Treasury, IRS Announce Process for Tax Guidance Following DOJ Final Order on Medical Marijuana Rescheduling

WASHINGTON - Today, the U.S. Department of the Treasury and the Internal Revenue Service (IRS) announce that they plan to issue guidance that addresses the federal tax consequences of the U.S. Department of Justice's (DOJ) Final Order implementing President Trump's Executive Order on Increasing Medical Marijuana and Cannabidiol Research.

Background:

The Executive Order on Increasing Medical Marijuana and Cannabidiol Research was issued on December 18, 2025 and directed the Attorney General to complete the process for moving medical marijuana from Schedule I to Schedule III under the Controlled Substances Act (CSA).

DOJ's Final Order places marijuana contained in FDA-approved products or subject to a state medical marijuana license, as well as certain marijuana extracts and certain naturally derived delta-9-tetrahydrocannabinols, in Schedule III, while leaving unlicensed marijuana crops, bulk marijuana, and any marijuana and marijuana extract that has not yet been incorporated into a FDA-approved drug product in Schedule I.

Read more here.

Forthcoming Guidance:

Treasury and the IRS expect DOJ's action to have significant positive tax consequences for businesses in the medical marijuana industry, and Treasury and the IRS plan to issue guidance to address the principal federal tax issues stemming from the Final Order.

Section 280E of the Internal Revenue Code generally disallows deductions and credits for any amounts spent in carrying on a business that consists of trafficking in Schedule I or II controlled substances prohibited by federal or state law. Accordingly, rescheduling generally removes section 280E as a bar to claiming deductions and credits for businesses that as a result of the Final Order no longer traffic in Schedule I or II controlled substances under the CSA. Guidance is expected to clarify the ways in which, for businesses with multiple activities, section 280E applies only to those activities related to trafficking in Schedule I or II controlled substances (e.g., by apportioning expenses).

Guidance is also expected to include 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 the business's activities that do not involve Schedule I or II controlled substances as a result of the Final Order.

###