Section 280E disallows ordinary business deductions for businesses trafficking in Schedule I or II substances, which raises effective tax rates for cannabis operators and lowers after-tax cash flow and value. A December 2025 executive order directed expedited rescheduling; in April 2026 qualifying medical products were placed in Schedule III while adult-use cannabis stayed in Schedule I. Valuation multiples set before the order should be reviewed, not reused.
What 280E does to a dispensary's cash flow
Under 280E, a cannabis business can deduct cost of goods sold but not ordinary operating expenses such as rent, payroll and marketing. Taxable income is therefore far higher than economic profit, and after-tax cash flow is lower than a comparable non-cannabis business would produce.
For a retailer, the gap is severe because retail cost of goods is a smaller share of revenue than it is for a cultivator. The result is an effective tax rate that can exceed the company's actual margin. Buyers price after-tax cash flow, so 280E sits directly on the valuation.
Buyers also test historical compliance. How cost of goods was computed, what was deducted, and whether there is unpaid liability are diligence items that can produce an escrow request or a price reduction.
What changed in December 2025 and April 2026
On December 18, 2025, an executive order directed the Attorney General to expedite rescheduling marijuana from Schedule I to Schedule III. Effective April 28, 2026, the Department of Justice placed FDA-approved marijuana products and products under a qualifying state medical license into Schedule III, with a broader rulemaking hearing scheduled for June 2026.
The consequence for valuation is uneven. Qualifying medical products moved out of 280E's reach. Adult-use cannabis did not, and remains in Schedule I. A dual-license operator faces a cost-allocation question that did not exist before. Withum's February 2026 update put it plainly: transaction multiples established before the executive order should be carefully reviewed.
Sources: Ogletree Deakins on the December 2025 order; the U.S. Department of Justice release on the April 2026 action; Withum, Cannabis Valuation Techniques, 2026 Update.
Why old multiples are stale
Comparable transactions priced under full 280E embedded a tax burden that has partially lifted for medical operators and may lift further. Reusing those multiples understates medical value and may overstate the certainty of adult-use relief. A valuation today should model the company's actual license mix and current tax treatment.
Our approach: normalize cash flow under the tax treatment that applies to the company's actual license mix today, model the scenario in which broader rescheduling completes, and present both to the buyer. The buyer will run the same two cases. Better to have your version on the table first.
We do not publish a projected valuation uplift from 280E relief. No sourced figure exists, and an unsourced one would be a guess dressed as analysis.
Banking has not changed
The SAFE Banking Act of 2026 was reintroduced in the Senate in June 2026. It has passed the House in prior sessions and has never received a Senate floor vote. Cannabis operators remain largely limited in banking and financing, which keeps seller financing, earnouts and real-estate carve-outs central to deal structure.
Source: Senator Merkley's June 2026 press release on the reintroduction.
