Informational only. This article is not legal, tax, or accounting advice.
Where Federal Cannabis Rescheduling Stands in 2025
The federal push to move cannabis to Schedule III remains active but unresolved. The U.S. Department of Justice published its Notice of Proposed Rulemaking (NPRM) to transfer “marijuana” from Schedule I to Schedule III on May 21, 2024 (89 FR 44597). You can read the NPRM on the Federal Register and GovInfo:
DEA subsequently noticed a formal hearing on the proposed rule on August 29, 2024 (89 FR 70148), then postponed the January 2025 hearing pending resolution of a procedural appeal:
As of September 2025, the administrative record remains open and rescheduling is likely according to numerous legal and industry analyses, but the effective date and final text are still uncertain.
What matters now for operators is understanding exactly what Schedule III would and would not change—and how to prepare for the pivotal 280E transition in 2025–2026.
What Schedule III Would Change—and What It Wouldn’t
280E relief arrives when cannabis moves off Schedules I–II
Under 26 U.S.C. § 280E, taxpayers trafficking in controlled substances listed in Schedule I or II cannot take ordinary and necessary business deductions or credits. When cannabis is placed in Schedule III, Section 280E no longer applies to state-legal operators for expenses paid or incurred after the rule’s effective date:
This is the headline change for state-licensed cannabis businesses. The practical impact: materially lower effective tax rates, potentially positive EBITDA-to-cash conversion, improved borrowing capacity, and renewed investor interest.
Federal legalization? No. Interstate commerce? Not by itself.
Rescheduling does not legalize adult-use programs under federal law. Cannabis would remain a controlled substance regulated by the Controlled Substances Act (CSA) and overseen by DEA and FDA. The NPRM stated that if rescheduled, “the regulatory controls applicable to schedule III controlled substances would apply, as appropriate, along with existing marijuana-specific requirements.” See the NPRM summary and hearing notice:
Interstate commerce in state-legal cannabis does not become lawful merely because of rescheduling. Federal authority to control cannabis commerce remains broad (see Gonzales v. Raich, 545 U.S. 1 (2005)):
Banking access improves at the margins, but no safe harbor (yet)
Rescheduling alone does not create a banking safe harbor. The primary compliance framework remains FinCEN’s 2014 guidance for servicing marijuana-related businesses under the Bank Secrecy Act (BSA), including Suspicious Activity Report (SAR) expectations:
Unless Congress passes a law such as the SAFER Banking Act, banks will still rely on enhanced due diligence and SAR filing frameworks. Some institutions may re-enter the market post-280E, but program risk management will remain intensive until federal law changes.
Research access likely eases, but DEA/FDA controls continue
Moving to Schedule III should make research logistics easier relative to Schedule I (e.g., more suppliers, fewer scheduling hurdles), but DEA registrations, security, recordkeeping, and FDA clinical pathways still apply. DEA’s NPRM indicates that standard Schedule III controls would apply as appropriate, in addition to any marijuana-specific controls or treaty-related requirements:
DOT testing and federal contracting won’t change automatically
The U.S. Department of Transportation’s drug testing rules hinge on the HHS Mandatory Guidelines and 49 CFR Part 40—not the CSA schedules alone. As of 2025, HHS maintains marijuana analytes on authorized testing panels, and the guidelines remain in force through at least July 7, 2025, absent further updates:
Bottom line: safety‑sensitive employees and many federal contractors will still be subject to THC testing until DOT/HHS revise their rules. Employers should continue to align policies with DOT/HHS and the Drug‑Free Workplace Act.
280E Timing: Mid‑Year vs. Full‑Year Implications
The most pressing “when” question for cannabis finance leaders is how 280E relief will flow through 2025 returns if a final rule takes effect mid‑year. While the IRS has not issued rescheduling‑specific transition guidance as of publication, core tax principles provide a roadmap:
- Statutory trigger. Section 280E denies deductions and credits for amounts paid or incurred during the taxable year in a trade or business trafficking in a Schedule I or II substance. Once cannabis is Schedule III, 280E no longer applies to expenses paid or incurred while cannabis is not in Schedule I or II.
- Effective date controls. Deductions for expenses after the effective date should be permitted; deductions for expenses before the effective date remain disallowed, absent retroactivity (which is unlikely in standard rulemaking).
- Method matters.
- Cash method: “Paid” is typically the payment date. Post‑effective‑date payments should be outside 280E.
- Accrual method: “Incurred” generally follows the all‑events test and economic performance. If all events occur pre‑effective date, the expense is likely disallowed; if all events occur post‑effective date, the deduction should be allowed.
- Calendar vs. fiscal years. Fiscal‑year taxpayers that straddle the effective date will likely see mixed-year treatment inside a single return. Calendar‑year taxpayers may see partial‑year relief in the same tax year if the effective date occurs before year‑end.
- Estimated taxes. If relief is expected mid‑year, update Q3/Q4 estimated tax payments to reflect lower expected liability. Coordinate with advisors to leverage safe harbors and avoid underpayment penalties.
- NOLs and other attributes. Without 280E, many operators may generate or unlock Net Operating Losses (NOLs), interest deductions (163(j)), and other attributes. Model usage limits and carryforwards carefully.
- Prior years. Absent explicit retroactivity, 2024 and earlier years remain under 280E. Amended returns for those years are unlikely to succeed unless a final rule expressly provides retroactive relief.
Because this is a complex intersection of tax accounting and administrative law, build internal memos with your CPA/tax counsel documenting positions, calculations, and supporting authorities for 2025 filings.
Financial Readiness: From Chart of Accounts to Pricing Strategy
With 280E relief on the horizon, CFOs should execute a structured transition plan.
Rebuild your chart of accounts and close processes
- Map out 280E categories. Keep pre‑effective‑date disallowed buckets separate from post‑effective‑date deductible accounts. Preserve audit trails.
- COGS vs. Opex. Under 280E, maximizing COGS drove tax outcomes. Post‑280E, focus shifts to profitability and cash taxes, not just COGS engineering. Reassess inventory accounting (e.g., §471 conformity) and confirm whether any UNICAP/§263A positions change for your facts.
- Month‑end rigor. Implement a monthly cutoff protocol to timestamp when expenses flip from disallowed to deductible.
- Consolidation & transfer pricing. For MSOs, revisit intercompany markups and shared‑services charges now that deductibility constraints ease.
Reforecast taxes, cash flow, and pricing
- Tax rate modeling. Rerun 2025/2026 forecasts under scenarios for effective date timing and final rule content. Build a base, upside, and downside case.
- Cash flow. Expect improved after‑tax cash conversion. Evaluate opportunities to retire expensive debt, refinance, or expand.
- Pricing strategy. Competitors may pass some tax savings to consumers. Build elasticities into forecasts and monitor market share impacts.
- Capital allocation. With improved cash, consider investment in QA, automation, store refresh, and expansion—balanced against regulatory risk and state‑by‑state demand.
Banking and BSA/AML posture
- Engage current and prospective banks. Even post‑rescheduling, institutions will follow FinCEN’s 2014 guidance until updated. Expect SAR filings to continue and enhanced due diligence to remain. Prepare documentation, compliance SOPs, and governance artifacts banks will request.
- Payment options. Evaluate ACH, PIN‑debit, armored courier, and insured cash logistics with your bank. Avoid high‑risk workarounds.
State tax and SALT differences
- Track decoupling. Many states already decoupled from 280E; others conform to federal law. Rescheduling may not automatically harmonize state treatment. Update your SALT matrices and provision models by state.
Compliance Operations: What Stays the Same
Rescheduling does not change your day‑to‑day state compliance obligations. Continue to operate as if nothing changed at the state level unless regulators say otherwise:
- Licensing and renewals. State license types, application windows, fees, and renewal cadence remain in force. Maintain good standing, financial disclosures, ownership reporting, and change‑of‑control approvals.
- Testing, packaging, and labeling. Comply with state testing panels, potency/contaminant thresholds, child‑resistant packaging, universal symbols, warnings, and QR/lot traceability.
- Track‑and‑trace. Maintain seed‑to‑sale accuracy (e.g., METRC, BioTrack). Expect heightened scrutiny during the federal transition.
- Marketing claims. FDA and FTC have repeatedly targeted unapproved drug claims for CBD/THC products. Rescheduling does not authorize health claims for non‑approved products.
- No interstate shipments. Do not transport state‑licensed product across state lines absent explicit federal authorization. CSA/FDA risks remain.
Potential Ripple Effects to Monitor
- DOT/HHS testing. Follow HHS panel updates and DOT’s 49 CFR Part 40 communications. Rescheduling won’t automatically change testing rules or consequences for safety‑sensitive roles.
- Federal contracting. Agencies and primes will continue to enforce Drug‑Free Workplace requirements unless guidance changes. Review contract clauses and facility policies.
- Insurance and capital markets. With 280E relief, some insurers and lenders may expand offerings; major U.S. exchanges may still restrict listings until federal legality or clear exchange policies change.
- Research partnerships. Academic and life‑science partners may be more willing to engage under Schedule III, but they will still adhere to DEA/FDA requirements.
Practical Checklist for CFOs and Compliance Teams
Use this list to drive internal readiness while the DEA process unfolds.
Governance and Planning
- Create a cross‑functional rescheduling task force (finance, tax, compliance, HR, legal, banking).
- Build a written 280E transition memo with scenarios and effective‑date assumptions.
- Establish a Federal Register and DEA docket watch (Docket No. DEA‑1362), with alerts for any final rule and effective date.
Tax and Accounting
- Segment pre‑ and post‑effective‑date expenses in the GL; automate period cutoffs.
- Update estimated tax payments and safe harbor strategies for 2025.
- Reassess inventory capitalization methods, depreciation, interest limitations, and NOL strategy.
- Update tax provision and deferred tax accounting; model state decoupling effects.
- Prepare return workpapers to support “paid or incurred” determinations under cash or accrual.
Banking and Treasury
- Re‑engage banks/credit unions; refresh due diligence packets aligned to FinCEN’s 2014 guidance.
- Review cash handling, vault, armored courier, and insurance coverage; reduce cash friction as accounts expand.
- Revisit debt covenants and refinancing opportunities based on improved after‑tax cash flow.
Operations and HR
- Maintain strict state compliance on testing, labeling, and track‑and‑trace.
- Update employee handbooks: state protections, non‑safety‑sensitive roles, and continued DOT/HHS consequences.
- Reinforce quality systems (GMP‑like SOPs) anticipating greater federal scrutiny over time.
Commercial
- Re‑price SKUs as needed to balance margin expansion with competitive dynamics.
- Model promotional elasticity and inventory turns with tax relief scenarios.
- Communicate responsibly with consumers and investors; avoid health claims.
Regulatory Monitoring
- DEA final rule and effective date.
- HHS Mandatory Guidelines and DOT 49 CFR Part 40 updates for drug testing.
- Any FinCEN updates to BSA/SAR guidance.
- Congressional actions (e.g., SAFER Banking) that could change risk calculus.
Key Sources and Further Reading
For industry analysis on the limits of rescheduling and operational implications, see:
Bottom Line for 2025
- Expect 280E relief when a final Schedule III rule becomes effective; plan for mid‑year mechanics in 2025 or 2026 depending on timing.
- State compliance remains mandatory. Continue to meet all licensing, testing, packaging, labeling, and track‑and‑trace obligations.
- Federal controls persist. DEA/FDA oversight, DOT/HHS testing, and FinCEN BSA expectations continue unless and until those agencies change their rules.
- Be financially ready. Rebuild chart of accounts, reforecast taxes and cash flow, and prepare to compete on pricing and execution once 280E lifts.
Need help translating federal rescheduling into a state‑by‑state compliance and tax action plan? Visit https://cannabisregulations.ai/ for tailored updates, alerts, and tools to keep your team audit‑ready.
