Cannabis Rescheduling: Developments and Implications for the Industry

The cannabis industry has long been hindered by its classification as a Schedule I substance under the Controlled Substances Act of 1970. This classification, which placed cannabis alongside drugs like heroin and LSD, has been widely criticized, especially as more states have legalized cannabis for medical and recreational use. In a significant development, the Drug Enforcement Administration (DEA) is expected to reschedule cannabis to Schedule III, following a recommendation from the Department of Health & Human Services (HHS) based on scientific support from the FDA.Let’s discuss the potential implications of this anticipated rescheduling for the legal cannabis industry, including its impact on taxation, banking, and legal rights and remedies.

Removal of cannabis from I.R.C. Section 280E

One of the most significant consequences of cannabis rescheduling will be its removal from the reach of I.R.C. Section 280E. This section has been a major burden for state-legal cannabis operators, prohibiting them from writing off many business expenses when calculating their net profit. Under Section 280E, cannabis businesses can only deduct the Cost of Goods Sold (COGS), resulting in significantly higher taxes compared to similar non-cannabis businesses.

The removal of cannabis from Section 280E will allow these businesses to deduct all ordinary and necessary business expenses, leveling the playing field with other legal businesses. This change is expected to have a positive impact on the financial viability of cannabis businesses, enabling them to reinvest more of their profits into growth and development.

Banking challenges for cannabis companies

Cannabis companies have long faced difficulties in accessing banking services due to the federal illegality of cannabis. Many banks have been reluctant to work with cannabis businesses, fearing potential legal and regulatory repercussions. The rescheduling of cannabis to Schedule III may lead some banks with higher risk tolerances to become more involved with the industry. However, as cannabis would still be illegal under federal law, many banks will likely continue to steer clear of the industry.

To fully address the banking challenges faced by cannabis companies, federal legislation such as the SAFER Banking Act is still needed. This act would allow banks to provide services to the cannabis industry in states where it is legal. The rescheduling of cannabis may make certain legislators more comfortable supporting such legislation. Resolving the banking issues faced by the cannabis industry is crucial for its financial stability and growth.

Limitations on federal legal rights and remedies

Despite the anticipated rescheduling, cannabis companies will still face limitations on their federal legal rights and remedies. As cannabis remains illegal under federal law, companies in the industry will continue to face challenges in establishing and enforcing intellectual property rights, such as trademarks. Additionally, access to bankruptcy courts will likely remain limited, although some courts have recently shown a willingness to allow cannabis-related companies that are one step removed from cannabis operations to utilize bankruptcy proceedings.


The anticipated rescheduling of cannabis to Schedule III will have significant implications for cannabis businesses. The removal of cannabis from I.R.C. Section 280E, in particular, will provide much-needed tax relief for state-legal cannabis operators, while the potential for increased banking access may improve the financial stability and growth prospects of the industry. However, cannabis companies will still face limitations due to the ongoing federal illegality of cannabis. As the legal landscape continues to evolve, it is crucial for cannabis businesses to stay informed about developments in the industry and to work closely with legal professionals who can provide guidance and support in navigating the changing regulatory environment. If you have any questions or require assistance, please contact Amanda Vintevoghel.