7 Ways Cannabis Businesses Can Prepare for the End of 280E

280E has made every dollar more complicated for cannabis operators. Because cannabis remains federally restricted, state-legal businesses have historically had to operate without many of the ordinary deductions other companies can claim. The IRS has noted that cannabis businesses must carefully calculate cost of goods sold while navigating the limits Section 280E places on ordinary deductions.

That framework may be changing.

The Department of Justice first published a proposed rule in May 2024 to move marijuana from Schedule I to Schedule III under the Controlled Substances Act. In April 2026, the DOJ announced a more limited final order placing certain cannabis-related products, including FDA-approved cannabis products and state-licensed medical cannabis, into Schedule III, while also signaling that a broader review of marijuana’s federal status is still underway.

For cannabis businesses, the tax implications could be significant. In April 2026, Treasury and the IRS stated that rescheduling generally removes Section 280E as a bar to claiming deductions and credits for businesses that, as a result of a final order, no longer traffic in Schedule I or II controlled substances under the Controlled Substances Act. As we discussed in our earlier post, Schedule III and Cannabis Taxes: How Rescheduling Could Reshape 280E Planning, this shift has the potential to fundamentally alter how cannabis businesses plan, operate, and grow.

Cannabis operators should begin planning now, before the rules fully change. The companies that benefit most will likely be the ones using this period to rethink their numbers, clean up reporting, evaluate growth plans, and understand what the business looks like when tax planning is no longer built around surviving 280E.

Here are seven areas cannabis businesses should be reviewing now.

1. Review Cannabis COGS and SG&A Before 280E Relief

Under 280E, cost accounting has carried unusual weight. Because cannabis operators have generally been able to reduce gross receipts by properly calculated cost of goods sold, businesses have had an incentive to pay close attention to which costs belong in COGS and which belong in selling, general, and administrative expenses.

That discipline should continue if 280E relief becomes available. Cultivators and manufacturers will still need to understand production costs, inventory value, waste, shrinkage, labor efficiency, and product-level profitability.

For retailers, the analysis may look different. A dispensary’s COGS is often more limited, typically tied to product costs and the direct costs of acquiring inventory. Under 280E, even small allocation decisions could matter because the tax impact was so significant. With potential changes ahead, operators can step back and ask a broader question: What do these costs reveal about the overall health of the business?

Detailed accounting can support stronger business intelligence. Strong cost tracking can help leaders understand margins, make better staffing decisions, evaluate vendors, and identify where the operation is gaining or losing ground.

2. Move From 280E Tax Survival to Business Planning

For many cannabis businesses, 280E has required management teams to spend significant time, money, and energy managing the impact of a burdensome federal tax rule.

That work has been necessary, but it has also drawn attention away from broader business planning.

Leaders in other industries regularly evaluate return on investment, operating leverage, customer acquisition costs, efficiency, pricing power, and capital allocation. Cannabis businesses evaluate those factors as well, often under the added pressure of 280E.

If that pressure changes, operators can redirect attention toward broader business questions:

• Which locations are actually profitable?
• Which products drive repeat purchases?
• Which roles create measurable value?
• Where are margins being lost?
• Where could better systems reduce waste, delays, or labor costs?

These questions can take on greater importance as tax constraints evolve.

3. Build a Cannabis Cash Flow Forecast Before Rescheduling

Potential tax relief may improve taxable income, but cash flow will still require active management.

If 280E no longer applies to certain businesses, operators may see a meaningful change because more ordinary and necessary business expenses could become deductible. The impact will vary. A vertically integrated operator, a single-state retailer, a cultivation facility, and a manufacturing company may all experience the change differently.

Debt obligations, state taxes, local taxes, excise taxes, lease terms, vendor liabilities, and past-due payables will still affect available cash.

Cannabis businesses should begin modeling several scenarios now. One may assume 280E continues to apply. Another may assume partial relief. Another may assume broader deductibility after rescheduling. Operators should also evaluate timing, because tax rules may change in a different period than business owners expect.

A thoughtful forecast can help leadership decide whether potential tax savings should be used to reduce debt, build working capital, upgrade systems, hire strategically, invest in marketing, improve facilities, or prepare for a transaction.

4. Reevaluate Cannabis Business Spending After 280E Relief

One of the biggest changes may be psychological.

Many cannabis operators have been cautious with SG&A spending because those costs often carried a harsh tax result. Marketing, administrative salaries, professional services, training, software, and other operating expenses could be important to the business, but difficult to justify when they were not deductible in the same way they would be for businesses outside cannabis.

If the rules change, operators can approach spending with a more strategic lens.

Sophisticated companies in other industries look for the areas where each dollar can produce the strongest return. Cannabis businesses can apply that same discipline. Tax relief may make it easier to invest in financial reporting, data systems, employee training, compliance infrastructure, customer retention, brand development, inventory management, and professional advisory support.

The key question becomes: Which expenses help move the business forward?

5. Clean Up Cannabis Financial Reporting Before Rescheduling

If rescheduling changes the tax landscape, cannabis businesses may face new scrutiny from lenders, investors, acquirers, and strategic partners.

Clean financial reporting will become even more important.

Businesses should review whether their chart of accounts still makes sense, whether historical COGS allocations are well documented, whether inventory accounting is consistent, and whether management reports are useful for decision-making.

Cannabis financials have often required extra explanation because 280E affected the relationship between revenue, operating income, taxable income, and cash flow. As that impact evolves, outside parties may begin evaluating cannabis businesses with more traditional metrics.

That shift can benefit companies with strong records, consistent reporting, and a clear financial story.

6. Prepare for Cannabis M&A and Investor Interest After Rescheduling

Rescheduling could also change how outside capital views cannabis.

Many institutional investors, private equity groups, and traditional lenders have been cautious because of federal illegality, banking limitations, tax issues, reputational concerns, and uncertainty around enforcement. Section 280E has been one of the major financial obstacles because it can dramatically reduce after-tax cash flow.

If rescheduling moves forward and 280E relief becomes available, more investors may begin taking a closer look. Some may move slowly, but even cautious interest could lead to more merger and acquisition activity, refinancing discussions, roll-up strategies, and competitive processes for stronger operators.

For cannabis business owners, that creates both opportunity and risk. More interest does not always lead to better deals. Owners need to understand valuation, deal structure, tax consequences, debt terms, working capital adjustments, earnouts, and buyer quality.

In a changing market, choosing the right advisors matters. The wrong deal can create long-term problems even when the headline valuation looks attractive.

7. Decide Where Potential 280E Tax Savings Should Go First

Potential 280E relief could create new flexibility, but operators should have a plan for how that flexibility will be used.

For some businesses, the first priority may be strengthening the balance sheet. That could mean paying down debt, catching up on vendor obligations, building working capital, or creating a larger cash reserve. For others, the better move may be investing in systems, people, facilities, or reporting infrastructure that had been delayed because of tax pressure.

This is where planning becomes especially important. Tax savings can disappear quickly if they are absorbed into day-to-day spending without a clear strategy. Operators should evaluate which investments support the strongest return, which expenses improve long-term stability, and which decisions position the company for future growth, financing, or a potential transaction.

Potential uses may include:

• Reducing high-interest debt
• Building working capital
• Upgrading financial systems
• Improving inventory controls
• Hiring for key leadership roles
• Investing in customer retention
• Preparing for a sale, acquisition, or capital raise

Cannabis businesses should use this period to understand their numbers, model different outcomes, revisit spending decisions, and prepare for a market where tax relief may bring new opportunities and new competition.

Rescheduling is still moving through the federal process, so operators should avoid making major decisions based on assumptions alone. Waiting until the rules change may leave businesses behind.

The companies that prepare now will be better positioned to use potential 280E relief as a turning point for stronger reporting, smarter investment, better cash flow planning, and more strategic growth.

As always, CJBS is here to help.