Lawmakers Press IRS for Clear Tax Rules on State-Legal Cannabis Operations

WASHINGTON – Rep. Steven Horsford (D) and Rep. Steve Cohen (D) led a letter to Treasury Secretary Scott Bessent and IRS Chief Executive Officer Frank Bisignano, urging the administration to provide clear, timely guidance for state-legal Cannabis businesses. The lawmakers’ request comes weeks after the Treasury Department and the IRS announced they would provide guidance following the rescheduling of certain Cannabis products.

The backdrop is a regulatory shift that has been building for years. This past April, the Justice Department and the DEA issued a final order moving Cannabis from Schedule I to Schedule III under the Controlled Substances Act, specifically FDA-approved products containing Cannabis and products regulated by a state-issued medical Cannabis license. Recreational-use Cannabis remains Schedule I.

With Cannabis now partially moved to Schedule III, the lawmakers wrote to Bessent and Bisignano that 280E is “no longer applicable to qualifying state-legal Cannabis-related trades or businesses” and that “this change materially alters the federal tax framework governing the Cannabis industry.”

But the transition has introduced new complexity rather than eliminating it. The lawmakers requested “unambiguous guidance” in two specific areas: businesses that operate under a single state-issued license covering both adult-use and medical Cannabis, and businesses that hold two separate state-issued licenses for those operations. In many states, the same operator [and sometimes the same retail location] serves both markets, making a clean apportionment of expenses far from straightforward.

Treasury and the IRS have said they expect forthcoming guidance to clarify the ways in which, for businesses with multiple activities, Section 280E applies only to those activities related to trafficking in Schedule I or II controlled substances, for example, by apportioning expenses. The agencies have also indicated they plan to include a transition rule specifying that rescheduling will generally be considered to first apply for a business’s full taxable year that includes the effective date of the final order.

The lawmakers also pushed for broader outreach. Their letter urged Treasury and IRS to collaborate with the U.S. Small Business Administration and other federal partners to “ensure this guidance is widely disseminated.”

Acting Attorney General Todd Blanche’s rescheduling order separately encouraged the Treasury Secretary to consider providing retrospective relief from Section 280E liability for taxable years in which a state licensee operated under a Schedule I framework – a provision that, if implemented, could have significant implications for operators seeking amended tax returns.

A parallel legal dispute is already testing the courts. In a March 2026 brief before the U.S. Tax Court, IRS Acting Chief Counsel Kenneth Kies argued that a Cannabis company seeking refunds for deductions it never claimed [including payroll, rent, and utilities] was effectively asking the court to perform a de novo rescheduling inquiry, which Kies said Congress did not intend. That case illustrates why administrative clarity from the IRS, rather than judicial resolution, has become the industry’s preferred path.

For Cannabis operators, the arithmetic here is straightforward even if the regulatory path is not. Access to ordinary business deductions represents the single largest structural cost improvement available to the sector short of full federal legalization, and for multi-license operators straddling recreational and medical markets, each week of ambiguity is a week of suboptimal tax planning. The IRS and Treasury have signaled intent. What the industry needs now is a published ruling it can take to a CFO.