Bye-Bye 280E: New Executive Order Concerning Cannabis Rescheduling

In a historic development, on December 18, 2025, President Donald Trump signed an Executive Order entitled “Increasing Medical Marijuana And Cannabidiol Research,” directing Attorney General Pam Bondi to “take all necessary steps to complete the rulemaking process related to rescheduling marijuana to Schedule III of the CSA.” Currently, marijuana is a Schedule I drug under the Controlled Substances Act (CSA). The Drug Enforcement Agency began the rescheduling process under President Biden, but that process was uncompleted when President Biden left office. Yesterday’s executive action brings to fruition a years long policy review and reflects the most significant change in federal cannabis law since the passage of the CSA.

This move is expected to still trigger a 30-day comment period before a final rule is issued. Once finalized, the shift to Schedule III will carry immediate and material implications for cannabis operators, investors, and other market participants—particularly in the area of taxation.

Tax Implications: The End of Section 280E

One of the most significant outcomes of rescheduling is the elimination of the penalty on cannabis companies imposed by Section 280E of the Internal Revenue Code. Section 280E of the Internal Revenue Code generally prohibits businesses trafficking in Schedule I or II controlled substances from deducting ordinary and necessary business expenses. For years, this limitation has put state-legal cannabis operators at a financial disadvantage, resulting in significantly higher effective tax rates than those faced by other industries. Without the ability to deduct common operating expenses like payroll, rent, and marketing, cannabis operators have been taxed on gross income rather than net income, leading to a significantly higher effective tax rate than they would otherwise be subject to. Rescheduling to Schedule III removes this restriction and offers long-overdue relief. Here is a simplified example of how the 280E penalty impacts cannabis operators today:

As demonstrated in the example above, a cannabis business with the same amount of revenue and expenses as a traditional business can realize an after-tax cash loss due to Section 280E while the traditional business realizes an after-tax cash profit. However, the reclassification of cannabis to Schedule III would mean that Section 280E would no longer apply to cannabis operators and they would be able to deduct their ordinary and necessary business expenses to the same extent as traditional businesses. For many cannabis operators, this would have a significant and positive impact on their cash flows and profitability.

Access to Capital and Financial Services

The shift is also expected to improve the broader financial environment for cannabis businesses. Banks, payment processors, and insurers—previously deterred by the federal Schedule I classification—may now re-enter the market with greater confidence.

This could lead to:

• Improved access to loans and credit
• Expanded insurance options
• Reduced borrowing costs
• Increased institutional investment

According to Casa Verde Capital co-founder Karan Wadera, “We view today’s announcement as a true inflection point for the US cannabis industry. For years, operators have been constrained by federal prohibition, limited access to capital, and adverse tax treatment, via 280E, which has distorted economics and suppressed reinvestment across the sector. Rescheduling unlocks the removal of 280E, fundamentally reshaping cash flows, balance sheets, and valuation frameworks overnight. With normalized tax treatment, the industry can finally operate like a real consumer or healthcare category, opening the door to institutional capital, accelerated consumer adoption, and long-term global credibility.”

However, rescheduling does not alone guarantee that banks, payment processors, and insurers will instantly be willing to serve cannabis operators. It also does not guarantee that cannabis operators can be listed on the US stock exchanges. The cannabis industry would still benefit additional reform efforts at the federal level.

Growth Opportunities For Medical Cannabis

The executive order also directs the Centers for Medicare and Medicaid Services (CMS) to launch a pilot program as soon as 2026 that would allow certain Medicare-covered patients to access CBD products that meet defined safety and quality standards. This program is expected to support further research into cannabinoid-based therapies, with growing interest from pharmaceutical companies in developing FDA-approved cannabis medicines.

Schedule III reclassification will also allow universities and pharmaceutical companies to perform studies on cannabis and its effects on the human body, including investigating potential medical benefits. We will likely see accelerated growth in the medical cannabis sector as pharmaceutical and biotech companies could move quickly to expand cannabinoid-based drug development, subject to the standard drug approval process administered by the FDA.

Additional Business Considerations

Although reclassification provides tax relief, it does not legalize cannabis federally or establish a comprehensive federal regulatory framework. Cannabis remains a controlled substance, and businesses must continue to navigate a patchwork of state regulations and limited access to traditional financial services.

Key Points to Consider

• Cannabis remains federally illegal. Schedule III drugs still require a prescription and must comply with FDA and DEA regulations. Adult-use cannabis remains in conflict with federal law.
• State markets remain in tension with federal law. Generally, Schedule III drugs can only be sold with a prescription by registered pharmacies, hospitals, clinics, and authorized prescribers. Therefore, the sale of cannabis in state-legal dispensaries to anyone over 21 without a prescription would still violate federal law.
• Listing on US exchanges remains prohibited. Although cannabis stocks saw gains yesterday, companies in the sector remain barred from listing on major US exchanges such as the NYSE and NASDAQ.

Action Items for Operators and Investors

Companies may wish to:

• Reevaluate tax planning and prior-year positions in anticipation of 280E relief
• Model financial performance with standard business deductions
• Review accounting systems and structures built around 280E compliance
• Monitor forthcoming guidance from the DEA, IRS, and state regulators

Conclusion

While the path to federal legalization remains complex, the rescheduling of cannabis to Schedule III marks a significant shift for the US cannabis industry. The elimination of the Section 280E tax penalty is expected to provide long-awaited tax relief and increase profitability for operators across the country. It also opens the door for renewed investment and innovation in medical cannabis, as expanded research opportunities and evolving federal programs signal growing support for evidence-based therapeutic use.

Goodwin’s Cannabis team is closely monitoring the Executive Order and any potential DEA’s rulemaking process.