IBA, as the premier business brokerage firm in the Pacific Northwest, is firmly established as a respected professional service firm in the legal, accounting, banking, mergers & acquisitions, real estate, and financial planning communities. Periodically, we will post guest blogs from professionals with knowledge to share for the good of owners of privately held companies & family owned businesses. The following blog article has been provided by Diego Rodriquez De La Torre and Seth Rudin. Mr. De La Torre is a Tax Manager with Opsahl Dawson ( https://www.opsahldawson.com/). Mr. Rudin is a senior mergers & acquisition intermediary at IBA (www.ibainc.com):
Implications of the President Trump’s Recent Executive Order to Reclassify Cannabis to a Schedule 3 Drug
President Trump’s executive order directing the reclassification of cannabis under the Controlled Substances Act could represent a watershed moment for the U.S. cannabis industry—particularly from a federal tax perspective.
At present, cannabis is classified as a Schedule I substance, alongside drugs such as heroin and LSD. This classification triggers the application of Internal Revenue Code §280E, which disallows deductions for ordinary and necessary business expenses incurred in trafficking Schedule I or II substances. As a result, cannabis operators are unable to deduct operating expenses such as payroll, marketing, rent, insurance, and professional fees, often facing effective tax rates between 60% and 80%. While IRC §§162(a) and 471(a) generally allow deductions and cost-of-goods-sold treatment for legitimate businesses, §280E has effectively overridden these provisions for the cannabis sector.
Reclassification to Schedule III would fundamentally change this dynamic. Section 280E applies only to Schedule I and II substances; therefore, a move to Schedule III would allow cannabis businesses to deduct the same operating expenses available to other lawful industries. The immediate impact would be substantial: effective tax rates could drop to a standard corporate or pass-through range of 0%–37%, significantly improving cash flow without requiring revenue growth. Businesses would also be less reliant on aggressive cost-of-goods-sold strategies, resulting in cleaner, more transparent financial statements.
“Beyond taxation, the broader implications for capital markets are equally compelling. Reduced legal and regulatory risk could unlock increased access to institutional capital, including private equity, venture capital, and traditional lenders. Improved after-tax profitability may lead to more favorable debt terms and a wider pool of investors willing to enter the space.” Per Diego Rodriguez De La Torre.
Finally, reclassification could accelerate innovation. With improved margins and credibility, cannabis companies would be better positioned to invest in research and development, pursue pharmaceutical partnerships, and expand product offerings. Collectively, these changes would help solidify cannabis as a credible, mainstream business sector—ushering in a new phase of growth and legitimacy for the industry.
“It will be interesting to see how the industry reacts with the increase in net income from this change. The first question that comes to my mind is ‘Will the owners price it away for market share or to increase their net worth and the company’s enterprise value?’. Second, if they elect to increase their net worth, then the acquisition market for cannabis enterprises should increase significantly once the Executive Order is fully in effect,” as said by Seth Rudin.
If you have questions relating to the tax implications of this change, Diego De La Torre would welcome the opportunity talk with you. Mr. De La Torre is an Enrolled Agent and Tax Manager at Opsahl Dawson specializing in business and individual income taxation, with a particular focus on real estate and cannabis clients. Mr. De la Torre can be reached at (360) 335-3881 and diego@opsahlco.com.
If you have questions relating to the content of this article or the process associated with selling a cannabis business in Washington or Oregon, Seth Rudin would welcome the opportunity to talk with you. Mr. Rudin is licensed to sell businesses & real estate in both Washington and Oregon. Mr. Rudin can be reached at (425) 454-3052 or seth@ibainc.com.
IBA, the Pacific Northwest’s premier business brokerage firm since 1975, is available as an information resource to the media, business brokerage, mergers & acquisitions, real estate, accounting, legal, and financial planning communities on subjects relevant to the purchase & sale of privately held companies and family-owned businesses. IBA is recognized as one of the best business brokerage firms in the nation based on its long track record of successfully negotiating “win-win” business sale transactions in environments of full disclosure employing “best practices”.