On April 23, 2026, the Department of Justice and the Drug Enforcement Administration issued an order moving medical marijuana subject to a state license from Schedule I to Schedule III of the Controlled Substances Act. Adult-use marijuana remains in Schedule I for the time being, and I have written about how that doesn’t really make sense, yet I digress…
If you exist anywhere within the realm of cannabis, you are aware that Section 280E of the Internal Revenue Code disallows business deductions for companies dealing in Schedule I or II controlled substances, so the reclassification of medical marijuana to Schedule III means state licensees will no longer be subject to 280E’s deduction disallowance. The Acting AG’s Order rescheduling medical marijuana (No. 6754-2026) explicitly states this. Yay!
The U.S. Treasury and the IRS also confirmed as much the same day, stating that rescheduling "generally removes section 280E as a bar to claiming deductions and credits" for businesses that no longer "traffic" in Schedule I or II substances. The rescheduling order also created a pathway for state-licensed operators to register with the DEA to handle medical marijuana as a Schedule III controlled substance.
This registration has raised a practical question now facing operators and tax advisors: Is DEA registration required to claim Section 280E relief, or is a valid state medical marijuana license sufficient?
The argument that registration is not required is that Section 280E, by its terms, applies only to businesses trafficking in Schedule I or II substances. Once a substance is placed in Schedule III, the statutory trigger for disallowance is no longer met, regardless of whether the operator has obtained DEA registration. The rescheduling order addresses tax relief and DEA registration in separate sections without making one contingent on the other. Many industry professionals have noted that DEA registration is not a prerequisite for tax relief. The Department of Treasury's April 23 press release likewise imposes no registration condition.
However, some industry professionals are more cautious. (Understandably, there have been a lot of letdowns in the past.) The argument that registration may be required is that, without the DEA registration, an operator is handling a controlled substance without federal authorization under the CSA. Some cannabis industry commentators have argued this means the activity remains "prohibited by Federal law," which, they say, supports a reading that Section 280E still applies. Indeed, even the Congressional Research Service has noted that the rescheduling order does not immediately bring state-licensed operators into compliance with federal law.
The current status is that Treasury and the IRS have announced their intention to issue formal guidance but have not yet done so. Additionally, the rescheduling order is being challenged in the D.C. Circuit Court of Appeals. If the court stays or vacates the order, Section 280E could be back for all cannabis operations. Boo.
There is a strong textual reading that supports the conclusion that DEA registration is not a statutory prerequisite for Section 280E relief. However, DEA registration would undoubtedly strengthen a taxpayer's defensive position, and the absence of any IRS guidance may, for some, leave this burning question unresolved.
