How the Biden Marijuana Shift Could Impact Taxes
A pending Biden administration marijuana rule change could help some cannabis businesses lower their taxes.


In a significant shift in United States drug policy and regulation, the Biden administration is planning to reclassify marijuana as a less dangerous drug. The proposed reclassification, led by the U.S. Drug Enforcement Administration (DEA), acknowledges the medical benefits of cannabis and its lower potential for abuse compared to other controlled substances.
The White House Office of Management and Budget is currently reviewing this proposal. If approved, marijuana will be moved from being a Schedule I drug, alongside substances like LSD and heroin, down to a Schedule III classificaiton.
- However, this does not mean that marijuana will become legal for recreational use nationwide.
- Instead, the move would facilitate research and recognize the evolving acceptance of cannabis in the U.S.
Of course, this decision has its critics, but it's worth noting that the change would also impact federal income tax breaks for many cannabis businesses.

Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Biden on marijuana reclassification
Under federal law, marijuana is currently classified as a Schedule I controlled substance, making it illegal to grow, transport, or sell. The Biden proposal would reclassify the substance to Schedule III alongside substances like steroids.
Some critics express concerns about potential side effects and marijuana purportedly being a "gateway drug." Proponents argue that rescheduling marijuana is a step in the right direction, emphasizing the need to align federal policy with the growing acceptance and legalization of cannabis at the state level.
President Biden initially called for a review of federal marijuana laws a couple of years ago, a move paired with efforts to pardon individuals convicted of marijuana possession offenses. Meanwhile, 38 states and the District of Columbia have approved marijuana for medical use. Close to half of U.S. states have approved recreational use.
Cannabis rescheduling 280E tax
Lessening federal regulations concerning marijuana could reduce the tax burden on cannabis businesses. That’s because a significant tax provision cannabis operators in the U.S. deal with is Section 280E of the Internal Revenue Code.
Section 280E restricts cannabis businesses from claiming tax credits and deductions for expenses incurred in their business operations. Businesses cannot deduct expenses associated with the "trafficking" of Schedule I or II substances.
Consequently, Section 280E disallows deductions for many ordinary business expenses of cannabis businesses, like rent and employee compensation, when calculating federal taxable income. This limitation can result in higher tax bills for those businesses. Data show that in 2022, marijuana businesses paid nearly $2 billion more in federal taxes compared to “ordinary businesses.”
State cannabis tax
However, some states have taken steps to alleviate this burden by decoupling from 280E. This means cannabis businesses operating in certain states can deduct certain business expenses on state tax returns.
- For example, Virginia, Massachusetts, Missouri, and Maryland are recent states that have excluded IRC 280E from their tax codes.
- But, according to the cannabis advocacy organization the Marijuana Policy Project, several other states, including but not limited to California, Colorado, Connecticut, New York, and Oregon, have eased state tax restrictions related to 280E.
It’s important to note that not all states have implemented decoupling measures. So, without the DEA marijuana reclassification change, cannabis businesses in those states would remain subject to the full impact of Section 280E on federal and state tax bills.
Biden marijuana proposal: Bottom line
As the DEA moves forward with the regulatory process, which could take some time, stakeholders should monitor any developments.
For example, on May 1, Sen. Cory Booker (D-NJ), Majority Leader Chuck Schumer (D-NY), and U.S. Senate Finance Committee Chairman Ron Wyden (D-Ore.) reintroduced the Cannabis Administration and Opportunity Act. The legislation proposes to end the federal prohibition of cannabis.
In the meantime, cannabis businesses should continue to navigate Section 280E, seeking guidance from qualified tax professionals to optimize tax strategies and ensure compliance with applicable and evolving regulations.
Related
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.

As the senior tax editor at Kiplinger.com, Kelley R. Taylor simplifies federal and state tax information, news, and developments to help empower readers. Kelley has over two decades of experience advising on and covering education, law, finance, and tax as a corporate attorney and business journalist.
-
The Y Rule of Retirement: Why Men Need to Plan Differently
If you have a Y chromosome (because you're a guy), following the 'Y rule of retirement' can help you transition to this new life stage with grace.
-
Retire on This Island for Mediterranean Living on the Cheap
This independent nation has a lower cost of living and more visa options than many of its Mediterranean cousins.
-
Texas Sales Tax-Free Weekend 2025
Tax Holiday What you need to know about the Texas sales tax holiday.
-
Retirees Should Watch These Four Key Tax Changes in 2025
Tax Changes This year brings key tax changes that could affect your retirement taxes and income.
-
The Most Tax-Friendly State for Retirement in 2025: Here It Is
Retirement Tax How do you retire ‘tax-free’? This state doesn’t tax retirement income, has a low median property tax bill, and even offers savings on gas. Are you ready for a move?
-
Tariff Stimulus Checks Coming? New Proposal Seeks Tax Rebates for US Workers
Tax Breaks A new GOP bill proposes to send $600 in tariff rebate checks to eligible taxpayers. Is there a catch?
-
Biggest Winners and Losers in Trump's New Tax Plan
Tax Law Trump’s mega tax overhaul, known as the ‘One Big Beautiful Bill,’ has distinct winners and losers. Which group do you fall into?
-
Five Ways Trump’s 2025 Tax Bill Could Boost Your Tax Refund (or Shrink It)
Tax Refunds The tax code is changing again, and if you’re filing for 2025, Trump’s ‘big beautiful’ bill could mean a bigger refund, a smaller one or something in between next year. Here are five ways the new law could impact your bottom line.
-
New SALT Deduction Could Put Thousands Back in California Homeowners’ Pockets
Tax Breaks The federal state and local sales tax (SALT) deduction cap is higher this year, and could translate into bigger savings for Golden State homeowners.
-
Money for Your Kids? Three Ways Trump's ‘Big Beautiful Bill’ Impacts Your Child's Finances
Tax Tips The Trump tax bill could help your child with future education and homebuying costs. Here’s how.