This is the single biggest swing factor in cannabis business valuation right now, and it changed dramatically in 2026.
What 280E used to mean. Section 280E of the federal tax code disallows ordinary business deductions — rent, payroll, marketing — for any business trafficking in a Schedule I or II controlled substance. Because cannabis was Schedule I, operators could only deduct cost of goods sold, which pushed effective tax rates far above what a normal business pays. This is the reason cannabis valuations have historically looked different from valuations in any other industry.
What changed. On April 22, 2026, the DOJ rescheduled state-licensed medical marijuana from Schedule I to Schedule III. Because 280E only applies to Schedule I and II substances, that order removed the deduction disallowance for state-licensed medical cannabis businesses going forward — a material improvement in after-tax cash flow for operators who qualify.
The catch for New Jersey. That relief currently applies to medical operations only. Recreational (adult-use) cannabis remains Schedule I and is still subject to 280E. Since most NJ-CRC retailers are dual-licensed for both medical and adult-use sales, a dispensary's tax position — and therefore its true after-tax value — now depends on how its revenue splits between the two, pending IRS guidance on how to apportion expenses between medical and adult-use activity within the same business.
What's still moving. DEA hearings that could extend Schedule III status to recreational cannabis began June 29, 2026, and are underway now. If that happens, a final rule could arrive as early as late 2026, though legal challenges could push it well beyond that. Nothing here is finished law yet.
What this means for a deal today. A buyer evaluating a NJ dispensary should ask for a revenue breakdown between medical and adult-use sales, and should have a cannabis-experienced CPA model the business's likely tax position under current rules — not last year's rules. A seller with a strong medical patient base may be sitting on a more valuable business than the topline numbers suggested a year ago.
Bottom line. This is a fast-moving area of tax law. Treat any 280E-related figure in a CIM or valuation as a snapshot, not a permanent fact, and always confirm current treatment with tax counsel before finalizing price.