The One IRS Rule Keeping Cannabis Stocks Down Despite Record Cash Flow

"President Trump signed an executive order in December 2025 directing the DOJ to complete rulemaking to move marijuana from Schedule I to Schedule III "expeditiously." That order does not reschedule cannabis on its own, and the DEA administrator has publicly opposed legalization. Prediction market traders on Polymarket put the odds of rescheduling by March 31 at under 3%, but by June 30 at 30.5% and roughly even odds by year-end."

"Rescheduling to Schedule III would automatically eliminate Section 280E, the IRS provision barring cannabis companies from deducting ordinary business expenses. For multi-state operators, this is the difference between taxable income on gross profit versus actual earnings. The operators inside MSOS are carrying that weight now."

"Trulieve reported a record $228.6M in full-year free cash flow in 2025 but still carries $668M in uncertain 280E tax liabilities. Green Thumb Industries CEO Ben Kovler said, "our stock price continues to serve as a barometer for federal action." Curaleaf and Verano are both navigating debt refinancing and price compression with no 280E relief in sight."

Retail options traders are making aggressive bullish bets on the AdvisorShares Pure US Cannabis ETF (MSOS), driven by speculation around federal cannabis rescheduling. President Trump's December 2025 executive order directed the DOJ to move marijuana from Schedule I to Schedule III, though prediction markets estimate only a 3% probability by March 31, rising to 30.5% by June 30. The key driver for investor interest is Section 280E, an IRS provision that prevents cannabis companies from deducting ordinary business expenses. Rescheduling to Schedule III would automatically eliminate this provision, transforming taxable income calculations for multi-state operators like Trulieve, Green Thumb Industries, Curaleaf, and Verano, which currently carry substantial uncertain tax liabilities.

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