“Rescheduling removes a major structural penalty, but tariffs will reshape who captures the gains. All else equal, dispensary-heavy companies may emerge as the primary beneficiaries.”
By Justin Leiby, Cannabis Research Institute
With federal cannabis rescheduling partially underway and the potential end of the 280E tax penalty approaching, how much relief the cannabis industry will experience is an open question. No matter what the future holds, 280E is a significant financial drag on cannabis operators.
I run an annual survey of cannabis operators for the Illinois Cannabis Regulation Oversight Office, and in the most recent survey operators estimate that 44 percent of their 2024 operating expenses were nondeductible under 280E, which only applies to Schedule I and Schedule II drugs. Assuming a 21 percent corporate tax rate, this translates into a $92 penalty for every $1,000 spent.
Beyond the (hopefully) temporary importance of distinguishing medical versus adult-use operations under the Trump administration’s current process of moving cannabis to Schedule III, the pain of the 280E penalty has not been evenly distributed—and those who suffered the most may reap greater benefits.
Smaller operators report more 280E disallowances than larger companies (45 percent vs. 37 percent of operating expenses), as do companies that
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