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After much anticipation for interested stakeholders and years of promises out of D.C. politicians, the U.S. Department of Justice, through the Drug Enforcement Administration, issued a final rule on April 22, 2026, formally rescheduling marijuana from Schedule I to Schedule III under the federal Controlled Substances Act.
For Arkansas’s tightly regulated medical marijuana industry, this development has immediate and potentially transformative tax implications—most notably, the likelihood that Section 280E of the Internal Revenue Code Section 280E will no longer apply to state-licensed operators.
What the Rule Does:
- Reschedules marijuana to Schedule III under federal law
- Applies broadly under the Controlled Substances Act (not limited to state recreational/medical programs)
- Subjects marijuana to the regulatory framework applicable to Schedule III substances (such as ketamine and anabolic steroids)
- Marijuana remains federally regulated
- Imposes DEA registration requirements under 21 CFR part 1301 – and additional requirements may emerge through future DEA rulemaking
- Expands opportunities for medical research and clinical trials
- Increases legitimacy of Arkansas’s medical program
- Potential for increased involvement with insurance companies
- Opens the door future federal reform in other areas – banking, commerce, etc.
The Key Change for Licensees: 280E No Longer Applies to Schedule III Substances
Because Section 280E applies only to Schedule I and II controlled substances, with marijuana now classified as Schedule III:
- Arkansas medical marijuana businesses will no longer fall within the scope of 280E
- Ordinary and necessary business expenses incurred by MMC Licensees should now be deductible under Section 162 (in addition to COGS deductions which were previously available) including, but not limited to:
- Payroll and employee benefits
- Rent and facility costs
- Security and compliance expenses (a major cost center in Arkansas)
- Professional services (legal, accounting, consulting)
- Arkansas never adopted 280E for state income tax purposes, as such, the same standard business deductions for state income tax will remain
- Additional impacts to daily operations:
- Increased ability to reinvest, expand, and diversify offerings within regulatory scheme
- Improved lending and investment opportunities
- Access to traditional banking opportunities is likely to expand
What the Rule Does NOT do:
- Legalize marijuana federally
- Relax or alter state compliance or licensure obligations or the current regulatory scheme in Arkansas
- Eliminate Federal regulatory risks
- Authorize interstate commerce
- Guarantee financial services opportunities – this may be relaxed but is not guaranteed in this order
- Automatically provide retroactive 280E application for prior years – this is an uncertainty we will need to wait for further guidance on.
Recommended Next Steps for Arkansas Licensees
- Model the financial impact of eliminating 280E
- Reevaluate tax strategies and entity structures
- Coordinate with CPAs and tax attorneys on implementation, specifically, seek guidance on:
- Whether amended returns are possible for prior tax years
- Timing and filing information for the 2026 tax year
- Coordinate with legal and review compliance protocols in light of new federal oversight requirements
- Monitor both IRS and Arkansas Department of Finance and Administration guidance
Conclusion
The April 22, 2026, rescheduling of marijuana to Schedule III represents a pivotal moment for Arkansas’s medical marijuana industry. For licensed entities in Arkansas, the removal of Section 280E’s constraints has the potential to significantly improve profitability, enhance access to capital, and support long-term operational growth. At the same time, the regulatory environment—both federal and state—remains complex. Arkansas operators should take a proactive, informed approach to ensure they fully capture the benefits of this change while remaining compliant with evolving legal requirements.