Cannabis businesses may be closer to meaningful tax relief following a recent executive order that directs the attorney general to accelerate the process of moving marijuana from Schedule I to Schedule III under the Controlled Substances Act.

The order, signed in December, builds on a 2023 recommendation from the Department of Health and Human Services and a stalled 2024 proposal from the Drug Enforcement Administration (DEA), signaling that rescheduling could take place in early 2026, although marijuana remains a Schedule I substance until the DEA completes its rule making.

According to Accounting Today, for accountants and cannabis operators, the most immediate implication centers on Section 280E of the Internal Revenue Code. That provision applies only to businesses trafficking in Schedule I or II substances and prevents them from deducting ordinary and necessary business expenses.

As a result, state-legal cannabis companies are currently limited to deducting cost of goods sold, often producing effective tax rates that can exceed 70%. If marijuana is reclassified as Schedule III, those restrictions would no longer apply, allowing businesses to deduct expenses under Section 162 like other companies. 

Such a shift would materially change financial statements, cash flow projections, and valuations, while also reducing the need for complex entity structures designed solely to manage 280E exposure.

However, the change would not be retroactive, and companies would need to apply existing rules until a final DEA rule takes effect, potentially splitting fiscal-year accounting. 

The executive order does not resolve broader issues such as federal legalization, banking access, or state-level conformity, and rescheduling itself could face procedural delays or legal challenges.

Still, if completed as directed, the move could mark a significant turning point for cannabis businesses and the advisors who support them, even as careful planning remains essential until the regulatory process is finished.