The process of rescheduling cannabis from Schedule I to Schedule III has been restarted via Executive Order. Will Schedule III finally make it easier for dispensary and delivery businesses to turn a profit? Let's dive in.
Rescheduling: A (Potential) Tax Lifeline for Dispensaries
On December 18th, 2025, President Trump signed an executive order stating:
The Attorney General shall take all necessary steps to complete the rulemaking process related to rescheduling marijuana to Schedule III of the CSA in the most expeditious manner in accordance with Federal law.
Why does this matter to dispensaries? Tax relief.
Right now, cannabis being Schedule I means IRS Code Section 280E hits you hard. This prevents cannabis businesses from deducting most ordinary business expenses on federal taxes. You pay tax on gross profit rather than net, leaving some effective tax rates well north of 50% for legal operators. Unlike a typical retailer, you can’t write off rent, payroll, or even your office supplies.
If cannabis moves to Schedule III, 280E would no longer apply to state-licensed cannabis businesses. If finalized, 280E relief would likely apply beginning in the tax year the final rule takes effect. That means you could finally deduct normal expenses like any other business, including costs like marketing and your point of sale software. Dispensaries can keep much more of their revenue, rather than sending an outsized chunk to the IRS. The impact on margins would be huge.
One industry expert said this change would provide “immediate margin and cash-flow relief” and could be “the difference between survival and investment” in growth for plant-touching companies (source: mjbizdaily.com).
That said, a word of caution: Schedule III is not the same as full legalization. An executive order or DEA rulemaking won’t flip a switch overnight. If followed, the normal process of proposed rule → comment/hearing → final rule, takes time to implement and might face legal or political challenges.
It’s wise to stay informed but not count your tax breaks, yet. Plan for relief, but continue to operate efficiently.
Banking Remains a Bottleneck (Reschedule or Not)
If you’re hoping rescheduling will solve the other massive headache of banking and payments, here’s a reality check: it won’t, at least not by itself.
The reason is that banks and credit unions still face federal risks servicing our industry as long as cannabis is illegal at the federal level (Schedule III would still mean cannabis is controlled, just in a lower category).
For years, the SAFE Banking Act (now the SAFER Banking Act) has dangled the hope of fixing this. Yet as of December 2025, it’s still not law. It’s been proposed, debated, even passed in some form multiple times, but never fully enacted.
Without a specific safe harbor in federal law, most banks will remain very cautious about cannabis accounts.
Many operators are forced to either operate mostly in cash, or use workarounds and pay high fees to the few financial institutions willing to take the risk and have the compliance resources. This isn’t just an inconvenience, it’s a security risk and an extra cost.
Cash-heavy operations make dispensaries targets for theft and add expensive measures for safekeeping daily cash drops. As one former state regulator testified in Congress, running on cash creates “a significant public safety risk and an economic burden on small businesses that already operate on thin margins.”
Bottom line: true banking relief likely requires Congress to act. Rescheduling may encourage more banks to explore cannabis clients (since the legal climate would be slightly less murky), but meaningful change, like access to loans, credit card processing, and normal business banking, depends on legislation that explicitly shields banks. Lawmakers from both parties know this is an issue impacting thousands of state-legal businesses. It’s possible that pressure will mount in 2026 to finally pass banking reform.
Why the Economics of Running a Dispensary Are So Tough
Running a compliant cannabis retail business today is hard, financially and operationally. Let’s unpack why dispensary margins are so thin:
- Sky-High Taxes: Many states impose hefty excise taxes, local cannabis business taxes, and other fees.
- Costly Compliance: Legal cannabis is one of the most regulated industries. As a retailer, you shoulder costs for licensing, seed-to-sale tracking systems, security and surveillance requirements, lab testing (passed on from your suppliers), child-proof packaging rules – the list goes on. While these regulations serve public safety and accountability, they raise operating costs and lower margins.
- Falling Prices & Thin Margins: In many mature markets, cannabis prices have been dropping due to increased competition and oversupply. Good for consumers, but tough for you. If you’re constantly forced to lower prices or run promotions to attract customers, your margins shrink. Competing on price alone is usually a race to the bottom. Many dispensaries have learned that chasing cheapest prices isn’t sustainable without major scale or efficiency advantages.
- Illicit Market Competition: Despite legalization, the underground market hasn’t gone away – in some places it’s thriving. Why? Illicit sellers ignore all the costs listed above, so they can charge lower prices (often without testing or safety, but many consumers will still chase a bargain).
- Limited Financing Options: Traditional financing is largely closed off. Forget SBA loans or lines of credit; most cannabis entrepreneurs rely on private investors, loans with high interest rates, or their own cash to expand or weather hard times. Those investors, in turn, expect big returns, putting pressure on companies to grow fast. It’s a fragile balancing act. And if you’ve been operating on razor-thin cash flow, you don’t have a cushion when surprises hit (a bad crop year affecting supply, a new competitor opening next door, a pandemic – you name it).
Given all these challenges, it’s not surprising that only ~27% of dispensaries are profitable today. By comparison, about 65% of small businesses across the country are profitable in a typical year.
The cannabis retail industry is an outlier, and not in a good way. Heavy taxation, regulation, and market dynamics have created an environment where doing the right thing (being a legal, compliant operator)often means fighting uphill for profitability.
What 280E does to dispensary profits
This chart from Headset shows how Section 280E impacts the typical cannabis retailer’s net profit across multiple U.S. markets. In several states, the 280E tax burden exceeds current net profit entirely, pushing otherwise viable businesses into the red.
Practical Tips and Next Steps
How can you plan when the rules might change, but you have to survive right now? Here are a few thoughts to consider:
- Stay Informed, But Don’t Operate on Rumors: It’s wise to keep an eye on federal developments; rescheduling is closer to reality now, and banking reform could still pass in the near future. But until laws actually change, continue running your business efficiently under current conditions. Don’t make drastic moves. Hope for the best, plan for the status quo.
- Optimize for Efficiency: In this tight margin environment, every percentage point counts. Look for ways to streamline your operations and cut costs without cutting the customer experience. This could mean refining staff schedules, negotiating better terms with suppliers, or adopting technology to automate manual tasks. For example, making sure your POS system integrates seamlessly with compliance tracking can save you hours of admin work (hours better spent on sales and marketing). Reducing overhead and improving operational efficiency will position you to actually profit if and when tax burdens lighten later.
- Differentiate Beyond Price: Competing on price alone is a losing battle in the long run. Instead, focus on what else sets your dispensary apart. Is it your curated product selection? Is it the fastest delivery in town? Is it an exceptional customer experience with knowledgeable budtenders and personalized service? Perhaps it’s your loyalty program or community engagement. Give customers reasons to choose you over the shop down the street, reasons other than just a lower sticker price. Loyal customers will stick with you if they feel value that goes beyond a few dollars saved.
- Plan for Tax Changes: It’s smart to start scenario-planning with your CPA (e.g., how you currently allocate COGS; readiness to change accounting treatment if 280E goes away). What would you do first – lower prices to be more competitive (and maybe win back some illicit-market customers), invest in growth, or simply shore up your savings? Having a plan means you can act quickly to capitalize on any relief that comes. Also, ensure your books are clean and meticulous; if 280E changes, there may be opportunities (or requirements) to amend how you file.
- Take Care of Your People: Through all these challenges, remember your team. Retaining good staff can actually save money (turnover is expensive) and help weather hard times. Keep them informed about what’s going on, incentivize performance and loyalty where you can, and foster that sense of we’re all in this together. A motivated, well-informed team will keep your customers happy and operations smooth even when margins are thin.
Lastly, remember that community is strength. Talk to fellow operators. Share what’s working and what’s not. The operators who weather tough markets best are rarely doing it alone. Many challenges you face, from compliance to crafting a sensible discount strategy, are being faced by others. By banding together, the industry has a louder voice to push for the reforms we need, and you might pick up a few tips or partnerships that make life easier at the ground level.
Closing Thoughts
Owning a cannabis retail business sometimes feels like running a marathon with ankle weights on in the desert. The economics are challenging and the regulatory climate adds extra headwinds. Change is in motion. The fact we’re even talking about federal rescheduling and banking bills in serious terms shows how far our industry’s come.
I’m optimistic that we’ll see these long-awaited changes become reality – lifting tax burdens, easing banking woes, leveling the playing field, and opening doors that have been closed for too long.
In the meantime, know that we at Meadow understand what you’re up against. Every day, our team works with dispensaries and delivery services striving to stay compliant, efficient, and profitable in this wild environment. We see your hard work and ingenuity.
It’s our mission to support cannabis retailers through software, services, and education – essentially, to take away the fear and stress that come with compliance, audit readiness, and operations, so you can focus on thriving.
At the end of the day, despite the challenges, you’re part of a movement: a legal, sustainable cannabis ecosystem that treats patients and customers well and operates with integrity.
That vision keeps me motivated every day. With smart strategy, community support, and (hopefully) a little relief from Washington soon, I believe your dispensary can not only survive, but truly prosper in the years ahead. And we’ll be right there with you on that journey.
Keep pushing, stay safe, and as always, let’s grow this community together.
