What the Aprill 23, 2026 Final Order Means for Cannabis Rescheduling

On April 23, 2026, the Department of Justice (DOJ) and Drug Enforcement Administration (DEA) issued its long-anticipated Final Order, which took effect upon publication in the Federal Register on April 28, 2026.  The Final Order partially reschedules certain cannabis-related products and activities, such as (1) FDA-approved drug products containing marijuana and (2) marijuana products regulated under qualifying state medical marijuana licensing programs  from Schedule I to Schedule III under the Controlled Substances Act (“CSA”) for federal controlled-substance purposes. This matters because the federal tax rule in IRC 280E only applies to businesses trafficking in Schedule I or II controlledsubstances.Before this change, cannabis businesses generally could not deduct ordinary business expenses for federal income tax purposes, even if they were fully licensed under state law. As a result, many businesses paid federal tax on income that was much higher than their actual economic profit.

Also, the Schedule III status for state-legal medical operators is not automatic.  State licensed operators must register with the DEA by completing an application and paying an annual fee.

What does this mean for IRC 280E: It does not remove IRC 280E for the cannabis industry.

It means the rule is now more activity-based, such as:

• If an activity now involves a Schedule III product because of the Final Order, IRC 280E generally should nolonger block deductions for that activity.
• If an activity still involves Schedule I or II products, IRC 280E still applies to that activity.

This is especially important for mixed-activity operators; for example, businesses that have qualifying medical operations alongside adult-use or other operations that remain outside the rescheduled categories.

Keep in mind COGS for cannabis businesses is determined under IRC 471 and Treasury Reg. 1.471-3.   It is not treated the same as disallowed deductions under IRC 280E.  Generally, COGS reduces gross receipts in determining gross profit rather than being treated as a deduction. Why mixed-activity businesses need to pay attention: For many businesses, this is not an all-or-nothing tax change.

A business may now have:

• one set of activities where federal deductions are allowed, and
• another set of activities where federal deductions are still limited by IRC 280E.

In layman’s terms, this means a company may need to divide its operations into separate tax buckets for federal reporting. Businesses that assume all cannabis activity is now deductible could create a filing risk. Businesses that fail to identify newly deductible activities could miss an important tax benefit.

Impact on Federal tax bills: For activities no longer subject to IRC 280E, federal taxable income may drop because ordinary operating expenses may once again be deductible. That can improve:

• cash flow,
• effective tax rate,
• budgeting accuracy, and
• overall profitability.

But if a business still has significant activity tied to products that remain in Schedule I or II, the federal tax burden may remain high for that part of the business. In other words, the tax impact may be meaningful, but disproportionate.

Steps to take now:

1. Separate your activity tracking.Make sure revenue, inventory, and expenses tied to rescheduled medical activity are tracked separately from activity that may still be subject to IRC 280E.
2. Revisit pricing, forecasts, and budgets.If some deductions are now available federally, your expected tax cost and after-tax margins may change.
3. Review shared-cost allocations.Rent, payroll, occupancy, and other overhead may need to be assigned across business lines in a reasonable and consistent way.
4. Talk with your tax advisor before filing.Treasury and the IRS have indicated that additional guidance is expected, especially for businesses with multiple activities.

New Jersey Reminder: New Jersey had already reduced the impact of IRC 280E for licensed cannabis businesses for state tax purposes. That means the April 23, 2026 federal change may narrow the gap between federal and New Jersey tax results for some operators—but federal and state reporting may still not match.

Conclusion: The April 23, 2026, Final Order is a significant development, but it is not a blanket repeal of IRC 280E for all cannabis businesses. For mixed-activity operators, the key question now is which activities qualify for Schedule III treatment and which do not. Businesses that organize their records early and evaluate the impact carefully will be in the best position to manage tax exposure and capture any available benefit.

If you have any questions regarding this important topic, please contact our office for assistance.

Article contributed by Béatrice R. Calen, EA