comes to treating adult use sales as Schedule III? Great question – I don’t know the answer either. But as an operator, if I had the opportunity to potentially eliminate 280E across all my cannabis licenses, you best believe I’d take an aggressive stance.
There’s Still a Third Argument, Even Without Adult-Use Registration
Let’s say you decide to only register your medical licenses. That’s still not the end of the road for challenging 280E.
I’ve put together a full legal and accounting analysis on the constitutional argument against 280E for cannabis operators. The short version is that there are legitimate grounds to argue 280E is unconstitutional as applied to state-legal cannabis businesses, independent of the rescheduling question entirely. You can read the full breakdown here. So even in a worst-case scenario where your adult-use registration gets challenged, you’re not out of options. The constitutional argument is a separate track that can run alongside everything else.
What You Should Do Today
Get with a cannabis-specialized CPA (like our experts at High Rock Accounting) and attorney to talk through the registration process now. Map out which licenses you have, which states you operate in, and whether your setup includes medical-only, adult-use, or both. Build the case for registration before you file and make sure you’re considering appropriate tax reserves in the event the IRS pushes back on your position.
The operators who move fast on this will have a real advantage. The ones who wait to see how it shakes out may not have the opportunity.
At High Rock Accounting, we’ve been tracking this since rescheduling began. We know what a defensible position looks like and what it takes to document it properly. If you want to talk through your specific situation, reach out to our team.
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