Cannabis Rescheduling: What Happens Next with 280E?

Will they, or won’t they? We’re all waiting on pins and needles to find out whether the DEA will agree to reschedule cannabis to Schedule III from where it currently resides at Schedule I.

The velocity of the action now also hinges on our new president’s appointment of a new DEA chief. Who that individual may be is unknown, but we do know that talks have paused for the moment. The rescheduling hearing that was supposed to happen in Q1 of this year is now on hold, and it is uncertain what will happen next.

 President Trump supported rescheduling during his campaign, but it will ultimately be up to the new DEA head whether the hearings continue, restart, or are dropped altogether.

 Unfortunately, the interim chief appointed during Mr. Trump’s first week in office is a rescheduling skeptic, so to say the topic is likely not a priority would be both accurate and worrying.

 Rescheduling would give the industry a huge lift, eliminating 280E and finally allowing legitimate cannabis businesses to deduct business expenses as any other business entity would.

 But do we dare hope? Despite the crippling impact of 280E, if we’re reading the room accurately, we may have to carry that load into the foreseeable future

What is Rescheduling?

Further complicating rescheduling efforts, the decision does not rest wholly with the DEA. Hypothetically, the DEA could approve rescheduling, but it would still have to go through congressional process before it becomes law.

 Scheduled drugs are graded based on their medical value and potential for abuse. Rescheduling refers to the process of reclassifying a controlled substance to another category. During this process, the move would be debated by DEA officials, often with public input. Once the rule has been agreed to and written up, the proposal is passed to Congress, where it will be debated and voted on.

 Since the announcement was made public in the spring of 2024, the DEA collected more than 43,000 public comments from just about every level of society, from users to lawmakers, medical professionals, activists for and against, regulators, researchers, and law enforcement. A hearing comes next, where the agency will have to hear some of these arguments and address concerns. Any new information may prompt further hearings.

 Regardless of the outcome of this process, Congress ultimately has the final say. If they wanted to legalize marijuana at the federal level, they could do that too, which would remove cannabis from the Controlled Substances Act entirely. While this is an unlikely scenario, that’s how it works in our multi-layered bureaucracy. Nothing happens quickly, if at all. Once it gets in front of Congress, the issue will be whether there are more pressing issues they would rather address. It’s a long road, and we’re not there yet.

How Rescheduling Will Eliminate 280E

The current rescheduling efforts are looking to downgrade cannabis to a Schedule III controlled substance. Such a move would remove it from the upper tiers of drug classification where it now resides.

 At present, marijuana is Schedule I, described as “no currently accepted medical use” with a high potential for abuse, putting it in the same category as LSD, ecstasy, and peyote.

 But even knocking it down to Schedule II would not improve the landscape. Schedule II drugs include heroin, morphine, cocaine, oxycodone, Adderall, etc., all drugs with a high potential for abuse. S(II) drugs are under the same tax rules as those in S(I), and perhaps more rightly so, as they have been responsible for millions of lives lost to addiction and drug poisoning.

 Schedule III drugs are considered to have moderate to low potential for physical dependence and include ketamine, products with less than 90 mg of codeine per dose, and anabolic steroids.

 Companies making S(III) drugs are not limited by 280E, meaning they can run their businesses as any other, essentially leveling the playing field for researchers, growers, producers, and retailers to gain ground in the American economy.

Economic and Industry Impact of Eliminating 280E

By rescheduling marijuana to Schedule III, cannabis businesses would have the same advantages as manufacturers and distributors of drugs in that class, including being eligible for what are widely considered to be “standard” business deductions, such as advertising, payroll, rent, insurance, etc.

 Essentially, if cannabis is no longer classified as a Schedule I drug, 280E would no longer be a concern. Regulation would still be in place, but the industry would have a chance to thrive, encouraging new research, product improvements, and renewed investment.

 When you consider the tax burden that 280E imposes, it’s next to impossible for any cannabis company to grow. Margins are tiny, and the stringent regulatory framework precludes the potential for small producers and entrepreneurs to participate.

 Eliminating 280E would reduce the tax burden from about 70% to a more reasonable 30%, freeing up capital for expansion, investment, and innovation. The additional freedom would fuel competition, improving product quality and service delivery.

 States would still be collecting tax revenue, but with more players in the market, it’s unlikely they would experience any loss. Compliance would improve, public confidence would grow—there is really no downside.

Final Thoughts: What’s Next is Anybody’s Guess

A month ago, we would have been a bit less skeptical about the future of 280E. However, with the new administration, the future of rescheduling seems to hang in the balance. We hope that President Trump, who has historically been cannabis-agnostic, will make good on his campaign promises to support rescheduling, but time will tell.

 In the meantime, we must all buckle up, carry on, and do what we can to ease the journey until such time as the tides turn in our favor.

 Working with an experienced cannabis tax professional may help you leverage tactics to reduce taxes owed today and prepare for the transition. It may not happen immediately, but it will happen, and preparation is critical.

 Ultimately, we are optimistic about the future of the cannabis industry. Once federal barriers, like 280E, are addressed, the skies will clear. In the meantime, we must hold the course, continue to advocate for change, and be prepared to reap the benefits of a post-280E world.

 Set up a call today. We would love to show you how we can help.