Recent government agency administrative hearings on rescheduling cannabis to Schedule III could significantly reduce the industry’s biggest tax burden by allowing operators to deduct Selling, General & Administrative expenses rather than only Cost of Goods Sold under Section 280E of the federal tax code. While state-licensed medical cannabis has already been reclassified to Schedule III via an April 23, 2026 final order issued by acting Attorney General Todd Blanche, the larger financial upside is expected to come from broader rescheduling that includes adult-use recreational cannabis.
However, cannabis operators that service both the medical and recreational use markets currently have to report separate revenue streams until a broader rescheduling occurs, a process that brings its own accounting complications.
“Some companies are going to face difficulties in terms of trying to separate their revenues and their products to ensure that they can still get some tax relief,” said Bradley Graveline, co-leader of Sheppard’s cannabis industry team.
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