Medical Cannabis 280E Relief Stops at the 2026 Tax Year

State-licensed medical cannabis left Schedule I on April 28, 2026, ending the 280E deduction ban for those shops for the 2026 tax year. Adult-use marijuana stayed in Schedule I, and the Justice Department asked Treasury only to consider refunds for earlier years. The IRS has not published that guidance.

Licensed Medical Cannabis on Schedule III

On April 23, 2026, Acting Attorney General Todd Blanche signed a final order placing marijuana in FDA-approved drugs, and marijuana subject to a state medical marijuana license, in Schedule III of the Controlled Substances Act. The change took effect on April 28, 2026, when the rule ran in the Federal Register as AG Order No. 6754-2026 (91 FR 22714). The order followed President Trump’s December 18, 2025, executive order directing the attorney general to finish moving medical marijuana off Schedule I.

The order is narrower than a lot of April headlines implied. Unlicensed crops, bulk marijuana, and adult-use product that is not under a state medical license remained in Schedule I. Synthetic THC that falls outside the CSA definition of marijuana stayed put as well. Hemp, already outside that definition, was not rescheduled by this rule.

WHAT THE APRIL 28 ORDER MOVED

• FDA-approved marijuana drugs: These products moved to Schedule III on the effective date.
• State medical licenses: Cannabis subject to a state medical marijuana license moved to Schedule III with them.
• Adult-use marijuana: Recreational product that is not under a medical license stayed in Schedule I.
• Unlicensed bulk cannabis: Crops and extract not yet in an FDA-approved drug or a state medical channel stayed in Schedule I.

Schedule III still means federal control, prescriptions, recordkeeping, and DEA registration. It does not legalize recreational sales, open interstate commerce, or put cannabis on a bank’s ordinary product list. It does take licensed medical activity out of the two schedules named in Section 280E of the tax code, which blocks deductions and credits for trafficking in Schedule I or II substances. Congress added that section on September 3, 1982, to stop street dealers from writing off the costs of an illegal trade. State-licensed shops lived under it anyway, because the CSA listing, not the state license, was what the IRS read.

How Far Back Does 280E Relief Go?

For a calendar-year medical operator, ordinary federal deductions are on the table for the 2026 tax year. Years before 2026 are not. The final order said state licensees will no longer face the 280E disallowance, then added that nothing in the rule is a determination of anyone’s federal tax bill, and it encouraged Treasury to consider retrospective relief for years when a licensee already held a state medical marijuana license.

The Administrator encourages the Secretary of the Treasury to consider providing retrospective relief from Section 280E liability for taxable years in which a state licensee operated under a state medical marijuana license.

Acting Attorney General, Final Order, Federal Register, April 28, 2026

“Consider” is not a refund. Treasury’s same-day statement never used the word retrospective. It previewed a transition rule that starts with the tax year that includes the effective date, which for a calendar-year filer is January 1, 2026. Kyle Sherman, founder of dispensary software firm Flowhub, wrote before the order that licensed cannabis companies “can’t deduct toilet paper” while alcohol and tobacco brands write off rent, payroll, and Super Bowl ads. That gap is what medical operators can close for 2026. It is not, on any paper the IRS has issued, a license to reopen 2023 or 2024.

280E BY LICENSE TYPE AND TAX YEAR

A fiscal-year taxpayer would use whichever taxable year contains April 28, 2026, not a calendar cut. Cost of goods sold under Section 471 was always available, even in 280E years; the fight is over rent, payroll, insurance, marketing, and the rest of Section 162. Shops that want to hold open years have been filing protective claims and, in some cases, amended returns with a “reasonable basis” tax opinion. Those filings are a bet, not a Treasury program.

Treasury Previewed a Full-Year 2026 Start

On April 23, 2026, Treasury and the IRS said they planned to issue guidance on the tax consequences of the order and expected “significant positive tax consequences” for medical marijuana businesses. The agencies said rescheduling generally removes 280E as a bar for businesses that, because of the order, no longer traffic in Schedule I or II substances. They also said the guidance would show how, for a business with more than one activity, 280E reaches only the Schedule I or II slice, including by apportioning expenses.

The same statement said the transition rule would treat rescheduling as first applying for a business’s full taxable year that includes the effective date, for activities that no longer involve Schedule I or II substances because of the order. That is the entire 2026 calendar year for a January-through-December medical shop, not a pro-rata split from April 28. It is also the outer edge of what Treasury was willing to preview in writing.

By September 21, 2026, Boston tax lawyers at Foley Hoag wrote that the IRS had not taken the invitation on prior years and had not even published the promised rules on splitting expenses between adult-use and medical. A National Conference of State Legislatures briefing dated August 17, 2026, told state lawmakers that as of August 14 there was no official IRS guidance on Section 280E and no sign the agency would allow amended returns for years before the order. Waiting on a notice that has no date can run out the ordinary period for a refund claim. Closed years would take an act of Congress, not a friendly reading of the April order.

No 280E Break for Adult-Use Sales

Adult-use marijuana is still a Schedule I business. A shop that sells only recreational product still cannot deduct ordinary federal expenses. It can still reduce gross receipts by properly computed cost of goods sold. Everything else that a liquor store deducts without a second thought stays on the wrong side of 280E.

That is the split the April order actually created. Medical channels in the same building can sit in Schedule III while the adult-use register next to them does not. Banking, 280E, and DEA registration now follow the license on the product, not the brand on the door. Operators who spent 2025 unable to deduct payroll and rent were already closing cultivation rooms under 280E before Blanche signed. Adult-use rooms did not get a new federal tax year in April; they got a longer wait for the separate hearing on the rest of the plant.

For a 2023 shop, the federal income-tax payment was often the largest check on the books, larger than rent, because so little of the cost base counted. That pattern still holds wherever the inventory is adult-use. Medical-only licensees can rebuild 2026 books on ordinary rules. Recreational-only licensees cannot, unless the broader rescheduling rule is finished and then given its own tax effective date.

Mixed Licensees Still Need an Allocation Rule

Most operators of any size sell into both channels. Treasury said the forthcoming guidance would limit 280E to the Schedule I or II share of a mixed business. That guidance has not been issued, and neither Treasury nor the IRS has said when it will be. Until it is, a dual-license return is a drafting exercise against a blank page.

WHAT MIXED SHOPS SHOULD SPLIT NOW

• Revenue by license: Track medical and adult-use sales as separate streams, including wholesale lots that move between the two.
• Direct costs: Tie payroll, packaging, and delivery to the license that generated the sale wherever the books will support it.
• Shared overhead: Keep a method for rent, security, insurance, and utilities that can be explained when an apportionment rule finally appears.
• License files: Store state medical license numbers, issue dates, and expirations with the year they covered, because any lookback, if it ever arrives, will run on those documents.

Rebuilding two years of commingled books under a deadline is worse than splitting the ledger now. A dual-entity legal structure does not invent a federal rule that Treasury has not written. It can make the medical slice easier to show. The adult-use slice remains a 280E business until the rest of marijuana leaves Schedule I and the tax agencies say what year that change reaches.

Audits Continue While the FAQ Stays Frozen

The IRS public FAQ for the cannabis industry still disallows deductions for marijuana sellers, citing Schedule I and II trafficking and naming state-legal dispensaries as covered. It has not been rewritten to match the April medical listing. Foley Hoag’s September 21 note said cannabis audit activity is up, and that the IRS, true to earlier public statements, does not accept a “non-280E” position on returns.

The furthest-along Tax Court fight on the usual “non-280E” arguments is New Mexico Top Organics Inc., d/b/a Ultra Health v. Commissioner, Docket No. 19661-24. The IRS answering brief on March 6, 2026, was the first time the agency laid out a full legal theory that cannabis stays “within the meaning” of Schedule I for 280E purposes. The taxpayer’s May 18 reply said the court was not being asked to reschedule marijuana, only to accept HHS findings that the definitional tests for Schedule I are not met, and pointed to the medical order as already undercutting the listing argument. The IRS sur-reply on July 31 kept the line that 280E looks at whether a substance is listed, not at whether it should be.

WHERE EXPERTS DISAGREE

• IRS view: Section 280E follows the CSA schedules as published, so the agency may not reweigh accepted medical use or abuse potential when it audits a marijuana return.
• Ultra Health view: HHS already found accepted medical use, so cannabis is not “within the meaning” of Schedule I, and the April medical order confirms that reading for licensed medical activity.
• The Tax Court’s question: The court asked the parties to brief whether it is bound by the Justice Department’s choice not to make the medical rescheduling order retroactive.

A 2024 IRS information release had told taxpayers that amended 280E refund claims were not valid while marijuana remained in Schedule I. That release is now marked historical, which is not the same thing as a green light to amend 2022. For tax year 2025, medical and adult-use cannabis were still listed in Schedule I for the whole year. Operators putting a non-280E position on a 2025 return are disclosing an uncertain position, and Foley Hoag said those filers need a reasonable-basis opinion. The April order does not rewrite 2025.

The Registration Window Closed Before the Hearing Began

DEA opened the Medical Marijuana Dispensary Registration Portal on April 29, 2026, at 9:00 a.m. EST, with a nonrefundable annual fee of $794, at first payable only through PayPal. Applications filed within 60 days of Federal Register publication get two things the late filers do not: a direction that the Administrator make every effort to process them within six months of publication, and the right to keep manufacturing, distributing, or dispensing medical marijuana under the state license while DEA reviews the file. The last business day of that window was June 26, 2026. Six months from the April 28 publication date runs to October 28, 2026.

A state medical license is treated as conclusive evidence that the applicant is authorized under state law for the activity in the application. Registration suspends if the state license is suspended, revoked, or expires. The application itself is a long form: suppliers and their DEA numbers, standard operating procedures, every person with access to the drugs, and the vaults, alarms, and guards on site. Field offices have followed filings with detailed information requests, which is the inspection phase the portal was always going to produce.

THE 2026 MEDICAL CANNABIS FEDERAL CLOCK

1. December 18, 2025: President Trump signs the executive order directing the attorney general to complete medical marijuana’s move to Schedule III.
2. April 23, 2026: Acting Attorney General Blanche issues the final order; Treasury and the IRS announce planned 280E guidance the same day.
3. April 28, 2026: The order takes effect on Federal Register publication; a separate notice sets a new hearing on the rest of marijuana.
4. April 29, 2026: The Medical Marijuana Dispensary Registration Portal opens at 9:00 a.m. EST for a $794 fee.
5. May 24, 2026: Electronic notices of intention to participate in the broader hearing are due.
6. June 22, 2026: DEA notifies the parties selected to participate.
7. June 26, 2026: Last business day of the 60-day expedited registration window.
8. June 29, 2026: The hearing that ran through July 15 opens at DEA headquarters in Arlington, Virginia.
9. July 15, 2026: The evidentiary hearing closes; the judge does not issue a scheduling rule from the bench.

The Arlington proceeding was the restart of the May 2024 proposal to move all marijuana to Schedule III, after the earlier hearing was withdrawn. DEA selected seven designated participants: the National Drug and Alcohol Screening Association; the Tennessee Bureau of Investigation; Smart Approaches to Marijuana; the states of Nebraska, Idaho, Indiana, and Louisiana; DUID Victim Voices; Kenneth Finn, M.D.; and Phillip A. Drum, Pharm.D. Chief Administrative Law Judge Derek C. Julius presided. Corrected transcripts later went up on DEA’s rescheduling page. A recommended decision has not been issued, and the DEA Administrator still has to take the record and decide whether the rest of the plant leaves Schedule I.

Until that rule is final, adult-use 280E does not move. Until Treasury publishes the April 23 guidance, mixed shops do not have an allocation formula, and medical operators do not have a published path to years before 2026. The April order gave licensed medical cannabis a Schedule III home and a 2026 tax year that no longer treats those shops as traffickers. The refunds, the dual-license math, and the recreational half of the market are still waiting on paper that has not landed.

Disclaimer: This article is news reporting and analysis of federal scheduling orders and tax-agency statements. It is informational only and is not tax, legal, accounting, or investment advice, and it is not a recommendation to file, amend, or withhold any return. Section 280E, protective claims, and rescheduling all turn on facts specific to each business, including license type, tax year, and entity structure, and readers should consult a qualified tax attorney or certified public accountant before taking a position on a federal return. Figures, docket statuses, and agency pages cited here reflect the public documents as of the dates on those documents and can change when Treasury, the IRS, or DEA issues new guidance or a final rule.