President Trump Signs Executive Order Expediting Rescheduling of Cannabis

President Trump signed an Executive Order on December 18, 2025, directing the Attorney General to expedite the final rules rescheduling cannabis from Schedule I to Schedule III. This essentially will push forward the regulatory process that began in May of 2024 under the Biden Administration. Once the final rule is published, cannabis businesses may be able to avail themselves of much more favorable tax treatment under the tax code.  

IRC Sec. 280E

For decades, cannabis has been classified as a Schedule I substance. This level is reserved for substances that are considered to have no medical use and a high potential for abuse. Under IRC Sec. 280E, businesses that consist of “trafficking in controlled substances” are disallowed from taking any deduction or credit from or against their gross income, other than cost of goods sold (COGS). This includes any substance that is classified as Schedule I or Schedule II under the Controlled Substances Act. Accordingly, businesses that cultivate, refine, purchase, or sell cannabis have only been allowed to deduct COGS under the tax code for decades.

Impacts of Reclassification

Reclassifying cannabis as a Schedule III substance will be game-changing for the cannabis industry. Once cannabis is reclassified to Schedule III, IRC Sec. 280E may no longer restrict cannabis companies from taking deductions or credits. For instance, these businesses have been disallowed from even deducting wages paid unless the wages were attributable to COGS. It is unclear if under IRC Sec. 280E cannabis business owners may claim the qualified business income (QBI) deduction, considering a recent tax court ruling addressed this question  

This change will coincide with significant business-friendly tax changes under the One Big Beautiful Bill Act (OBBBA). For instance, the OBBBA revived 100% bonus depreciation and increased the amount of expensing allowed under IRC Sec. 179 to $2.5 million. Cannabis businesses should be allowed to deduct the full amount of equipment purchased and placed in service after the effective date of a final rule.  

The OBBBA also revived the ability for businesses to deduct their domestic research and development expenses in the year in which they are incurred, instead of requiring these expenses to be capitalized and amortized over five years. Cannabis businesses may be able to deduct any eligible R&D expenses they incur. Additionally, they may be eligible to take the R&D credit under IRC Sec. 41 as well upon rescheduling.  

State Issues 

Many states have legalized medicinal and/or recreational cannabis for years. Some of these states have passed legislation specifically decoupling from IRC Sec. 280E for purposes of cannabis to allow businesses to claim state-level deductions and qualify for credits. It is unclear what steps, if any, these states may need to take in response to this rescheduling.  

Cannabis has a long and winding road to reclassification. It is important to remember that this does not decriminalize cannabis. Additionally, Schedule III substances are still controlled substances, and subject to stringent regulation. Companies will still be required to register with the Drug Enforcement Agency if they are considered “plant-touching” businesses.   

It is also important to note that the rule still needs to be finalized. Until such time, cannabis is still considered a Schedule I substance, so taxpayers should take a wait-and-see approach in terms of planning. Even with the President’s direction to expedite the process, it is still unclear exactly when the rule will be finalized.  

Contact our experts below if you have questions about how this rescheduling could benefit your company.