Trump officials reclassify medical cannabis as lower-risk drug - Baltimore Business Journal
The Business Journals
Last updated: April 24, 2026
The Drug Enforcement Agency (DEA) has reclassified medical cannabis to Schedule III. This change could impact businesses that operate in both the medical and recreational cannabis markets, particularly concerning federal tax benefits.
- Maryland businesses serving both medical and recreational cannabis customers may be excluded from federal tax relief due to the specific nature of their operations. While the Schedule III reclassification offers some federal recognition, the IRS's Section 280E still prohibits businesses trafficking Schedule I and II drugs from deducting ordinary business expenses.
- The core issue is whether businesses that distribute cannabis for both medical (now Schedule III) and recreational purposes will be viewed as engaging in the trafficking of a controlled substance that disqualifies them from tax deductions under Section 280E. This distinction is critical for their financial viability.
- The reclassification to Schedule III, a category for drugs with a currently accepted medical use and a low potential for abuse, theoretically acknowledges medical cannabis's legitimacy. However, the practical application of existing tax laws, particularly Section 280E, creates a potential loophole or exception that could deny tax benefits to businesses operating in dual-market states like Maryland.
- Ultimately, the impact hinges on how federal tax authorities interpret and apply Section 280E in light of the Schedule III reclassification and the dual-use nature of these businesses. This situation presents a significant financial challenge for Maryland's cannabis industry if tax relief is denied.
