Two Republican lawmakers are putting the Trump administration on notice: they do not want cannabis businesses walking away from decades of punishing tax treatment without a fight. Sen. James Lankford (R-OK) and Rep. Jodey Arrington (R-TX), who chairs the House Budget Committee, sent a letter Wednesday to Treasury Secretary Scott Bessent expressing concern that marijuana companies could soon claim ordinary business deductions - and possibly retroactive tax relief - as a result of cannabis being partially rescheduled under federal law. The stakes for licensed operators are real and immediate, which makes the political resistance worth taking seriously.
What 280E Actually Costs Operators - and Why Rescheduling Changes the Math
Section 280E of the Internal Revenue Code has functioned as a structural tax penalty on cannabis businesses since the 1980s. Because it bars deductions and credits for businesses that "traffic" in Schedule I or II controlled substances, licensed dispensaries have been forced to pay federal income tax on gross profit rather than net income - effectively taxing them on revenue that covers payroll, rent, utilities, and cost of goods. A dispensary operator running a pos system for dispensary california in a competitive adult-use market already operates on compressed margins; 280E has historically taken a significant additional bite out of whatever remains. Moving cannabis to Schedule III removes the statutory basis for applying 280E to businesses that no longer traffic in a Schedule I or II substance - and that is precisely what concerns Lankford and Arrington.
The partial nature of the current rescheduling makes the compliance picture messier than it might first appear. Under Acting Attorney General Todd Blanche's order, marijuana regulated under a state medical cannabis license moved immediately to Schedule III. Products in state-legal recreational markets, however, remain Schedule I for now, pending a separate hearing process set to begin next month. For the many operators who hold licenses covering both medical and adult-use sales - a common structure in mature regulated markets - the question of how to apportion expenses between qualifying and non-qualifying business activities is not a minor bookkeeping issue. Treasury and the IRS have acknowledged this, noting in an April announcement that forthcoming guidance would address how 280E "applies only to those activities related to trafficking in Schedule I or II controlled substances" for businesses with multiple activity types. That guidance has not yet arrived.
The Retroactive Relief Question Is Where It Gets Complicated
Lankford and Arrington are "particularly troubled" - their language - by the idea that cannabis businesses could claim retroactive tax relief stretching back into prior tax years before any rescheduling took effect. Acting AG Blanche's rescheduling order explicitly encouraged Bessent to consider providing that kind of retrospective relief for state-licensed medical marijuana operators. The lawmakers want answers, and they want them by June 29th. Their questions to Bessent include how many prior tax years Treasury is considering for relief, what statutory authority permits such a benefit for businesses that sold a product in violation of federal law, and what the estimated revenue impact would be on federal deficits and the national debt.
Those aren't purely rhetorical questions. The fiscal math here is real - and largely unknown. Multi-state operators, vertically integrated cannabis companies, and even single-location dispensaries that have been aggressively managing their tax exposure under 280E for years could be looking at meaningful refund positions if retroactive relief is granted. Some operators and their tax counsel have already been examining amended return strategies. The absence of IRS guidance leaves them - and their accountants - in an uncomfortable holding pattern.
State Licensure, Black-Market Risk, and the Oklahoma Argument
The lawmakers' letter leans heavily on Oklahoma's experience as evidence that state licensure alone is not a sufficient proxy for legal compliance. At its peak, Oklahoma's medical marijuana program had 9,178 licensed growing operations, according to the letter. Lankford and Arrington point to documented instances in which licensed operations diverted product to the black market, engaged in money laundering and human trafficking, and were owned or operated by foreign nationals exploiting state licensing frameworks. Lankford repeated those concerns directly to Bessent at a Senate Finance Committee hearing Wednesday.
The argument cuts directly at a core compliance question for Treasury: how do you construct a bright-line rule for federal tax eligibility when state licensing standards vary widely and do not guarantee that a business operated lawfully? For cannabis retailers in tightly regulated states - those with seed-to-sale tracking requirements, METRC integration, comprehensive compliance audits, and robust enforcement mechanisms - the concern may feel overstated. But the policy problem Lankford and Arrington are identifying is genuine. A blanket rule tying federal tax treatment to state licensure status creates eligibility for operators who, while licensed, may have had compliance violations, license revocations, or enforcement actions in their history.
What Operators and Their Advisors Should Watch
Congressional Democrats, for their part, sent their own letter to Bessent and IRS Chief Executive Frank Bisignano last week urging "prompt guidance" on exactly these tax questions. The IRS and Treasury have said guidance is coming. The pressure from both ends of Pennsylvania Avenue suggests it will arrive with significant political scrutiny attached - which, in practice, may mean a more conservative initial rule than the industry is hoping for.
Here's what matters most to operators right now: the tax treatment of medical versus adult-use activities will likely require a defensible internal allocation methodology before any guidance even drops. Dispensaries with mixed licenses should be working with tax counsel now to document how their revenues, expenses, payroll, and inventory costs break down between medical and recreational operations. Retroactive relief, if it comes, will almost certainly require substantiation - not an informal estimate after the fact.
The broader political dynamic is worth watching, too. The No Deductions for Marijuana Businesses Act that Lankford and Arrington previously introduced would effectively extend 280E's penalty structure regardless of rescheduling. That legislation hasn't advanced, but in a Congress where cannabis reform has rarely moved cleanly, the letter to Bessent signals that any Treasury guidance favorable to the industry will face immediate scrutiny on Capitol Hill. Cannabis operators have spent years planning around regulatory uncertainty. This particular chapter is far from closed.
