280E Cannabis Rescheduling:
What CPAs Should Tell Clients Now

Your cannabis clients already know 280E is expensive. What most of them don't know yet is that 280E cannabis rescheduling just started changing the rules underneath them, and the change is not the same for every client in your book.

The Two Cannabis Businesses Now in Your Book

In April 2026, Acting Attorney General Todd Blanche issued an order immediately reclassifying state-licensed medical cannabis, and FDA-approved cannabis products, from Schedule I to Schedule III of the Controlled Substances Act. Adult-use cannabis was left in Schedule I, pending the broader DEA hearing process that concluded on July 16, 2026, with no ruling timeline from either the presiding judge or the DEA Administrator.

Treasury and the IRS responded on April 23, 2026, with a statement that matters directly to your practice: rescheduling "generally removes section 280E as a bar to claiming deductions and credits for businesses that as a result of the Final Order no longer traffic in Schedule I or II controlled substances." In plain terms, a client operating purely under a state medical license may already be free of 280E for the portion of the tax year on or after the April 2026 order took effect.

A client whose business is adult-use only gets none of that relief. 280E still bars them from deducting ordinary Section 162 business expenses. Only cost of goods sold, under Section 471, remains deductible. Effective federal tax rates for those clients still regularly land between 60 and 80 percent or more of actual economic profit.

The Apportionment Problem Nobody Has Guidance On Yet

Most cannabis operators of any real size sell into both medical and adult-use channels, and that's where the picture gets genuinely unresolved. Treasury said guidance is "expected to clarify" how 280E applies only to the Schedule I or II, adult-use, share of a mixed business, by apportioning expenses between the two. That guidance has not been issued, and neither agency has said when it will be.

Until it lands, a mixed-license client should focus on getting organized, not on filing an apportioned return today. There's no rule yet to apply, so the practical move this quarter is splitting revenue and expense tracking by license type now, so the client is ready the moment apportionment rules show up rather than reconstructing two years of books under deadline pressure.

Blanche's order also "encourages" Treasury to consider retroactive relief for prior years a client operated under a state medical license. Encouraged is not decided, so don't build a client's expectations, or your engagement letter, around a refund that hasn't been authorized. That said, clients should prepare now in one concrete way: preserve and organize the records for those prior medical-license years, expenses, COGS detail, and license documentation, so that if retroactive relief is authorized, they can move on an amended return quickly rather than reconstructing years-old books against a deadline.

The Insurance Line Item Nobody's Reevaluated

For any client still fully subject to 280E, insurance premiums are one of the largest non-deductible expenses on the return, and cannabis operators already pay premiums 3 to 5 times higher than comparable operators in conventional industries. That means a $200,000 insurance premium isn't really a $200,000 cost. Because the expense isn't deductible, the true economic cost includes the tax shield the client would have captured in any other industry.

A captive insurance structure does not eliminate 280E for a client still selling into the adult-use market, and it is not a workaround for the tax code. What it changes is where the premium dollars go. Instead of paying a third-party carrier a premium that is penalized twice, once by cannabis-specific market pricing and once by non-deductibility, the client redirects that spend into a company they own, where the underwriting profit and reserves accumulate as their own asset.

Under IRC Section 831(b), a captive collecting no more than roughly $2.9 million in annual net written premium (the 2026 figure, indexed for inflation each year) can elect to pay tax only on investment income rather than underwriting income. The captive itself, as a licensed insurer rather than a cannabis operator, is not subject to 280E.

What to Actually Tell Clients This Quarter

• Medical-only clients: confirm whether their return methodology already reflects removal of 280E for the portion of the tax year on or after the April 2026 order, and flag that full implementing guidance is still pending.
• Mixed medical and adult-use clients: start apportioning revenue and expense by license type now, ahead of the apportionment guidance that has yet to be issued.
• Adult-use-only clients: 280E isn't going anywhere on any confirmed date, so the true economic cost of every non-deductible dollar, insurance premiums included, is the number worth modeling this quarter, not after a ruling that has no scheduled date.
• Any client spending $200,000 or more annually on insurance: bring them to 3F Captive Services directly for a no-cost policy analysis. The captive case depends on their loss history and premium spend, not on the DEA's timeline, so there's no reason to wait for a referral opportunity to develop further on its own.

Contact 3F Captive Services for a no-cost policy analysis on any client spending $200,000 or more annually on cannabis insurance. We model the true economic cost of their current program and what a captive changes.

⚠ This post is for general informational and educational purposes only and does not constitute tax, legal, or financial advice. The interaction of 280E, federal rescheduling, and captive insurance is technical and fact-specific. Illustrative figures are labeled as such. Consult qualified tax, legal, and insurance advisors regarding any specific client's situation.

Sources

[1] Marijuana Moment. "Feds Announce Marijuana Industry Tax Guidance Is Coming As Rescheduling Takes Effect." April 23, 2026. https://www.marijuanamoment.net/feds-announce-marijuana-industry-tax-guidance-is-coming-as-rescheduling-takes-effect/

[2] Marijuana Moment. "Federal Marijuana Rescheduling Hearing Wraps Up, With DEA Judge Laying Out Next Steps." July 16, 2026. https://www.marijuanamoment.net/federal-marijuana-rescheduling-hearing-wraps-up-with-dea-judge-laying-out-next-steps/

[3] Internal Revenue Code § 280E, 26 U.S.C. § 280E.

[4] Internal Revenue Code § 471, 26 U.S.C. § 471 (cost of goods sold).

[5] Internal Revenue Code § 831(b), 26 U.S.C. § 831(b); IRS Rev. Proc. 2024-40 (2025 inflation-adjusted net written premium limit of $2,850,000).

‍