Key Takeaways:
- The federal government’s potential move of cannabis from Schedule I to Schedule III could have tax and operational implications for your business.
- While rescheduling will not be effective until 2026 at the earliest, now is the time to assess how to best take advantage of a potential post-280E environment.
- M&A activity is expected to increase, making careful preparation essential to capture value and mitigate risks.
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The recent presidential executive order on cannabis rescheduling has generated significant optimism in the industry. Investors and operators alike are evaluating how to position themselves for the potential benefits.
It’s important to note, however, that the executive order not immediately reschedule cannabis. Administrative steps involving the U.S. Department of Health and Human Services (HHS), the Department of Justice (DOJ), and the Drug Enforcement Administration (DEA) still lie ahead, and cannabis policy shifts have historically taken time and, at times, stalled — even with strong executive support.
What feels different now is the alignment of political attention following years of federal review. While the process remains complex, the odds of rescheduling becoming effective in 2026 have increased.
With that in mind, here are some of the most impactful areas to consider today:
Identify Eligible Tax Credits and Incentives
A negative impact of 280E to state legal cannabis operators is the effective prohibition on the ability to benefit from federal tax credits. Rescheduling will open the door to previously unavailable federal tax credits and deductions — including the research and development (R&D) credit.
MGO Cannabis Consulting Partner Sarah McGuire suggests that organizations identify potential credits and collect the necessary documentation to support claims. Even if you can only claim these credits in 2026 or later, preparing now will help your company capture all available benefits.
Review Your Operations
Even though any change in rescheduling is unlikely to take effect until 2026 at the earliest, it’s important to start an assessment of its potential impact prior to effectiveness.
“Rescheduling from Schedule I to Schedule III opens more options for your business growth and tax structuring than we’ve seen in the past. We look forward to identifying the many new opportunities for our clients and others operating in the cannabis space,” said MGO Cannabis Tax and Consulting Partner Curtis Winar.
Focus on how your current entity and operating model may interact with a post-280E environment. Areas to consider include:
- Understanding how current entity types may be impacted once 280E is removed
- Identifying potential growth, investment, or transaction opportunities that could become viable post-rescheduling
- Considering whether key contracts or agreements are impacted by rescheduling
- Assessing readiness for future M&A, capital raises, or operational expansion
A proactive evaluation now helps position your company for future flexibility and tax efficiency.
Evaluate the Impact of Executive Order on 280E
The executive order is a timely reminder to periodically reassess how potential rescheduling could affect your tax profile. Regular evaluation of assumptions, documentation, and supporting analysis can help you stay prepared for future changes and support a smoother transition once rescheduling becomes effective. However, until rescheduling is effective the status quo remains.
As noted by Mark Lloyd, Co-Leader of Dentons Tax National Practice Group: “At this time, we understand that the IRS’s position is that 280E applies to state-legal cannabis businesses until a final rule is adopted, which is not likely to happen until 2026. Until that time, if you are taking the position that 280E no longer applies, it is important to maintain your defense with a tax opinion and disclosures.”
Strengthen Financial Reporting and Internal Controls
While moving to Schedule III will remove the Section 280E tax burden, it may also introduce a new regulatory and compliance landscape for cannabis businesses. At the same time, increased investor interest will likely bring higher expectations around financial transparency, governance, and risk management.
Evaluating the strength of your financial reporting processes and internal controls now can help you identify gaps, improve consistency, and support more informed decision-making as the industry continues to evolve.
Prepare for Mergers and Acquisitions (M&A)
Rescheduling may spark a new wave of investment and M&A activity in the cannabis industry. Whether you are buying or selling, preparation is key.
For sellers:
- Organize books and records and set up a robust data room
- Understand the tax implications of potential transactions
- Consider audited or reviewed financial statements to attract investors
For buyers:
- Conduct thorough financial and tax due diligence
- Structure acquisitions for operational and tax efficiency
- Plan post-deal integration to realize expected benefits
Quality of earnings (QoE) assessments and strategic guidance can help both buyers and sellers enhance outcomes in a post-rescheduling landscape.
How MGO Can Help
As one of the first CPA and consulting firms in the U.S. to provide specialized services to the cannabis industry, we’re well-equipped to guide you through the evolving landscape.
Our dedicated Cannabis team can work with you to evaluate the tax and financial implications of rescheduling, identify available credits and incentives, strengthen financial reporting and operational readiness, and prepare for potential M&A or investment activity.
Reach out to our team today to discuss your unique situation.