Medical Marijuana and the Potential End of 280E

Medical Marijuana and the Potential End of 280E

Article by: Ivy Perez-Bader, Raza Lawrence, Jana Weltzin, Greg Cowan, and Tom Zuber

The Drug Enforcement Agency’s (DEA) rule that places state-licensed medical marijuana into Schedule III could create one of the largest financial shifts the cannabis industry has seen in decades. Most notably, it may allow qualifying medical marijuana operators to escape the crushing impact of Internal Revenue Code Section 280E. Still, operators remain hesitant to engage directly with the DEA, particularly given the agency’s long history of federal cannabis enforcement.

That hesitation is understandable. The critical question for many operators is whether they can receive the benefits of Schedule III treatment without voluntarily stepping into a new federal registration system.

The End of Section 280E for Medical Marijuana Operators?

Section 280E currently prevents businesses engaged in trafficking in Schedule I or II controlled substances from deducting ordinary business expenses such as payroll, rent, marketing, insurance, and administrative costs. For many cannabis companies, this has resulted in extraordinarily high effective tax rates.

The DEA’s final rule acknowledges that state-licensed medical marijuana businesses would no longer be subject to Section 280E.

For many operators, this alone could dramatically improve profitability and cash flow.

Additional Tax Incentives May Become Available

Beyond ordinary business deductions, Schedule III treatment may also open the door to additional federal tax benefits that have historically been unavailable or uncertain for cannabis businesses.

These may include:

• Research and development (R&D) tax credits tied to cannabinoid research, product development, cultivation technology, manufacturing systems, and pharmaceutical innovation;
• Federal hiring and workforce-related tax incentives; and
• Other ordinary and necessary business expense deductions that most federally lawful businesses routinely claim, including payroll, employee benefits, rent, utilities, marketing, insurance, professional fees, software, travel, office expenses, and administrative overhead.

The DEA itself acknowledged that the rule could have significant impacts relating to “Federal taxes and research and development investment.”

Does a Medical Marijuana Operator Need DEA Registration?

This remains one of the most important unanswered questions.

The DEA’s rule creates a new expedited federal registration pathway for state-licensed medical marijuana operators. The rule also states that entities handling marijuana pursuant to the new federal framework generally must obtain DEA registration.

However, the rule does not expressly state that DEA registration is required in order for a state-licensed operator to claim Section 280E relief or other federal tax benefits. That distinction matters.

Many cannabis operators are understandably cautious about voluntarily registering with the DEA before additional clarity emerges regarding federal oversight, compliance obligations, inspections, data-sharing, and long-term enforcement policy. Others may determine that registration is strategically beneficial depending on their business model, growth plans, or interest in interstate commerce, research, pharmaceutical development, or institutional investment.

At least initially, many state operators may choose to wait for additional IRS guidance, litigation, Treasury interpretation, or further federal clarification before deciding whether DEA registration makes business sense for them.

The Industry Is Entering a Transition Period

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Tom Zuber, recognized nationwide by Chambers USA for his expertise in cannabis law, is the Managing Partner of Zuber Lawler. Mr. Zuber and his colleagues manage legal matters around the world, including as to deals, intellectual property, employment, and litigation. He personally manages relationships with a number of the firm’s Fortune 500 clients, as well as funds and government entities. He is a leading voice in relation to a variety of emerging industries and technologies, including legalized cannabis, legalized psychedelics, and longevity. He was named one of High Times “100 Most Influential People in the Cannabis Industry,” and was named one of “23 Visionaries Who Shaped the Cannabis Landscape In 2023” by Benzinga. He holds a J.D. from Columbia Law School, where he was named a Harlan Fiske Stone Scholar; an M.P.P. from Harvard University; and a B.S. in biomedical engineering from Rutgers University, where he graduated with highest honors.

Raza Lawrence is widely recognized as a leading voice in plant medicine law. He has many years of experience advising cannabis and psychedelics medicine businesses on navigating local, state, and federal laws and regulations, mergers and acquisitions, licensing deals, employment matters, internal and governmental investigations, and litigation. He holds a J.D. from Harvard Law School, where he graduated cum laude, and a B.A. from Washington University in St. Louis, where he graduated summa cum laude.

Ivy Bader, a non-attorney regulatory compliance coordinator, has over a decade of experience in the highly regulated cannabis domestic and international markets. Ms. Bader has experienced advising some of the biggest names in worldwide cannabis as to operations compliance and expansion in California, Maryland, Massachusetts, New Jersey, New York, Ohio, and The Netherlands. Prior to joining Zuber-Lawler, she worked as a regulatory compliance consultant advising cannabis companies on application reviews, inspections, and financial audits.

Greg Cowan is a Senior Business Consultant at Canopy HR, a Vensure Employer Solutions company. He helps organizations streamline operations and achieve scalable growth through advanced enterprise technology, modern HCM infrastructure, and comprehensive PEO/ASO solutions.

Passionate about technology-driven efficiency, Greg focuses on optimizing back-office systems and mitigating compliance risks to drive long-term value. Driven by curiosity for emerging business models, he actively supports sustainable growth in highly regulated industries. This includes long-standing ties to the cannabis sector with the NCIA, and advocating for policy and innovation in the life sciences ecosystem with the Alliance for Longevity Initiatives (A4LI).