FAQs - Federal Cannabis Rescheduling and 280E

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What is an Executive Order?

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An Executive Order is a directive issued by the President of the United States that manages operations of the federal government. It does not change the law, but can direct federal agencies (like the DOJ) to take action — such as reviewing or finalizing regulatory changes like the DEA rescheduling cannabis. In this case, President Trump signed an Executive Order instructing the Department of Justice (DOJ) to finalize the cannabis rescheduling process, following the HHS recommendation to move it from Schedule I to Schedule III.

Does IRC 250E still apply after the Executive Order?

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Yes. Despite the Executive Order, IRC §280E still applies to cannabis businesses — including those in medical-only states like Mississippi — until cannabis is officially rescheduled by the DEA and DOJ through formal rulemaking. Until that rule is published in the Federal Register and finalized, the IRS will continue enforcing 280E, which disallows deductions and credits for any trade or business trafficking in Schedule I or II substances.

Should I file my 2025 without applying 280E?

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No – not unless the rescheduling is finalized before year-end. Until cannabis is officially moved to Schedule III and the DEA rule is effective, you must remain compliant and file using 280E. That said, there’s growing legal and strategic interest — especially after NM Top Organics-Ultra Health Inc. v. U.S. — in amending prior years based on the argument that cannabis does not meet the statutory definition of Schedule I or II for tax purposes.

Can I amend prior returns based on NM Ultra Health v United States?

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Is Mississippi already treating medical cannabis like a schedule II drug?

Possibly — but it's not without risk. Calyx CPA and other professionals have advocated for amending returns to claim deductions disallowed under 280E based on the court’s reasoning that cannabis may not lawfully be treated as a Schedule I substance for tax purposes, especially when a state regulates it under pharmaceutical-like standards.

In Mississippi, the state imposes strict pharmaceutical-style controls on medical cannabis licensees — similar to Schedule III drugs — including:

  • Mandatory doctor consultations

  • MMCEU (Mississippi Medical Cannabis Equivalency Unit) limits

  • Secure transport, surveillance, and inventory systems

  • State tax treatment more aligned with prescription drugs

These controls could strengthen the argument that medical cannabis in Mississippi conflicts with the rationale behind 280E. However, as of today, 280E is still valid law. IRS guidance and courts have consistently rejected challenges to its application unless and until federal law officially changes.

Yes. Mississippi’s medical cannabis laws are modeled closely after pharmaceutical regulations. Key examples:

  • Licensing structure mirrors that of pharmaceutical processors and dispensers.

  • Products must be tested, labeled, and tracked in accordance with strict standards.

  • Mississippi Code §41-137 and Department of Health regulations impose rigorous controls akin to Schedule III medications.

  • State tax structure provides deductions similar to non-cannabis pharmaceuticals.

This strengthens the argument that Mississippi’s medical cannabis is already being treated de facto as Schedule III, which could form the basis of an amended return strategy — particularly for medical-only operations.

Should I amend my tax return(s)?

Amending tax returns to recover disallowed 280E deductions based on legal arguments like those in NM Ultra Health is an aggressive but increasingly justifiable position — especially in states like Mississippi that regulate cannabis medically and not recreationally.

However:

  • It’s not yet a settled issue, and

  • The IRS could reject your amended return or audit you under 280E.

We recommend:

  1. Filing 2025 returns with 280E in place unless the DOJ finalizes rescheduling before year-end.

  2. Consulting your CPA/accountant to evaluate risks and benefits of filing refund claims for prior years.

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Does the Executive Order raise my business value?

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Not necessarily — especially in Mississippi. While the media suggests cannabis businesses are becoming more “valuable” due to the shift toward Schedule III, the practical reality on the ground is more complex and less optimistic:

  • Mississippi already treats medical cannabis like a Schedule III substance, with doctor supervision, strict product testing, and pharmaceutical-style security and distribution rules.

  • You are already operating under Schedule III-level compliance — so federal rescheduling doesn’t radically change your risk profile, tax position, or valuation metrics.

What does this mean for stability?

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As we transition to a new federal cannabis framework, the next 1–3 years will likely be a regulatory gray zone, not a gold rush. Here’s what that means for valuations:

  • Conflicting interpretations between the IRS, DOJ, DEA, and courts will create confusion — and that makes investors nervous.

  • We may see increased investor hesitancy, especially in markets like Mississippi where businesses are still maturing and capital access is limited.

  • Deal flow may stall, and multiples may compress until federal guidance stabilizes and cannabis-specific financial norms are updated.

Investors typically value predictability — and this “Wild West” period will be anything but stable. Expect higher scrutiny, more due diligence, and lower appetite for premium valuations.

What does this mean for business accounting?

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For cultivators and processors, the most effective and compliant strategy to reduce tax exposure under 280E (or even post-280E if excise taxes arise) is cost accounting under IRC §471 and §263A.

Here's why:

  • Cultivators and processors are classified as manufacturers, and manufacturers must use full absorption cost accounting per GAAP and IRS rules.

  • Using cost accounting allows you to allocate more indirect costs into inventory (COGS) — legally increasing your deductible expenses.

  • 280E prohibits most deductions, but it does not touch COGS — this is the one area where smart accounting can legally and significantly improve cash flow.

Do I need a cannabis-compliant accountant?

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Will federal rescheduling eliminate all risk for my cannabis business?

Yes! Now more than ever, it’s critical that your business works with an accountant who is cannabis-specific and IRS-compliant, especially if you're in cultivation or processing.

A cannabis-competent accountant will:

  • Know how to navigate cost accounting under §471-11 for manufacturers;

  • Stay updated on ever-changing IRS guidance and federal rulemaking;

  • Help you avoid red flags that lead to audits or rejected amended returns;

  • Prepare your business for future M&A or investment scrutiny with GAAP-compliant, cannabis-specific books.

Cannabis is entering a volatile and transitional phase, and smart operators will double down on compliant cost accounting, cautious business valuations, and regulatory vigilance. That’s the path to surviving — and thriving — post-rescheduling.

No. Rescheduling to Schedule III may reduce some risks (like banking and 280E), but cannabis will still be federally controlled, and we may see FDA involvement, new regulatory hurdles, and possibly increased federal excise taxes. Legal risk will shift — not disappear.

Do I still need to follow state cannabis rules after federal rescheduling?

Yes. Federal rescheduling does not preempt state licensing, inspection, zoning, or tax regimes. You must stay compliant with Mississippi’s medical cannabis law and state-level regulators will continue to enforce their rules regardless of DEA actions.