GOP Lawmakers Challenge Cannabis Tax Relief After Rescheduling

Two senior Republican lawmakers sent a letter to Treasury Secretary Scott Bessent on June 3, 2026, saying they are “troubled” by the prospect of cannabis businesses receiving retroactive federal tax breaks as a consequence of the Trump administration’s partial marijuana rescheduling — and demanding specific answers before a major DEA hearing later this month.

Sen. James Lankford (R-OK) and Rep. Jodey Arrington (R-TX), who chairs the House Budget Committee, sent the letter the same day Lankford raised similar concerns with Bessent directly at a Senate Finance Committee hearing. Their objection centers not on the rescheduling order itself — which the Trump administration initiated — but on what automatically follows: a federal tax provision that stops applying the moment a substance moves out of the top two controlled-substance schedules.

How the tax penalty works and what rescheduling changes

The federal cannabis tax penalty bars any business trafficking in Schedule I or II controlled substances from claiming ordinary business deductions or credits — payroll, rent, utilities, marketing. Because cannabis has been Schedule I since 1970, legal cannabis operators could only deduct the cost of goods sold, pushing effective federal tax rates as high as 70 percent for some businesses.

The DOJ’s April 23, 2026 final order, issued to implement President Trump’s December 2025 executive order on cannabis research, moved state-licensed medical marijuana and FDA-approved marijuana products from Schedule I to Schedule III. Because the penalty provision applies by its terms only to Schedule I and II substances, qualifying businesses stopped being subject to it the moment the order took effect. The Treasury Department and IRS confirmed as much the same day, stating that the rescheduling generally removes the federal cannabis tax penalty as a bar to qualifying businesses claiming ordinary deductions and credits.

Forthcoming Treasury and IRS guidance is expected to include a transition rule that would treat the relief as applying to a qualifying business’s full 2026 tax year — back to January 1, 2026 for calendar-year filers, not just from April 23 forward. The rescheduling order also urged Bessent to consider providing retroactive relief reaching into prior tax years, which would allow operators to amend earlier returns and claim deductions they were denied before the order took effect.

The lawmakers’ specific objections

Lankford and Arrington said in the letter they are “particularly troubled” by that retroactive piece. Their central concern: state licensure does not verify that a business has operated lawfully, and awarding federal tax benefits on the basis of a state license risks directing relief to businesses that may have also engaged in illegal activity while holding that license.

The letter cites Oklahoma’s medical marijuana program as a case study. At its peak, the state had more than 9,000 licensed marijuana growing operations. Law enforcement later documented that licensed businesses diverted product to the black market, engaged in money laundering and human trafficking, and in some cases were operated by Chinese nationals exploiting state licensing for criminal purposes. Similar patterns have been documented in California and Maine, the lawmakers wrote.

“State licensure alone does not guarantee legal compliance or justify eligibility for federal tax benefits,” Lankford and Arrington wrote to Bessent.

Both lawmakers have also introduced legislation that would strip cannabis businesses of federal deductions and credits regardless of how marijuana is classified under federal law — designed specifically to prevent rescheduling from triggering what they describe as a tax windfall.

Their letter asks Bessent for answers by June 29, 2026 — the same date the DEA has scheduled an administrative hearing on whether to extend rescheduling to recreational cannabis. The questions cover how Treasury would screen tax-relief candidates for legal violations, how many prior tax years would qualify for retroactive relief, what the estimated revenue impact would be, and under what statutory authority the government can provide tax benefits to businesses that were selling a federally illegal product.

A divided Congress, an unissued guidance

The Republican letter arrived a week after Democrats in Congress made the opposite request. Seven Democratic lawmakers, led by Reps. Steven Horsford (D-NV) and Steve Cohen (D-TN), pressed Bessent and IRS chief Frank Bisignano for prompt guidance so cannabis businesses can understand how to claim deductions and comply with federal tax rules without prolonged uncertainty. Democrats argued the absence of guidance leaves taxpayers in limbo during a period of genuine policy transition.

Treasury and the IRS have not announced a timeline for that guidance. The federal government’s posture toward cannabis tax benefits has already proven contentious in court: the DOJ’s earlier lawsuit to recover a contested cannabis tax refund from TerrAscend (TSND.TO ) showed the government’s willingness to litigate the boundaries of the new tax framework even as the rules are still being drafted.

The DEA’s June 29 hearing will determine whether recreational cannabis also moves to Schedule III — a step that would extend removal of the federal tax penalty to the entire adult-use market and substantially widen the scope of the debate Lankford and Arrington are pushing Treasury to address before that happens.