Marijuana Rescheduling and Income Tax

The DOJ Final Order on marijuana rescheduling dropped last week. Acting Attorney General Todd Blanche ordered that “FDA-approved drug products containing marijuana, as well [as] marijuana in any form covered by a state medical marijuana licensing, be placed in Schedule III of the CSA.”

The Order went further than many of us anticipated. It also includes a short section on “Tax Implications.” Here is that section, in whole:

“The Acting Attorney General further notes that, as a consequence of this rule, state licensees will no longer be subject to the deduction disallowance imposed by Section 280E of the Internal Revenue Code, which applies only to businesses engaged in ‘trafficking in controlled substances . . . in a schedule I or II,’ 26 U.S.C. § 280E. Nothing in this rule constitutes a determination regarding federal tax liability, and qualifying state licensees should consult with tax counsel regarding the applicability of Section 280E to their specific circumstances.”

There is plenty to unpack in that paragraph.

“State licensees”

The Order doesn’t define “state licensee.” However, “state medical marijuana license” is now defined at 21 CFR § 1300.01 as:

“a license issued by a state entity (or by a District of Columbia entity or a federal territorial entity) authorizing the licensee to manufacture, distribute, and/or dispense marijuana or products that contain marijuana for medical purposes.”

Taxpayers holding these licenses, presumably, are “state licensees.” Many of these medical marijuana sellers may finally escape the stifling grasp of Section 280E.

Reader, I said “may.”

In states that allow only medical marijuana (e.g. Florida, Oklahoma, Pennsylvania), things appear straightforward: that is, state-licensed operators have become 280E-exempt under the Order. The marijuana being produced, processed, transferred and sold in these states all goes to cardholders—at least theoretically—and all of that marijuana is now in schedule III.

In states with adult-use programs, the analysis could be complex. All states with adult-use marijuana programs also have medical marijuana programs. Most of these states have blended their programs to varying degrees. In some states, a plant may begin in the adult-use CTS, grown by a non-medical licensee, but evolve into a medical marijuana item somewhere along the supply chain. The resulting product may or may not be more potent, will likely be packaged differently, and may or may not be taxed. Invariably, though, it is transferred or sold to a medical marijuana cardholder. It has undergone a definitional transformation, if not a physical one.

The licensees in these mixed supply chains may be adult-use licensees, with “endorsements” or “registrations” or other permissions to create or handle medical marijuana products. At the grow level, the distinction is virtually meaningless—a marijuana plant is just a marijuana plant, after all. But, are these hybrid operators “state licensees” within the meaning of the Order? They handle medical marijuana, but they also traffic in non-medical marijuana. They may or may not segregate inputs; they may or may not segregate outputs. You can see where I’m going with this.

“Nothing in this rule constitutes a determination regarding federal tax liability”

In this respect, DOJ stays in its lane. Further along, though, the Order repeats the paragraph on Section 280E that I quoted above, adding one striking sentence:

“The Administrator encourages the Secretary of the Treasury to consider providing retrospective relief from Section 280E liability for taxable years in which a state licensee operated under a state medical marijuana license.”

Retrospective relief from Section 280E would be the ultimate prize for many marijuana businesses, short of an entrée to interstate commerce. The possibility is utterly tantalizing. Could it actually happen?

It could, although the Treasury need not heed the “retrospective relief” suggestion. It operates independent of DOJ in the executive branch. That said, the IRS has granted retrospective relief to taxpayers on numerous occasions, most recently last month in relation to OBBA tax credits. OBBA was signed into law in July of 2025, yet the IRS will allow taxpayers to amend returns as far back as 2022 for purposes of making certain elections.

However the Service proceeds, marijuana taxpayers would be wise to heed the Order’s advice to consult with tax counsel. An exception involves tax counsel who argue that Section 280E doesn’t apply to any marijuana businesses whatsoever. In that case, please read this.

What’s next for marijuana rescheduling (and tax)

I’ll be watching three things.

First, I’ll be watching for Treasury guidance. On Thursday, April 23, the Treasury and IRS promptly announced such guidance is forthcoming. The press release forecasts “a transition rule providing that, for purposes of Section 280E, rescheduling generally will be considered to first apply for a business’s full taxable year that includes the effective date of the Final Order…”. For most marijuana businesses, that will be calendar year 2026.

Second, I’ll be watching for litigation. The Order will be litigated. The fundamental question is whether DOJ exceeded its authority in issuing the Order. Challengers will argue, inter alia, that 1) the Order undercut an ongoing rescheduling process, not yet withdrawn; 2) that the Order’s heavy reliance on international treaty compliance, and specifically, its permissive reading of a 2024 Office of Legal Counsel opinion on that issue, is flawed; and 3) that the bifurcation of marijuana into medical and non-medical channels by DOJ, outside of FDA purview, is statutorily incoherent.

Third, I’ll be watching for adult use rescheduling. In its press release announcing the Order, DOJ announced it would also “expedite the ongoing rulemaking process required to fully remove marijuana from Schedule I and place it in Schedule III under the Controlled Substances Act.” This rulemaking would apply to all marijuana, and not just medical marijuana. DOJ says DEA will “commence a new administrative hearing beginning June 26, 2026.” How that would work in an agency that no longer has any administrative law judges is a very good question. We’ll save that for another day.

For now, medical marijuana is in schedule III. State licensees should watch these further developments, but also focus on things that they can control. These include: 1) consulting with tax counsel; 2) revisiting accounting practices, especially where allocations to medical marijuana may be distinguishable from allocations to non-medical marijuana; and 3) recall that local tax laws still apply, including state laws limiting certain deductions for all marijuana businesses.

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Department of Justice makes good on Trump’s rescheduling order

The Acting Attorney General is getting the ball rolling on the rescheduling of cannabis from Schedule 1 to Schedule 3, earning praise from the cannabis industry.

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The U.S. Opens Its Medical Marijuana Market to Global Trade (For Now); Adult Use Rescheduling on Deck

U.S. joins much of the world in acknowledging medical marijuana

The U.S. has joined much of the world in acknowledging medical marijuana. Let international trading begin!

Effective April 22, 2026, the Attorney General “hereby order[s] that FDA-approved drug products containing marijuana, as well marijuana in any form covered by a state medical marijuana license, be placed in schedule III of the CSA.” Based on this order, the United States acknowledges medical marijuana and has a fully functioning medical marijuana program (via state licensees). The final order applies to: (a) marijuana as listed in 21 CFR 1308.11(d)(23), (b) marijuana extracts as defined in 21 CFR 1308.11(d)(58), and (c) naturally occurring Delta-9-THC derived from the marijuana plant (other than the mature stalks and seeds). The order does not reschedule all marijuana. Any marijuana or marijuana extract not covered by this order (i.e. state-legal adult-use marijuana) remains in schedule I and will be subject to a new rescheduling hearing scheduled for June 29, 2026 at 9 a.m. ET.

This order went much further than expected. I wrote last year about the limits of moving marijuana to schedule III, and how such a move would not legalize state-licensees without regulatory change. This order does just that. It amends DEA regulations to legalize state licensees. Whether such amendments will withstand judicial scrutiny remains to be seen.

How the order was issued

As I wrote about previously, all it took to reschedule was a press release and stroke of a pen. Although, it was not so much a stroke of a pen as a 23-page order outlining the current move and future process. This move does not appear to place marijuana in Schedule III; rather, it places certain formulations of marijuana in schedule III–namely FDA approved products and, more impactfully, medical marijuana products that “are subject to a state-issued license to manufacture, distribute, and/or dispense marijuana products containing marijuana for medical purposes.”

It is important to note that this is a final order being issued under 21 USC 811(d)(1) and not a proposed rule. Section 811(d)(1) allows the Attorney General to reschedule a substance if doing so would place the U.S. in better alignment with its international treaty obligations. I have written about this many times over the years, and provided position papers to DEA on utilizing this mechanism. Using 811(d)(1), the DOJ and DEA are not required to obtain a recommendation from HHS, though one was provided in 2023.

In its order, DEA also takes pains to highlight the HHS findings in its 2023 recommendation, supporting today’s move, even though such support is not needed. The acting Attorney General stated that “[a]lthough I am not required to consider this HHS recommendation when issuing an order under section 811(d)(1), because I believe there are several legally viable scheduling options that would satisfy the United States’ obligations under the Single Convention . . . . I exercise my discretion in determining the most appropriate schedule by choosing the option that most closely aligns to HHS’s findings and best position the United States to carry out its obligations under the Single Convention.”

Registration requirements

State-licensed medical marijuana operators

The final order establishes an expedited registration process under 21 CFR 1301 for state-licensed medical marijuana entities to register for a DEA license to manufacture, distribute, and dispense marijuana for medical purposes under federal law. This means that state licensed medical marijuana operators will be permitted to apply for DEA registrations, something DEA has prohibited in the past.

The Attorney General determined that state-licensed regulatory systems have developed robust infrastructure for preventing diversion, ensuring product safety, proper record retention, and proper facility inspections, all of which fulfill the objectives of federal registration and recordkeeping requirements. Taken as a whole, these systems “demonstrate a sustained capacity to achieve the public-interest objectives that underlie the CSA’s registration framework, including protecting public health and safety and preventing the diversion of controlled substances into illicit channels.” As such, the Attorney General determined that “incorporating state licensing systems into the federal registration framework represents the most effective and efficient means of achieving the CSA’s objectives.” The Attorney General and DEA preserve authority, however, to deny or revoke registration where specific public interest concerns arise, and to ensure compliance with the Single Convention.

Based on this state-federal partnership, DEA will amend part 1301 of its regulations to provide an expedited review process under which state licensees may submit their existing state credentials as conclusive evidence of state authorization to receive DEA registration for manufacturing, distribution, and dispensaries. Importantly, the DEA must grant registration unless doing so would be inconsistent with the public interest under 21 USC 823 factors or under the Single Convention. Applications submitted within 60 days of publication must be processed within six months, and early applicants may lawfully operate under their state-issued license during the pendency of review.

State registrants may also rely on state-law labeling, packaging, disposal, and physical security requirements in lieu of the federal requirements, subject to inclusion of the statutory warning label required by 21 USC 825(c).

FDA-approved marijuana operators

The following outlines the schedule III regulatory requirements that now apply “for those who handle marijuana exclusively in the form of an FDA-approved drug product”:

1. Any person who handles FDA-approved drug products containing marijuana must be registered with the DEA to conduct such activities for a schedule III substance.
2. Entities that transfer marijuana to patients, including dispensaries, must register with the DEA as “practitioners” under 21 USC 823(g).
3. Schedule III FDA-approved drug products containing marijuana must be disposed of in accordance with 21 CFR 1317, in addition to other applicable state and federal requirements.
4. DEA registrant applicants must pay the annual DEA fee for registration, which are: (1) Manufacturer: $3,999 annually; (2) Distributors: $1,850 annually; and (3) Dispensaries, including pharmacies: $888 for a registration valid for 3 years.
5. Prescriptions are required to be issued prior to dispensing FDA approved marijuana drugs and must contain specific information.
6. All DEA registrants must maintain records as required by federal law and submit reports with respect to FDA-approved drugs.
7. All DEA registrants must comply with DEA security requirements, labeling and packaging, and inventory requirements.

International trade and import/export and DEA authority

Imports and exports

As I have argued along with colleagues, this move to schedule III will also require amending DEA’s regulations to account for US obligations under the Single Convention with marijuana being moved into Schedule III. In DOJ’s final order, it acknowledged the same, stating that “DEA must simultaneously amend the regulations to require a permit to import or export such products.”

This order specifically states that “this order amends the DEA regulations (21 CFR 1312.30) to add FDA-approved drug products containing marijuana and state-licensed medical marijuana to the list of nonnarcotic schedule III through V controlled substances that are subject to the import and export permit requirement.” Registering with the DEA will allow state licenses to potentially access the international market, as DEA registrants can apply for and receive import and export licenses. Another important amendment is that DEA addressed its regulatory definition of “medicinal cannabis,” which DEA created out of thin air, to exempt state legal medical marijuana from the requirement that medicinal cannabis be FDA approved and legal to market under the Food, Drug, and Cosmetic Act.

DEA will become a part of the state medical marijuana supply chain

Registration with the DEA will be essential for state medical marijuana licensees, because DEA will be responsible for purchasing and selling the marijuana grown by state licensees as required by DEA’s regulations and the Single Convention. “By maintaining in schedule I all unlicensed marijuana, bulk marijuana, and any marijuana or marijuana extract that has not yet been incorporated into a FDA-approved drug product, and by requiring that state-licensed marijuana satisfy the requirements relating to the purchase and sale of marijuana by DEA, the United States will continue to meet these obligations without disruption or delay.”

The rule also establishes a nominal price purchase-and-resale mechanism through which the DEA acquires and resells registered manufacturers’ marijuana crops, to satisfy Single Convention requirements. Query: do we really expect DEA to take possession of all flower sales within state systems? As the order is written, registered manufacturers must store crops in DEA maintained facilities until the transaction is complete, and each registrant must provide DEA information on the exact location where medical marijuana is cultivated.

Research

Researchers who obtain marijuana or marijuana derived products from state licensees for use in scientific research are shielded from civil and criminal liability under the CSA, provided that the researcher is registered with the DEA. This now allows for state medical marijuana and products to be researched.

I.R.C. 280E

The order acknowledges that state medical licensees will no longer be subject to I.R.C. 280E, but does not make a determination on their tax status and suggests they speak to a tax consultant when making their tax determination. It goes on further to encourage the “Secretary of Treasury to consider providing retrospective relief from Section 280E liability for taxable years in which a state licensee operated under a state medical marijuana license.” Importantly, 280E will likely be a nightmare for those operating in dual licensing states where both adult-use and medical often operate under once license. Many operators, including the large multi-state operators, do not keep distinct records. Since only licensed medical operations qualify for 280E relief, unless these companies can separate their books–and in some cases their licenses–they will likely remain subject to 280E.

What the order does not cover

This order does not apply to: (1) anything that does not fall into the FDA-approved marijuana; (2) any products and operators not licensed by a state’s medical marijuana program; (3) synthetically derived THC (e.g. delta-10 THC) which remains in schedule I; and (4) Any hemp product exceeding 0.4mg after November 12^th. Anyone dealing with non-FDA approved medical marijuana or state licensed medical marijuana will remain in violation of federal law as it relates to a schedule I controlled substance.

It appears that current DEA registrants manufacturing bulk marijuana will also remain in Schedule I, since they are neither FDA approved nor legalized under state legal medical marijuana programs.

Outstanding issues

Some outstanding questions remain. For instance, as a discuss above re: 280E, how will dual licensees that provide both adult-use and medical marijuana be treated? For example, in Arizona marijuana sold as adult-use or medical is not designated as such until the point of sale. How will medical marijuana versus the adult-use be tracked for schedule III, and more importantly, 280E purposes? One thing is likely certain: those operating in these dual licensed states that comingle medical and adult-use marijuana (whether through inventory or via the company’s books) will almost certainly be ineligible for the early expedited DEA registration discussed above.

Upcoming DEA administrative law hearing

The Attorney Generals order does not reschedule all marijuana. Anything not included in this order will be subject to a new administrative law hearing, which is scheduled to commence on June 29, 2026, at 9 a.m. ET. The result of this hearing will determine whether all “marijuana” is moved into schedule III.

Certain legal challenges

DEA does acknowledge in footnote thirty-nine that if any of the order is found illegal, the rest of the provisions shall remain. This acknowledges the reality that litigation will certainly ensue–if it hasn’t already. Smart Approaches to Marijuana will certainly bring litigation challenging the Attorney general and DEA’s authority to issue this order and the rules related to it. While the Attorney General’s Authority to reschedule a substance under 811(d)(1) is clear, its ability to amend operational and registration regulations under the same authority is not as clear. We will be keeping a close eye on this as things progress and will publish updates as they occur.

In the meantime, if you are a state licensed medical marijuana operator, please don’t hesitate to reach out to our team about DEA registration. Further, if you are a foreign medical marijuana operator looking to explore US opportunities, they finally exist (at least for now).

____

For previous insights on marijuana rescheduling, please check out these blog posts:

• Marijuana to Schedule III is Necessary, But Let’s Be Honest About Its Limits
• One Signature Could Remove Marijuana From Schedule I Tomorrow
• Trump’s Cannabis Plays, Explained
• Is Marijuana Rescheduling Finally Happening? What to Know, Now
• President Trump Issues Executive Order Directing the Attorney General to Reschedule Marijuana

 

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How to grow Hash Burger seeds, Leafly Strain of the Year 2025

If you are thinking about growing Hash Burger, look no further; this guide has all you need to know.

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CBD, delta-9, and hemp THCA 420 deals to make the most of the big day

From gummies, sips, and fast-acting shooters, we’ve rounded up great deals, limited drops, bundles, and standout products to help you celebrate the big day.

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Harris Sliwoski Welcomes Christian Sederberg

Harris Sliwoski is pleased to announce that Christian Sederberg has joined the firm as Of Counsel. Based in our Denver, Colorado office, Christian brings decades of experience advising businesses, policymakers, and industry leaders across a range of complex regulatory and transactional matters, with a particular focus on the cannabis industry.

Christian is widely recognized as a leading voice in cannabis law and policy. He has worked at the forefront of the industry’s development, advising clients on business formation, corporate governance, real estate, financing, and regulatory compliance in an evolving legal landscape. His experience spans both domestic and international markets, allowing him to guide clients navigating cross-border opportunities and challenges.

In addition to his client work, Christian has played a meaningful, public role in shaping cannabis policy in the United States and abroad. He has held numerous leadership roles, including: serving on the board of the National Cannabis Industry Association; serving as Chairman of the Board and Interim CEO of the Cannabis Trade Federation; and serving as Chairman of the Board of the United States Cannabis Council. In 2010, he also co-founded Vicente Sederberg LLP (now Vicente LLP) and served as its managing partner for more than a decade.

At Harris Sliwoski, Christian will continue advising entrepreneurs, established companies, and international operators on strategic growth, compliance, and risk management. His addition further strengthens the firm’s cannabis and regulatory practices–particularly as global markets continue to expand and mature.

Welcome, Christian!

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How ALTERD helps you expand your mind through intentional cannabis consumption

Meet ALTERD: the new app to help you explore higher states of mind.

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