Cannabis rescheduling may see renewed support under President Donald Trump’s administration. Despite opposing views regarding legalized marijuana in the Republican party, a GOP-controlled House and Senate could offer companies new hope for policy change after months of waiting for a hearing to consider rescheduling cannabis from Schedule I to Schedule III of the Controlled Substances Act.
If cannabis becomes a Schedule III substance, a new world will emerge for companies, including expanded business tax deductions, tax credits and access to banking markets.
Key Insights
- Trump has a long history of voicing support for federal legalization of cannabis, including recent support of Florida’s effort to legalize adult recreational marijuana use.
- As president, Trump has nominated individuals who support cannabis into leadership roles, such as picking Former Florida Sheriff Chad Chronister to lead the Drug Enforcement Agency.
- Not all Republicans are supportive of cannabis legalization, as evidenced by two senators who introduced a bill to prevent licensed cannabis businesses from deducting ordinary business expenses.
- The hearing to consider marijuana reclassification has yet to be rescheduled, and the IRS maintains that Section 280E still applies to cannabis companies.
- If cannabis is moved to a Schedule III substance, companies can take advantage of more tax benefits, including the ability to deduct general and administrative costs and take advantage of income tax credits.
New Administration Insights
Throughout his recent presidential campaign, Trump voiced support for cannabis legalization and rescheduling. He has also indicated he would be in favor of state efforts to legalize the substance for recreational use, evidenced by his support of Florida’s ballot measure to legalize adult recreational marijuana use last year.
“As President we will continue to focus on research to unlock the medical uses of marijuana to a Schedule 3 drug, and work with Congress to pass common sense laws, including safe banking for state authorized companies” Trump is reported to have posted on Truth Social last September.
As president, Trump has nominated multiple individuals who favor cannabis policy change for leadership positions. Former Florida Sheriff Chad Chronister, Trump’s first pick to lead the Drug Enforcement Agency (DEA), has shown support for the federal legalization of marijuana.
Additionally, Trump initially picked Matt Gaetz, a strong supporter of cannabis, as his Attorney General nominee. After Gaetz withdrew consideration, Pam Bondi was voted in to the position. While Bondi was opposed to Florida’s efforts to legalize medical marijuana, she has displayed flexibility toward cannabis policies, leaving the door open for the current administration to make changes.
The Trump administration also reignited conversations around the Secure and Fair Enforcement (SAFE) Banking Act, pivotal legislation intended to protect banks and other financial institutions, such as credit unions, from penalties when services are provided to state-allowed cannabis businesses.
The SAFE Banking Act has often been passed in the House but has faced multiple roadblocks in the Senate. Multiple attempts to pass the SAFE Banking Act in 2023 and 2024 have demonstrated the willingness to address the lack of available banking in the cannabis industry.
These nominations and activities present an administration that is in favor of positive change for the federal cannabis legalization, states’ rights for cannabis and access to banking markets for the overall cannabis industry.
A Party Divided: Republican Opposition
On February 7, 2025, Senator James Lankford (R-Oklahoma) and Senator Pete Ricketts (R-Nebraska) introduced a bill to prevent licensed cannabis businesses from deducting ordinary business expenses, even if cannabis is rescheduled to a Schedule III substance.
“Marijuana doesn’t make our families stronger, our streets safer, or our workplaces more productive. Businesses who sell federally illegal drugs — including marijuana businesses — shouldn’t get federal tax breaks. This bill clarifies federal tax law to make sure a federally illegal product does not have a federally legal tax deduction,” Senator Lankford said in a press release.
In its current state, the legislation would deny cannabis entities business deductions and the only way to avoid Internal Revenue Code Section 280E would be to have the entire cannabis plant removed from the Controlled Substances Act.
Cannabis Rescheduling Updates and Outlook
DEA Judge John Mulrooney recently canceled the January 21 hearing to consider the Department of Justice proposal for cannabis rescheduling. While the hearing has been delayed by at least three months, cannabis companies have been filing amended income tax returns to claim additional income tax deductions.
The Internal Revenue Service (IRS) has maintained that Internal Revenue Code (IRC) Section 280E still applies to cannabis companies because cannabis remains a Schedule I controlled substance under the Controlled Substances Act. Internal Revenue Code Section 280E disallows deductions or credits for any amount paid or incurred in carrying on a trade or business that consists of the trafficking in controlled substances.
The IRS is holding fast that the law is still relevant and applicable to cannabis companies operating in the United States. However, if cannabis is reclassified as a Schedule III substance, companies will no longer be subject to IRC Section 280E.
The Next Generation of Cannabis
Many questions hang in the balance as we approach the next generation of cannabis. Some uncertainty revolves around the timing of the scheduling change and whether it will be retrospective or prospective. Additionally, the atmosphere in the legislature may potentially oppose views from the White House.
If cannabis is rescheduled and Congress does not pass any legislation, the IRS will have to take a stance on the retroactivity of the change and publicly announce its position on the matter.
If the rescheduling is retrospective, cannabis companies that have not yet filed amended returns will have an opportunity to stake their claims on refunds from the Internal Revenue Service, depending on what date the IRS decides as the effective. If the rescheduling is prospective, cannabis companies will need to evaluate a hard close in order to distinctly separate their periods between the old and new.
Post Rescheduling
Once rescheduling has happened — and no further legislation is passed restricting deductions — cannabis companies will be able to deduct basic general and administrative costs such as depreciation, amortization, rent, compensation and many other trade or business expenses not directly related to direct cost of goods sold which have been disallowed.
After rescheduling, cannabis companies can explore the depths of tax planning, such as bonus depreciation elections and favorable tax accounting methods (e.g. acceleration of prepaid expenses).
Cannabis companies can also investigate the opportunity to take advantage of income tax credits such as the research and development (R&D) income tax credit, jobs credits, hiring credits, disaster credits and many others. If cannabis companies have income tax due, they will have the ability to investigate the purchase of clean energy credits created in the Inflation Reduction Act for a permanent rate benefit using reduced cash outlays.
Rescheduling will open up a whole new world for the cannabis industry. The companies that can best navigate their tax benefits will produce the most successful results. Shareholders and users of the financial statements will evaluate management on new metrics: effective tax rates and effective cash management.
Post-rescheduling, cannabis companies do not need complex legal entity structures to shield other trade or business operations from being tainted by cannabis-related operations. Through more efficient tax structures, cannabis companies will be able to streamline operations and reduce their regulatory and compliance costs.
Your Guide Forward
Cherry Bekaert’s team of accountants and advisors is highly experienced in the cannabis industry and ready to support your company, no matter its stage of growth. Our professionals are equipped to help you prepare for potential cannabis rescheduling and explore various tax structures and tax credits.
Whether your business is involved in cultivation, manufacturing, distribution or dispensaries, Cherry Bekaert’s team understands cannabis. Reach out today to discuss how we can help your company prepare for the future of the cannabis industry.
