The legal cannabis industry has generated billions in revenue for years – and paid taxes on most of it, without deducting the standard business expenses that every other legal industry takes for granted.
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A new analysis by GreenWave Consultants shows that a federal tax rule written for drug dealers has cost the cannabis industry billions. Reprogramming 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 result: operators owed taxes on gross profit, unable to deduct the normal business expenses (such as rent, payroll or utilities) that every other legitimate industry takes for granted.
On April 23, 2026, Deputy 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. Recreational cannabis remains in Schedule I, at least until a scheduled June 29 administrative hearing to consider whether broader rescheduling should be implemented for all marijuana.
For state-licensed medical operators, it opens the door to 280E relief and represents, as many legal analysts have noted, the most consequential change in federal marijuana law in more than 50 years.
The order comes at a time of compounding pressure for cannabis operators. As reported Thursday, the price squeeze has already squeezed margins across the industry: only 27.3% of US cannabis operators were profitable in 2024, with approved supply capacity estimated at about 600% of legal demand and 225% of total demand, including illegal, according to Whitney Economics. The removal of the 280E, if fully implemented, would face a significant structural disadvantage. It wouldn’t appeal to all of them.
A new analysis from GreenWave Advisors, a cannabis-focused investment firm, attempts to quantify what that could mean. The numbers tell a different story.
The scale of the distortion
According to GreenWave’s modeling, the US hemp industry incurred an estimated $9 billion in income tax expenses attributable to 280E over the period 2023-2025, based on assumed gross margins of 50% among operators. For the top eight multi-state operators, each generating more than $200 million in annual revenue, the firm estimates that those companies could have seen as much as a 57% increase in net income in 2025 in the absence of the provision. Total cash flow from operations would be about 29% higher on a cumulative basis from 2019 to 2025, according to the company’s analysis.
The individual image of the company is impressive. Green Thumb Industrieswhich reported $114.2 million in net income in 2025, would have had $189.2 million without the 280E, GreenWave estimates, a 66 percent increase. Trulievewhich reported a net loss of $116 million in 2025, would have become profitable at $30.4 million under the same scenario. by Curaleaf Reported net losses of $201.9 million in 2025 are narrowed to $67.7 million. The full cohort analyzed by GreenWave includes Cresco Labs, Verano, Terrascend, Ascend and Jushi.
Top multistate carriers, net income as reported and excluding 280E, 2023-2025.
Source: Company filings; Estimates by GreenWave Advisors.
Is retroactive relief really coming?
The potential impact goes beyond quarterly earnings. The report estimates about $1.9 billion in unpaid 280E obligations among the top eight MSOs for 2023-2025, amounting to about $2.1 billion in accrued interest and penalties. THE final order encourages Treasury to consider providing retroactive 280E relief for prior tax years in which companies operated under state medical licenses. On the same day, the Treasury Department and the IRS announced that the upcoming guidance will include a transition rule that will apply relief to the entire taxable year that includes the order’s effective date, making January 1, 2026, the effective date for calendar year taxpayers. The AICPA previously recommended that. Whether this relief will be extended to tax years before 2026 remains the central unresolved question.
Uncertain tax positions related to 280E, MSOs with 2025 revenues over $200 million.
Source: Company filings; Estimates by GreenWave Advisors.
The report also estimates about $320 million in deferred tax value from net operating losses accumulated by the top eight operators over the period 2023-2025. If fully liquidable, these assets could provide additional upside in valuations, although the actual NOL value depends on annual utilization limits if ownership changes occur and each company’s ability to generate sufficient future taxable income.
“The repeal of Section 280E should serve as a substantial catalyst for increased M&A activity in the cannabis sector,” GreenWave founder Matthew A. Karnes wrote in the report, “as improved after-tax cash flow, reduced tax uncertainty and improved access to capital markets are likely to support higher transaction volumes and more.
What could possibly go wrong
The case for caution is real. Retroactive relief is not guaranteed. The Treasury has yet to issue guidance and the scope of any review period remains an open question.
The government’s own actions in recent weeks suggest that the road is not straightforward. On May 18, the Ministry of Justice filed a lawsuit against TerrAscend, one of eight companies in GreenWave’s analysis, in New Jersey federal court, seeking to recover an $8.36 million refund from the IRS issued after the company filed an amended 2020 return claiming $64 million in business deductions. This is exactly the kind of retroactive claim the industry has filed in anticipation of relief. The Justice Department argued that these reductions were impermissible under 280E because cannabis was a Schedule I controlled substance in 2020. The Business of Cannabis reported It is the first known 280E refund clawback of its kind and that industry-wide retroactive tax exposure among publicly traded MSOs had reached $1.6 billion by early 2026.
In his most recent quarterly report submitted to securities regulatorsTerrAscend said the company “believes it has substantial defenses to the allegations made and intends to vigorously defend its position,” citing the recent rescheduling of medical cannabis as part of its defense rationale.
The IRS has been flagging this position since at least June 2024, when issued a bulletin stating that operators who file amended returns for the 280E claim exemption “are not entitled to a refund or payment” and that “the IRS is taking steps to address these claims.” A separate challenge for the 280E is also working through it US Tax Court — New Mexico Top Organics v. Commissioner — where the IRS issued a strong hint in March 2026 rejecting arguments that the provision should not apply to state-licensed operators of medical cannabis. The plaintiff then filed a new brief on May 18 arguing that the April reorder strengthens its position, adding a new dimension to a case that could help define the limits of retroactive relief.
The current redistricting order only covers state-licensed medical cannabis. Adult operators, who represent the majority of the cannabis trade in the US, remain in Schedule I and outside the immediate scope of the 280E exemption. The company’s analysis also assumes a uniform gross margin of 50% across operators, a figure that varies significantly across companies and markets. Whether investors have already priced in some or all of the expected relief is a further variable that could reduce the practical impact on valuations.
The provision also leaves broader criminal justice issues unresolved. It does not overturn prior federal convictions, grant leniency to people currently incarcerated on cannabis charges, allow interstate commerce, or change federal workplace drug testing policies. For the communities most affected by the criminalization of cannabis, the financial relief flowing to licensed operators represents specific industry reform rather than a broader resolution to the legacy of prohibition.
What comes next
The June 29, 2026 administrative hearing could expand the picture. The DEA set that session to consider whether the broader rescheduling of all marijuana, including recreational, should proceed through formal rules. If this happens, the world of operators eligible for 280E relief will increase significantly. If stopped, adult operators could be at a structural disadvantage to their medical peers for years.
GreenWave’s financial estimates are modeled projections based on publicly available corporate records and stated assumptions, not audited data. The company’s disclaimer notes that related parties may hold positions in the securities discussed. All figures should be considered indicative estimates subject to pending IRS guidance, the scope of retroactive measures and the outcome of the June 29 hearing.
What the analysis suggests, even tentatively, is that the financials of cannabis companies have long told a more complicated story than meets the eye. For years, investors have evaluated these companies based on a tax structure that does not exist anywhere else in the legal economy. Section 280E didn’t just cost the industry money. It distorted the metrics that investors, analysts and lenders used to assess whether these businesses were viable at all. With this distortion removed, the industry may not just get a tax break. He may be getting an accurate balance sheet for the first time.
