The legal cannabis industry generated billions in revenue for years — and paid taxes on most of it, barred from deducting standard business expenses that every other legal industry takes for granted.
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A new analysis from GreenWave Advisors shows that a federal tax rule written for drug traffickers has cost the cannabis industry billions. Rescheduling could finally change the math.
For more than two decades, legal cannabis operators paid taxes under a provision written to punish criminals. Section 280E of the Internal Revenue Code, drafted in 1982 to prevent trafficking organizations from deducting business expenses, applied to state-licensed cannabis companies because federal law classified the plant as a Schedule I controlled substance. The practical effect: operators owed taxes on gross profit, unable to deduct ordinary business expenses (like rent, payroll or utilities) that every other legal industry takes for granted.
On April 23, 2026, Acting Attorney General Todd Blanche signed a final order moving certain state-regulated medical cannabis activities from Schedule I to Schedule III of the Controlled Substances Act, effective April 28. The order followed a December 2025 executive order from President Trump and applies to FDA-approved marijuana products and cannabis sold through state-authorized medical programs. Recreational cannabis remains Schedule I, at least until a scheduled June 29 administrative hearing considers whether broader rescheduling should apply to all marijuana.
For state-licensed medical operators, it opens the door to 280E relief and represents, as multiple legal analysts have noted, the most consequential change to federal marijuana law in more than 50 years.
The order arrives at a moment of compounding pressure for cannabis operators. As reported Thursday, pricing compression has already squeezed margins industry-wide: only 27.3% of U.S. cannabis operators were profitable in 2024, with authorized supply capacity estimated at roughly 600% of legal demand and 225% of total demand including illicit, according to Whitney Economics. The removal of 280E, if it materializes in full, would address one major structural disadvantage. It would not address them all.
A new analysis from GreenWave Advisors, a cannabis-focused investment research firm, attempts to quantify what that could mean. The numbers tell a different story.
The Scale Of The Distortion
According to GreenWave’s modelling, the U.S. cannabis industry incurred an estimated $9 billion in income tax expense attributable to 280E during the 2023-2025 period, based on assumed 50% gross margins across operators. For the top eight multi-state operators, each generating more than $200 million in annual revenue, the firm estimates those companies could have seen as much as a 57% increase in 2025 pre-tax income absent the provision. Aggregate cash flow from operations would have been approximately 29% higher on a cumulative basis from 2019 through 2025, per the firm’s analysis.
The individual company picture is striking. Green Thumb Industries, which reported $114.2 million in net income in 2025, would have shown $189.2 million without 280E, per GreenWave’s estimates, a 66% increase. Trulieve, which reported a net loss of $116 million in 2025, would have turned profitable at $30.4 million under the same scenario. Curaleaf’s reported 2025 net loss of $201.9 million narrows to $67.7 million. The full cohort analyzed by GreenWave includes Cresco Labs, Verano, Terrascend, Ascend and Jushi.
Top Multi-State Operators, Net Income as Reported and Without 280E, 2023-2025.
Source: Company filings; GreenWave Advisors estimates.
Is Retroactive Relief Actually Coming?
The potential impact goes beyond quarterly earnings. The report estimates approximately $1.9 billion in unpaid 280E liabilities among the top eight MSOs for 2023-2025, rising to roughly $2.1 billion with accrued interest and penalties. The final order encourages the Treasury to consider providing retrospective 280E relief for prior tax years in which companies operated under state medical licenses. On the same day, the Treasury and the IRS announced that forthcoming guidance will include a transition rule applying relief to the full taxable year that includes the effective date of the order, making January 1, 2026 the operative start date for calendar-year taxpayers, a position the AICPA had previously recommended. Whether that relief will extend to tax years before 2026 remains the central unresolved question.
Uncertain Tax Positions Related to 280E, MSOs with 2025 revenue over $200 million.
Source: Company filings; GreenWave Advisors estimates.
The report also estimates approximately $320 million in deferred tax value from net operating losses accumulated by the top eight operators during 2023-2025. If fully realizable, those assets could provide additional upside to valuations, though actual NOL value depends on annual utilization limits if ownership changes occur and each company’s ability to generate sufficient future taxable income.
“The elimination of Section 280E should serve as a meaningful catalyst for increased M&A activity across the cannabis sector,” GreenWave’s founder Matthew A. Karnes wrote in the report, “as improved after-tax cash flows, reduced tax uncertainty, and enhanced access to capital markets are likely to support higher transaction volumes and more aggressive consolidation strategies.”
What Could Go Wrong
The case for caution is real. Retroactive relief is not guaranteed. Treasury has yet to issue guidance and the scope of any lookback period remains an open question.
The government’s own actions in recent weeks suggest the path is not straightforward. On May 18, the Department of Justice filed suit against TerrAscend, one of the eight companies in GreenWave’s analysis, in New Jersey federal court, seeking to recover an $8.36 million refund the IRS issued after the company filed an amended 2020 return claiming $64 million in business deductions. That is precisely the kind of retroactive claim the industry has been filing in anticipation of relief. The DOJ argued those deductions were impermissible under 280E because cannabis was a Schedule I controlled substance in 2020. Business of Cannabis reported it is the first known 280E refund clawback of its kind, and that industry-wide back tax exposure among publicly traded MSOs had reached $1.6 billion by early 2026.
In its most recent quarterly report filed with securities regulators, TerrAscend said the company “believes it has substantive defenses to the assertions raised, and intends to vigorously defend its position,” citing the recent rescheduling of medical cannabis as part of its defense rationale.
The IRS has been signaling this position since at least June 2024, when it published a bulletin stating that operators filing amended returns to claim 280E relief were “not entitled to a refund or payment” and that “the IRS is taking steps to address these claims.” A separate challenge to 280E is also working through the U.S. Tax Court — New Mexico Top Organics v. Commissioner — where the IRS filed a forceful brief in March 2026 rejecting arguments that the provision should not apply to state-licensed medical cannabis operators. The plaintiff subsequently filed a new brief on May 18 arguing that the April rescheduling strengthens its position, adding a new dimension to a case that could help define the limits of retroactive relief.
The current rescheduling order covers state-licensed medical cannabis only. Adult-use operators, who represent the majority of U.S. cannabis commerce, remain on Schedule I and outside the immediate scope of 280E relief. The firm’s analysis also assumes a uniform 50% gross margin across operators, a figure that varies considerably across companies and markets. Whether investors have already priced in some or all of the anticipated relief is a further variable that could dampen the practical impact on valuations.
The order also leaves broader criminal justice questions unresolved. It does not expunge prior federal convictions, mandate clemency for people currently incarcerated on cannabis charges, permit interstate commerce or alter federal workplace drug testing policies. For communities most affected by cannabis criminalization, the financial relief flowing to licensed operators represents a specific industry reform, not a broader resolution of prohibition’s legacy.
What Comes Next
The June 29, 2026 administrative hearing could expand the picture. The DEA has set that session to consider whether broader rescheduling of all marijuana, including recreational, should proceed through formal rulemaking. If it does, the universe of operators eligible for 280E relief would grow substantially. If it stalls, adult-use operators could find themselves structurally disadvantaged relative to their medical peers for years.
GreenWave’s financial estimates are modeled projections based on publicly available company filings and stated assumptions, not audited figures. The firm’s disclaimer notes that affiliated parties may hold positions in the securities discussed. All figures should be understood as directional estimates subject to pending IRS guidance, the scope of retroactive relief and the June 29 hearing outcome.
What the analysis suggests, even directionally, is that cannabis companies’ financials have long told a more complicated story than they appeared. For years, investors evaluated these companies under a tax structure that exists nowhere else in the legal economy. Section 280E did not just cost the industry money. It distorted the metrics investors, analysts and lenders used to evaluate whether these businesses were viable at all. With that distortion potentially lifting, the industry may not simply be getting a tax break. It may be getting an accurate balance sheet for the first time.