President Trump’s December 18th executive order on cannabis rescheduling has triggered questions about timing, tax relief, and banking access. But the real decisions are being shaped now, not when the final rule is published.
Many operators have questions about relief from Section 280E. There is still a rule-making administrative process ahead, and the likelihood that this process will be subject to litigation. Re-scheduling will have a significant impact on the operational realities facing cannabis businesses, as well as the financial institutions serving them. The gap between regulatory change and market impact is where risk concentrates.
Operators face immediate questions about contract structures, tax planning, and financial disclosures in light of impending changes to 280E treatment. Financial institutions are weighing commercial lending opportunities against compliance obligations and underwriting risks. Both groups need decision frameworks now, not speculation about future relief.
Speaker Perspective
In a recent discussion, Bob Hoban (Co-Founder & Chairman, CTrust), Suehiko Ono (Partner, Cogent Law), and Chris Van Dyck (Partner, Cogent Law) highlighted that the executive order marks only the second time in U.S. history the federal government has publicly recognized cannabis’s medical benefits, but it does not reschedule marijuana immediately. The order directs the Department of Justice to expedite the administrative process begun under Biden, involving Federal Register publication, Administrative Law Judge hearings, and almost certain litigation.
The Administrative Pathway Is Not Automatic
The executive order, itself, does not reschedule cannabis. Rather, it directs agencies to proceed with re-scheduling cannabis from Schedule I to Schedule III.
That process requires:
- Federal Register publication to restart administrative rule-making
- Statutory waiting period before hearings commence
- Administrative Law Judge proceedings subject to legal challenges
- Post-hearing litigation delaying implementation
The Office of Legislative Council is preparing a white paper on practical implications. This signals forward movement but does not eliminate procedural obstacles or political resistance.
Timing predictions have consistently failed. Nevertheless, operators and financial institutions should be preparing for re-scheduling now.
Section 280E Relief Is the Only Clear Legal Change
Moving marijuana to Schedule III triggers one unambiguous legal shift: Section 280E will no longer apply.
IRC 280E reads, “No deduction or credit shall be allowed for any amount paid or incurred during the taxable year in carrying on any trade or business if such trade or business (or the activities which comprise such trade or business) consists of 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 in which such trade or business is conducted.”
Schedule III is exempt.
For cannabis operators:
- Ability to deduct ordinary business expenses currently disallowed
More simple brand licensing, white-labeling, contract manufacturing, management services agreements with more simple and streamlined accounting
- Improved financial statements reflecting actual operational costs
- Better valuations for lending and investment
- Potentially significant cash flow improvements
For financial institutions:
- More accurate credit assessments based on real operating economics ● Reduced tax liability risks in borrower profiles
- Clearer disclosure requirements for lending decisions
- Some regulatory comfort with cannabis exposure
But 280E relief does not address federal legality. Any operation outside DEA/FDA registration remains federally illegal, even when cannabis is re-scheduled..
Cultivators and manufacturers may register as Schedule III operators with the DEA and can begin taking low-CAPEX steps to do so, especially if currently state-track-and-trace and GMP compliant. Adult-use cannabis will continue to operate outside federal compliance, regardless of rescheduling.
Tax Liabilities Will Not Disappear Retroactively
Many operators treat 280E liabilities as unfunded future obligations. Some large MSOs reportedly owe approximately half a billion dollars in aggregate back taxes. Smaller operators appear more compliant.
No proposal currently exists for retroactive 280E relief.
Rescheduling applies prospectively. Existing IRS liabilities remain. Large operators have more at stake and will aggressively litigate retroactive application. Small operators will face well-funded competitors with strong balance sheets.
Operators should consider the following:
- Negotiate directly with the IRS on disclosed liabilities now
- Model 280E obligations carefully in manufacturing and licensing agreements ● Account for tax liabilities in cash flow projections, not as contingent write-offs ● Consult specialized cannabis tax counsel familiar with IRS litigation
Some MSOs have successfully challenged IRS taxation, achieving relief through litigation focused on cost of goods sold categorization under Section 471. Those cases offer tactical guidance but do not create presumptive retroactive relief.
Contract Structures Must Adapt to Post-280E Economics
Brand licensing agreements and manufacturing contracts dominate current operations. Many include brand royalties at 10%-20% of net sales, which are properly structured below the line to avoid 280E liability. Under Section 471, only costs directly related to product acquisition or creation qualify for COGS inclusion.
On $16 million in revenue, the difference between a brand royalty included in COGS versus below the line exceeds $1 million in net profit. That gap affects valuations, creditworthiness, and investor disclosures.
Post-280E, operators can restructure for simplicity:
- Base royalties on net sales without complex raw material valuations
- Eliminate packaging consignment strategies designed solely for tax optimization ● Simplify dispute resolution by removing tax-driven contract terms
- Improve financial reporting clarity for banks, investors, and regulators
Simplified structures reduce operational burdens and create clearer credit profiles for underwriting decisions. Banks will favor borrowers with transparent contracts over legacy agreements built around 280E workarounds.
Banking and Lending Opportunities Are Expanding
Financial institutions are showing increased interest in cannabis commercial lending. Depository services alone do not sustain profitability. The current market is dominated by private lenders charging 20% or higher, rates that are unsustainable for most operators.
280E relief creates a better lending environment:
- Improved borrower cash flow from tax savings
- Better financial disclosures reflecting true economics
- Reduced uncertainty around tax liabilities
- Increased regulatory comfort
Refinancing existing high-interest loans presents significant near-term opportunity. Bringing rates to 11% to 13% remains profitable while dramatically improving operator economics.
Platforms like CTrust provide credit ratings and compliance tracking designed for cannabis lending. Regulators expect reasonable exposure limits, though no specific thresholds exist.
Banks must balance:
- Compliance and BSA risk management
- Credit risk using cannabis-specific tools
- Reputational risk, now significantly diminished
- Legal risk, minimal absent prosecution history
- The FinCEN guidance makes no distinction between depository services and lending.
Hemp Industry Faces Urgent Recriminalization Risk
The executive order included provisions supporting CBD and directing assessment of safe hemp derivatives. But the November appropriations bill effectively banned hemp extracts, effective in late 2026.
Many financial institutions entered hemp banking assuming lower risk than cannabis. That assumption no longer holds. By December 2026, around 90% of the infused hemp industry could be recriminalized.
Hemp beverages containing 2 to 5 milligrams of THC have attracted investor interest as alcohol sales decline. But Schedule III does not resolve hemp product legality. Federally compliant THC products cannot be sold in general retail outlets unless they qualify as medicinal products under DEA/FDA frameworks.
The industry is lobbying for a two-year ban extension to maintain supply chains. Without legislative relief, the $30 billion hemp industry faces severe disruption. Banks serving hemp clients must reassess risk profiles immediately.
The SAFER Banking Act Remains Uncertain
Rescheduling has sparked debate about whether momentum helps or hinders the SAFER Banking Act. Some argue the executive order builds political will. Others contend it reduces urgency.
The prosecution risk remains minimal. No federal or state prosecutor has pursued a bank for cannabis banking. The only public enforcement action is an NCUA consent cease and desist order against a credit union with a non-compliant program.
The SAFER Banking Act has passed the House several times. The Senate blocked it repeatedly. Leadership changes may shift dynamics, but predictions have consistently failed. Operators and banks should consider not waiting for the SAFER Banking bill to pass.
Political Dynamics Favor Movement and Optionality, Not Certainty
Biden and Trump agree on cannabis rescheduling. That bipartisan alignment is significant, reflecting both policy advancement and electoral strategy ahead of 2026 midterms.
But the Senate operates independently. Conservative Republicans will continue proposing amendments in spending bills. The ALJ presiding over hearings will proceed carefully, knowing litigation will follow.
The timeline is uncertain, but movement is likely by late spring 2026. Procedural delays and litigation will extend the process. Full implementation may be drawn out. But 2026 will see significant progress.
Psychedelics Follow a Different Path
Cannabis operates on product sales. Psychedelics legislation focuses on therapy and service provision. The psychedelics framework aligns more closely with FDA standards for controlled therapeutic settings.
Momentum has advanced quickly, particularly around PTSD treatment for veterans. But banking support does not exist yet. The industry needs a federal regulatory framework before banking access becomes viable.
Operators Must Plan for Dual Scenarios Now
Operators must consider valuations, disclosures, contract structures, and tax planning under both rescheduled and non-rescheduled scenarios.
Key decisions:
- Restructure brand licensing and manufacturing agreements for 280E elimination
● Negotiate IRS liabilities now versus waiting for uncertain retroactive relief
● Disclose tax liabilities to investors and creditors in changing regulatory environment ● Prioritize banking relationships as commercial lending becomes accessible
Adult-use operators cannot comply with DEA/FDA registration requirements. They operate outside federal law regardless of scheduling. 280E relief is the primary benefit.
Financial Institutions Should Consider Acting on Lending Opportunity
Banks face a strategic inflection point. Depository services provide value, but lending drives profitability.
Institutions must evaluate:
- Risk appetite for cannabis exposure
- Concentration limits on deposits and loans
- Credit assessment tools to mitigate underwriting risk
- Regulatory expectations around compliance and examination findings
Refinancing high-interest private loans creates immediate opportunity. Compliance risk is real but manageable. Credit risk is the primary underwriting challenge, addressable with specialized tools. The risk of federal prosecution remains negligible.
The Bottom Line
Cannabis rescheduling will very likely happen, but timing remains uncertain. Section 280E relief is the only guaranteed legal change. Administrative processes, litigation, and political dynamics cannot be reliably predicted.
What institutions and operators must do next: Stop waiting for certainty.
Model cash flow under both scenarios. Restructure contracts to eliminate tax-driven complexity. Establish banking relationships beyond deposits. Build compliance and credit infrastructure now. The decisions that matter are happening today, not when the Federal Register publishes the final rule.