WASHINGTON, D.C. — Some medical marijuana businesses could soon gain access to federal tax deductions after a planned policy shift tied to the reclassification of certain cannabis products, federal officials said.
What This Means for You
- Some licensed medical marijuana businesses may qualify for federal tax deductions
- Tax rules will still apply differently depending on the type of cannabis activity
- Changes could lower operating costs for parts of the industry
The U.S. Department of the Treasury and the Internal Revenue Service said they will issue guidance explaining how new federal classifications for certain marijuana products will affect taxes.
The move follows a Justice Department order implementing a 2025 executive action that reclassifies some cannabis products under federal law.
What Changed
Under the Controlled Substances Act, drugs are placed into categories, known as schedules, based on medical use and potential for abuse.
The Justice Department’s final order moves certain marijuana products — including those approved by the Food and Drug Administration or authorized under state medical programs — from Schedule I, the most restrictive category, to Schedule III, which recognizes accepted medical use.
However, unlicensed marijuana and products not incorporated into approved drug treatments remain in Schedule I.
Why Taxes Are Affected
Federal tax law includes a provision known as Section 280E, which prohibits businesses from deducting ordinary expenses if they are involved in trafficking controlled substances listed in Schedule I or II.
Because some marijuana products are being moved to Schedule III, businesses dealing exclusively in those products may no longer be subject to that restriction.
That change could allow eligible businesses to deduct expenses such as rent, payroll, and other operating costs.
What the Guidance Will Clarify
Treasury and the IRS said upcoming guidance will address how the tax rules apply to businesses that handle both eligible and ineligible cannabis products.
For example, companies with multiple lines of business may need to separate expenses tied to Schedule I products from those tied to reclassified products.
The agencies also plan to outline a transition rule explaining when the new tax treatment takes effect.
When Changes Take Effect
Officials said the updated tax rules are expected to apply beginning in the first full taxable year that includes the effective date of the Justice Department’s order.
That means businesses may not see immediate changes but could benefit in the next applicable tax year.
Next Steps
Treasury and the IRS said formal guidance will be released to help businesses understand how to comply with the new rules.
The agencies said the goal is to clarify tax obligations while reflecting the updated federal classification of certain medical marijuana products.
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