When Will Marijuana Retailers Get Tax Relief

President Trump signed an executive order last week to expedite marijuana being reclassified as a Schedule III drug.

Photo by Jeff W on Unsplash

On December 18, 2025, President Trump issued an executive order to speed up the process of transferring marijuana classification from a Schedule I to a Schedule III drug classification.

Currently, marijuana retailers and growers are only allowed to deduct cost of goods sold and may not deduct any other operating expenses under Section 280E. Most marijuana growers can deduct most of these expenses as cost of goods sold, however, most retailers can only deduct the actual cost of the product and the taxes associated with the sale. They are unable to deduct labor costs, rent expense or any other operating expenses. This has been litigated in Tax Court several times and the retailers have lost on all occasions.

Once marijuana is reclassified from Schedule I controlled substance to Schedule III, then all marijuana businesses will be able to deduct all of their appropriate business expenses.

There is uncertainty on the timing of deductions for these businesses. Would it be retroactive to a certain time period or prospective only. The IRS would need to weigh on this once the legal effect of the switch to Schedule III takes place.

We will keep you posted.