Oklahoma Law Review Claims 280E No Longer Applies Post-Cannabis Rescheduling

TULSA – A forthcoming article in the Oklahoma Law Review contends that federal rescheduling of Cannabis to Schedule III would place the plant outside the reach of Internal Revenue Code Section 280E, potentially ending the government’s ability to apply the provision to Cannabis businesses, including collection efforts tied to prior years.

The analysis, written by University of Oklahoma law student Anthony Deininger and shared in draft form, examines the precise language of Section 280E. That section disallows deductions or credits for businesses “trafficking in controlled substances (within the meaning of Schedule I and II of the Controlled Substances Act) which is prohibited by Federal law or the law of any State.” Deininger’s paper describes the rule as a conditional tax measure that depends on a substance’s current placement in Schedules I or II. Once Cannabis moves to Schedule III, the argument runs, the textual foundation for enforcement dissolves.

Section 280E has required state-legal Cannabis companies to calculate federal taxes on gross receipts rather than net income since the early days of legalization. The result has been effective tax rates that frequently exceed 70%, according to industry data. Large MSOs currently face roughly $1.6 billion in disputed or unpaid 280E-related liabilities, with the IRS continuing to pursue collections in Tax Court.

Deininger’s draft, which is slated for formal publication in the Oklahoma Law Review later this year, has not yet undergone peer review. It arrives as the Trump administration presses forward with rescheduling. In December 2025, President Trump issued an executive order directing the attorney general to move Cannabis to Schedule III “in the most expeditious manner possible” under the Controlled Substances Act. The move would recognize accepted medical uses while maintaining federal prohibitions on recreational sales outside state frameworks.

Most legal observers have long expected rescheduling to lift the 280E burden prospectively, once the final rule takes effect. The Deininger paper pushes further, asserting that the statute’s present-tense construction could limit even retroactive collection authority once the scheduling change is official. The IRS has taken the opposite view in recent court filings, maintaining that tax liability is fixed by the law in effect during each tax year.

The financial stakes are substantial. Analysts estimate the industry would have paid an extra $2.3 billion in federal taxes in 2025 alone had it been taxed like conventional businesses. Relief from 280E would improve cash flow, ease compliance costs, and alter valuation models across cultivation, processing, and retail operations.

For now, Cannabis remains in Schedule I, and Section 280E continues to govern current filings. The Deininger analysis offers one interpretive path forward but does not alter existing obligations. Operators and their advisers will need clear guidance from the Treasury Department and any eventual court rulings before adjusting positions on past or future returns.

As the Cannabis sector has matured under state regulation, federal tax treatment has remained one of its most persistent structural challenges. The Oklahoma Law Review paper adds a fresh legal perspective to that debate at a moment when administrative action on scheduling appears imminent. How federal agencies and the courts ultimately reconcile the statute’s language with any rescheduling decision will determine the practical outcome for businesses that have operated for years under the current rules.