The cannabis and psychedelics industries are currently subject to one of the most punitive tax codes in the U.S. Internal Revenue Code § 280E, which disallows deductions and credits for businesses trafficking in Schedule I or II controlled substances. Most cannabis operators have resigned themselves to this burden, awaiting the DEA’s decision to reschedule cannabis to Schedule III following a historic recommendation by the Department of Health and Human Services (HHS). But a recent forthcoming article in the Yale Law Journal Forum, Separation of Drug Scheduling Powers by Mason Marks, may offer the most significant legal justification to date for operators to challenge 280E proactively, rather than passively waiting on DEA action.

HHS Has Final Say on Scientific and Medical Scheduling

Marks’ analysis of the CSA and its legislative history clarifies that Congress deliberately split authority over drug scheduling between the Department of Justice (DOJ)/DEA and HHS. Specifically:

• HHS is granted exclusive authority over scientific and medical determinations.

• The DEA’s role is limited to nonmedical, law enforcement-related considerations.

• HHS recommendations on scientific matters are binding on the DEA under 21 U.S.C. § 811(b).

• HHS possesses not only a control veto (to stop a drug from being scheduled) but also a scheduling veto (to prevent movement between schedules contrary to scientific advice).

Despite this statutory structure, decades of bureaucratic drift and judicial deference to DEA interpretations have led to law enforcement dominance over drug scheduling. As a result, cannabis and substances like psilocybin remain scheduled inconsistently with both science and public health considerations.

The Misapplication of 280E in Light of HHS’s Determination

The IRS’s application of 280E hinges on a key assumption: that cannabis is a Schedule I drug under federal law. But if DEA lacks independent authority to schedule drugs contrary to binding HHS recommendations, then once HHS recommended moving cannabis to Schedule III, that decision should have been final, especially if DEA has no legal discretion to override it.

The Yale article asserts that:

• Courts have wrongly allowed DEA to perform its own scientific analyses and ignore HHS recommendations.

• HHS’s August 2023 recommendation to reclassify cannabis to Schedule III was based on robust scientific review and a new two-part test for “currently accepted medical use” that no longer depends on FDA approval.

• OLC (Office of Legal Counsel) has tried to limit the binding nature of HHS’s recommendations to pre-rulemaking stages, but this interpretation contradicts the CSA’s plain language and legislative history.

Implications for Cannabis Operators: Time to Challenge 280E

If HHS holds ultimate scientific authority, and if its recommendation to reschedule cannabis is indeed binding under the CSA, then 280E arguably no longer applies to cannabis, regardless of whether DEA has completed rulemaking. This view radically shifts the legal terrain and offers cannabis operators a defensible rationale for:

• Filing amended tax returns that claim deductions previously disallowed under 280E.

• Using 471(c) and other accounting methods to recharacterize expenses.

• Proactively excluding 280E adjustments from current and future returns.

Cannabis companies can no longer afford to wait. Leading multistate operators like Trulieve and Curaleaf have already filed amended returns and are taking the position that 280E no longer applies. The legal scholarship now supports this strategy, not just as a tax position, but as a necessary correction of a constitutional and administrative misinterpretation that has harmed public health and economic development for decades.

Conclusion: The Time for Passive Compliance is Over

Mason Marks’ essay makes it clear: the CSA does not give DEA the last word on drug scheduling, HHS does. The idea that we must wait for DEA rulemaking to resolve the application of 280E is a fiction that only continues to harm legitimate businesses. The statutory tools, legal reasoning, and public health imperatives now all point toward the same conclusion: cannabis operators have every right, and perhaps a fiduciary duty, to challenge 280E by filing amended returns and claiming their full tax deductions.

See Separation of Drug Scheduling Powers, by the THE YALE LAW JOURNAL FORUM: