Trump Administration Moves to Reschedule Medical Marijuana: What it Means for IRS Section 280E and Cannabis Tax Law

On April 22, 2026, a significant shift was made by Acting Attorney General Todd Blanche as it relates to FDA-approved marijuana products and state-licensed medical marijuana. Using executive powers, Attorney General Blanche rescheduled these products to be moved from Schedule I to Schedule III. The Department of Justice also ordered an “expedited hearing” to reschedule the drug entirely. This hearing will begin June 29, 2026.

This is big news for cannabis businesses who face hefty taxes under Section 280E. The rescheduling will create a partial collapse of this tax law. The next 12 months will be defining months, depending on Treasury guidance, IRS enforcement posture, and whether or not relief will affect prior tax years or only span into the future. Tax attorneys in Arizona are keeping a close eye on the situation.

The Shift from Schedule I to Schedule III

Todd Blanche’s actions on FDA-approved cannabis and state-licensed medical cannabis was administrative. He used his authority under the UN Single Convention on Narcotic Drugs to make immediate change. This means that as of April 22, 2026, qualifying medical cannabis activity is viewed under Schedule III.

It’s important to note that these changes do not affect recreational cannabis use yet. To reschedule recreational cannabis, a standard rulemaking and hearing process must commence. This process was streamlined and expedited to wrap on July 15, 2026, thanks to Trump’s December 18, 2025 Executive Order on Increasing Medical Marijuana and Cannabidiol Research.

The End of Section 280E– For Some Operators

Section 280E is a federal tax rule that disallows any business selling a Schedule I or Schedule II drug from all tax deductions or credits apart from cost of goods sold. This can be a very painful rule for those that are selling cannabis. For example, a retailer who has 50% gross profit and 30% operating expenses, will have to pay federal tax on the 50% gross profit (minus cost of goods sold) without being able to deduct expenses.

This is significant and some businesses find themselves having to pay more in taxes than what their books actually show in profit. Because of this, there is much hope in the action taken to reschedule medical cannabis to Schedule III. Since 280E only applies to Schedule I and Schedule II drugs, businesses selling cannabis for medical purposes can get some tax relief!

There are two important things the tax attorneys in Arizona from Silver Law want clients to notice as it relates to the Treasury’s announcement:

• The rescheduling and therefore killing of Section 280E for qualifying businesses impacts the full taxable year for calendar-year filers. This means that all of the 2026 tax year will be impacted.
• Businesses that sell both Schedule III drugs as well as Schedule II and Schedule I drugs will have to itemize their expenses accordingly and will only be able to avoid Section 280E on their Schedule III drug operating expenses.

Tax Planning After April 22

The order to reschedule medical cannabis took place on April 22 and has been recognized by the IRS. So what should business operators do with this change?

Cash Flow Effects

The first effects will impact expenses. Business operators are now able to deduct their expenses, significantly reducing taxable income. The industry-wide impact will also be significant. Many multistate operators and their tax attorneys in Scottsdale have been fighting with the IRS over Section 280E for years.

The change releases this pressure and allows these businesses to take near-immediate action. They will be able to re-allocate capital, distribute funds to their investors or reinvest them, and renegotiate better terms in their credit-agreement covenants.

The Retroactivity Question (This is a Big One)

The Department of Justice has suggested that the Treasury look at making the Schedule change and its effects on taxes retroactive. This is not something that has been decided yet and will be up to the Treasury. They have been much more cautious about doing so than the Department of Justice. If they decide to allow the new rule to work backwards, this could release billions in disputed taxes.

What Licensed Medical Marijuana Sellers Should Do

So what steps should individuals operating under a state medical marijuana license take?:

• Claim deductions for the entire 2026 year- no longer governed under 280E.
• File refund claims for any prior years that are still open as a protective measure to preserve options.
• Be sure you thoroughly document how and why you are reallocating funds as you do so.

It’s important to note that nothing is known about the retroactive effects yet. So if you take aggressive measures to amend tax returns, you may experience pushback from the IRS and possible audits, administrative disputes, or tax litigation, requiring the help of tax attorneys in Arizona.

Where the Relief Stops: State Tax and IRS Enforcement

While things are in motion to give those that have a state-provided medical marijuana license relief, business operators should still be cautious and watch out for potential pitfalls.

State Tax

The federal rescheduling of medical marijuana does not impact state tax laws. Most states fall into three different categories as it relates to how they handle tax on those that sell Schedule I, II, and III drugs:

• Many states already removed the 280E tax law governing marijuana sellers.
• Most states do as the federal government does in regards to taxing marijuana sellers.
• Some states don’t fall into either category and govern tax on marijuana sellers in their own way.

Multistate businesses have a challenging task to conform to the many differing tax laws across the states and federally. This is especially true for operations that are run in states that have legalized recreational marijuana.

Mixed-Activity Allocation

When it comes to how the IRS views businesses, they will look at what they are doing instead of who they are. So each activity a business takes part in can be taxed differently. This means that if a business sells medical marijuana as well as “trafficks” illegal recreational cannabis (still under Schedule I), they will be partially subject to Section 280E.

This can make paying taxes accurately challenging, especially without hurting one side of the business. Business operators will need to split their expenses fairly and be able to justify why and how they did so. The tax attorneys in Arizona from Silver Law can help with this. Remember, what you do now to protect yourself from audit will help defend you three years from now. Be sure you allocate:

• Revenue
• Square footage
• Employees in each activity

IRS Litigation Stance

Despite the new rescheduling, businesses should keep in mind that it is not guaranteed that past claims will be affected by removing the 280E law. As recently as March 2026, the IRS fought in Tax Court that businesses affected by the rescheduling are still liable for the full owed amount in past filings.

Until the Treasury takes a different position and allows retroactive claim refunds, if they even do, businesses should assume that any retroactive claims will be fought aggressively by the IRS.

Talk to Silver Law ABout Your 280E Position

It is important to remember that just because medical marijuana has been rescheduled, it does not mean there is a widespread legalization of cannabis. There are still major restrictions on interstate commerce, banks will still not fully allow or provide normal financing services, and Cannabis companies are still unable to be a part of the federal exchange. That said, June 29, 2026 could be a major turning point making adult-use cannabis a Schedule III drug as soon as late 2026 or early 2027. Treat the April 22 rescheduling as the start of a multi-year reform instead of a done-deal and you will benefit greatly in the future.

If you’re unsure about how the Schedule III rescheduling will affect how you manage your taxes this year, you’re thinking about setting up protective refund claims for prior years, or you are facing an active 280E controversy, you need the help of a skilled tax attorney. Look no further than our tax attorneys in Scottsdale from Silver Law. Our law firm has years of experience, a track record of success, and we are always on top of the new and upcoming changes on tax laws.

Contact us today to get started with a consultation!