How Cannabis Rescheduling Ends 280E and Reshapes Taxes

Last Thursday, what felt like the legislatively impossible finally happened in Washington, D.C., as President Trump signed an executive order that would officially move cannabis to a Schedule III drug. This far-reaching executive order was a long time coming and will serve many purposes, arguably the most important of which is that the federal government finally acknowledges the potential medicinal value of cannabis—a fact that well over 40 U.S. states have already acknowledged and built robust industries around.

One of the main reasons that this executive order is so substantial is that it changes the federal government’s stance on cannabis for the first time since the beginning of the Drug War itself.

Furthermore, this rescheduling finally allows for cannabis and its possibilities to be more widely researched and for research facilities to receive official DEA approval.

However, numerous questions surrounding banking and proper taxation for cannabis companies remain. Previously, cannabis companies were being nearly financially devastated due to the costly taxes associated with IRS Tax Code 280E, the prohibitive tax code created in 1982 that prevented cannabis companies from making the common tax deductions that more federally legal companies are allowed to deduct.

But with this rescheduling, the extremely high taxes caused by Tax Code 280E won’t be nearly as costly. Even so, the insight and perspectives of the financial experts in the cannabis industry have now become even more valuable.

How Cannabis Rescheduling Eliminates 280E Tax Burdens

Prior to the rescheduling, the financial and taxation-related consequences and ripple effects of Tax Code 280E’s legislation couldn’t be understated.

“Early on, 280E was a severe drag on cannabis cash flow,” explained Darren Gleeman, Managing Partner of MBO Ventures. “Companies were paying taxes on gross profit rather than true net income, which distorted margins, limited reinvestment, and made financing difficult.

Two strategies became common. First, companies became far more aggressive and sophisticated in allocating expenses into the cost of goods sold, which remains deductible even under 280E. Second, many operators relied on legal opinion letters that took the position that certain activities fell outside the scope of 280E, allowing them to operate as if 280E did not apply. These approaches reduced the practical burden of 280E for well-advised operators, but they also introduced complexity, audit risk, and uncertainty that non-cannabis businesses simply do not face.”

According to Gleeman, the benefits of Tax Code 280E’s lessening will result in more than just cannabis companies saving a pretty penny on the tax bill.

“The real benefit of removing 280E is not just lower taxes, but normalization. Companies no longer need to rely on aggressive COGS (cost of goods sold) allocations or legal opinions to approximate normal tax treatment.”

Even more, Gleeman estimates that the federal rescheduling of cannabis will be beneficial for the financial service networks that were initially hesitant to work with cannabis companies.

“Cash flow becomes cleaner, more predictable, and easier to underwrite. That matters to lenders, buyers, boards, and valuation professionals. With ordinary operating deductions restored, free cash flow improves in a straightforward way, compliance risk declines, and management can focus on operations rather than tax workarounds.

Rescheduling supports higher valuations, better access to capital, and more rational growth decisions, especially for companies that were already operationally sound but constrained by tax friction.”

Many Banking Questions Still Remain

Another worthwhile point brought up by Kevin Hart, CEO of GreenCheck, is the mountain of unanswered questions and vagueness surrounding exactly what types of cannabis products will be considered Schedule III.

“While they haven’t explicitly ‘allowed’ for banking, it is that they still haven’t finalized what actual products are going to fall into the Schedule III bucket,” Hart asked. “Will it cover CBD only? Will THC products still be Schedule I? How might Medicare coverage be instituted? What each of these product categories and attributes might fall under possible 280E reform while others might not?”

From such a sweeping change, Hart does predict a considerable amount of regulatory change and possibly additional changes as well.

“As is the case today, the money follows the product, which is governed under the state’s programs. There will clearly be new, expanded and more definitive layers of regulations, federal and state, product and modalities, that will need to be verified for each and every sale. As we do today. So in some aspects, things will remain the same outwardly, but from a systematic verification set of requirements, much is likely to change.”

While smaller local credit unions may be able to provide limited financial services to state-legal cannabis companies, just about every one of the major FDIC-insured banks remains hesitant to work with cannabis companies, even after this monumental rescheduling.

“It would be helpful if the Treasury and/or Congress were better aligned on their expectations to allow more financial and business services to willingly service the industry. It will come as a fast follow. It has to,” Hart hypothesized.

What 280E Reform Means for Cannabis Operators in 2026

While the rescheduling of cannabis will create exponentially more legal and regulatory questions than it will answer, the lessening of Tax Code 280E will almost certainly be beneficial for cannabis companies.

While the corporate tax rate is 21 percent with almost no exceptions, cannabis companies were being taxed at a nearly 70 percent rate by comparison. Due to these deductions being prohibited and cannabis companies paying taxes on total gross income as opposed to total income after making usual deductions, the taxes were detrimental to these companies.

However, with the lessening of Tax Code 280E and the financial opportunities that a significantly lower tax rate will inevitably provide, assuming profit margins stay the same, cannabis companies may finally have an easier path to getting into the green, no pun intended.

(The FDIC declined to comment for this article.)