IRS Plans a Full-Year Pass on 280E for Medical Marijuana
But other operators will be stuck with old tax rules
Treasury and the IRS dropped a press release on April 23, 2026, outlining how they plan to handle the DOJ’s Final Order moving certain medical marijuana products from Schedule I to Schedule III. There is good news, but narrower than cannabis operators will want.
A quick refresher on Section 280E
Section 280E is what has made cannabis so brutal at tax time. The rule is short: if a business traffics in Schedule I or II controlled substances, no deductions and no credits are allowed. Wages, rent, utilities, advertising, depreciation, insurance — none of it. The only thing that comes off the top is Cost of Goods Sold because COGS reduces gross income rather than acting as a deduction. Cannabis operators routinely pay federal tax on something that looks more like revenue than profit, with effective rates north of 70% not unusual.
The transition rule, in short
For qualifying medical operators, the forthcoming guidance is expected to apply rescheduling to the “entire taxable year” that includes the April 22, 2026, effective date with no mid-year bifurcation. A full 2026 of ordinary deductions for those who qualify. About as generous as the IRS gets.
Medical yes, everything else no
The Final Order only moves two things to Schedule III: FDA-approved marijuana drug products, and marijuana subject to a qualifying state-issued medical license. Everything else stays on Schedule I including, per the order, “unlicensed marijuana crops, bulk marijuana, and any marijuana and marijuana extract that has not yet been incorporated into an FDA-approved drug product.” Adult-use recreational cannabis, the bigger market in most states, does not move. Neither does bulk biomass waiting on processing.
For a dispensary running both medical and adult-use under one roof, or a cultivator selling into both channels, 280E is alive and well on the recreational side. Treasury has flagged that forthcoming regulations will require apportioning expenses such as overhead, rent, payroll between the two activity types.
The bottom line is that some operators will see full deductions this year, but most won’t, but it is better than nothing as was true under the old rules.