FAQs - Federal Cannabis Rescheduling and 280E

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280E Is Still the Law (For Now)

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Despite the Executive Order, IRC §280E still applies to cannabis businesses — including medical-only operators — until the DEA and DOJ complete formal rulemaking and publish a final rule in the Federal Register.

That means:

  • You must continue filing your 2025 taxes under 280E unless rescheduling is finalized before year-end

  • The IRS will continue disallowing ordinary business deductions

  • Cost of Goods Sold (COGS) remains your primary legal tax lever

Filing as if 280E no longer applies before rescheduling is finalized could expose your business to audits, penalties, and interest.

That said, there’s growing legal and strategic interest — especially after NM Top Organics-Ultra Health Inc. v. U.S. — in filing and amending prior years based on the argument that cannabis does not meet the statutory definition of Schedule I or II for tax purposes.

Business Valuations: Caution Over Hype

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Federal rescheduling does not automatically increase business value, particularly in Mississippi. Why?

  • Medical cannabis in Mississippi already operates under Schedule III–level controls

  • Investors value predictability — and the next 1–3 years will likely be a regulatory “gray zone”

  • Conflicting guidance between the IRS, DOJ, DEA, and courts may slow deal flow

Expect tighter diligence, conservative multiples, and increased scrutiny — not a valuation windfall.

Why Cost Accounting Still Matters (More Than Ever)

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Banking & Payments: Progress Will Be Slow

For cultivators and processors, cost accounting under IRC §471 and §263A remains the most effective and compliant way to manage tax exposure.

Even if 280E eventually goes away:

  • Manufacturers are still required to use full absorption costing

  • Cost systems support GAAP compliance, pricing strategy, and investor readiness

  • Future federal excise taxes could compress margins — cost visibility is critical

Cost accounting isn’t a loophole. It’s foundational.

Schedule III may reduce some banking barriers, but relief will not be immediate.

What to expect:

  • Gradual bank entry over 12–24 months

  • Continued higher fees and limited lending options

  • Credit card acceptance may come later — cautiously

Clean books, GAAP financials, and cannabis-specific accounting will be essential to qualify when opportunities open.

Bottom Line

Cannabis is entering a transitional and volatile phase, not a free-for-all.

Smart operators :

  • Use robust cost accounting to protect cash flow

  • Avoid hype-driven decisions around valuations and banking

  • Work with cannabis-specific accounting professionals who understand the risks

Cost accounting is not just a 280E workaround — it’s a core GAAP requirement for any manufacturing business. Cultivators and processors must maintain cost systems regardless of tax code changes. It also ensures compliance, profitability tracking, and investor readiness.

If you’d like to talk through how these changes affect your operation — tax strategy, cost accounting, or long-term planning — we’re here to help.