What does marijuana rescheduling mean for 280E and when will it happen?
In a historic move, the White House issued an executive order Thursday to move forward with rescheduling cannabis under the Controlled Substances Act from Schedule I (high potential for abuse, no known medical use) to Schedule III (lower incidence of physical abuse, but higher incidence of psychological dependence). This executive order reinvigorates the Biden administration’s effort, launched in 2024, that has been on hold for much of 2025.
The scope of the unknowns around the timing, impetus, and effect of this executive order match the volume of speculation.
There is a process for rescheduling that must be followed, inasmuch as any governmental process has been followed this year. There will be hearings and rulemaking, a potential Office of Management and Budget review, all of which take time.
There will be litigation and threats of litigation. Measuring this timeline in months is probably safe. It is probably also safe to assume that an announcement to reschedule might be accelerated or slowed to affect midterm elections.
What is most known about rescheduling is an end to 280E taxes. Internal Revenue Code Sec. 280E considers plant-touching operators to be traffickers of a Schedule I controlled substance and requires that taxes be levied on income less cost of goods produced or sold, without deducting administrative, selling, and other general business expenses. Code Section 280E applies to Schedule I and II drugs, so with a rescheduling to Schedule III, cannabis businesses can deduct all ordinary and necessary business expenses like any other business.
For this, I am extremely excited.
In the few years of Missouri’s legal market, I have met so many hardworking, risk-taking, creative, thoughtful business owners who struggle with the weight of the additional 280E taxes, which time and again require substantial federal income tax payments even in years posting losses. I will be thrilled to see the cash needed to pay these excessive tax bills be available to address other areas of risk, need, and growth in Missouri’s licensed enterprises.
The details of when a plant-touching operator can stop paying 280E taxes are murky and will probably remain murky for quite a while.
If rescheduling is finalized midyear, I find it challenging to imagine a reality where 280E ends that same day. In that scenario, the simple act of following the law becomes prohibitively complicated for an operator and their accounting team, not to mention the challenge that a midyear change of that scale would pose to an IRS auditor. Ending 280E at year end presumably involves a lawsuit or six. So, I expect guidance that will be retroactive.
In the near future, operators will need to gut-check their risk tolerance and understand the progress, or lack thereof, in rescheduling when making decisions on how to calculate estimated income tax payments due April 15.
Even the most basic, known benefit of rescheduling, the elimination of 280E, comes with a whole package of unknowns. The other questions, around the regulation of Schedule III drugs, around research, and around opening up banking and merchant card processing options, are even less known. Sometimes I feel that, besides a love for the plant, it is a love for the risk of tackling the unknown that binds our Missouri cannabis industry and community together.
Sarah Bantz, CPA, is the Director of Cannabis Accounting & Advisory Services at Smith Patrick CPAs and the recipient of Best Accountant in the 2025 Greenway Best of the Industry. She specializes in cannabis tax strategy, compliance, and financial advisory services, working closely with licensed Missouri operators to navigate complex regulatory and financial challenges. Bantz also serves as Treasurer of We Are Jaine, a nonprofit dedicated to empowering women and fostering leadership within the cannabis industry. Smith Patrick CPAs is actively engaged in cannabis advocacy in Missouri, including board service with the Missouri Cannabis Trade Association and testimony before state legislators on cannabis tax issues.
