D.C., New Jersey and New York: Three Markets, Three 280E Realities

For years, Section 280E was one of the few financial problems every state-legal cannabis operator shared. Cannabis remained Schedule I federally, and ordinary business deductions were generally off limits.

That changed in April 2026, but not evenly, because 280E still applies to businesses trafficking in Schedule I or II controlled substances; the split created two tax realities inside the same industry. The order says holders of state medical marijuana licenses “will no longer be subject” to 280E, while adult-use operators remain exposed. 

The practical question is now what activity a business is licensed to conduct and whether its financial systems can prove the distinction.

Washington, D.C., New Jersey and New York show how different the answer can be.

D.C.: a medical market by political accident

Washington, D.C. may have ended up in the most unusual position.

District voters approved adult-use legalization more than a decade ago, but Congress repeatedly blocked D.C. from using local funds to create a regulated recreational market through the Harris rider. D.C. expanded the medical cannabis market instead, an aftermath of the Gift economy that ruled during the early days.

Adults can self-certify for medical use, and non-D.C. residents can obtain temporary patient registrations the same way. Access may look less restrictive than “medical” suggests, but the licensed market remains medical.

That distinction suddenly became financially important on April 28.

As of today, ABCA reported 65 operating medical retailers in July 2026 and about $6.6 million in dispensary sales. More than $2 million of that came from temporary self-certified patients, meaning visitors accounted for roughly one-third of monthly dispensary revenue.

So, a paradox has emerged: a structure created partly because Congress prevented D.C. from licensing adult-use cannabis now places its regulated operators on the medical side of the new federal tax divide.

But 280E relief does not eliminate federal compliance requirements. Medical operators moving into Schedule III are also subject to the DEA registration system, generally on a location-by-location basis.

Cultivators face another federal layer: a Single Convention mechanism requiring registered manufacturers to set a nominal price at which DEA formally purchases their crop and sells it back at the same price plus an administrative fee.

D.C. therefore shows both sides of the change: a potentially major tax advantage for its operators paired with a new federal compliance obligation.

New Jersey: the problem is allocation

New Jersey shows why separating medical and adult-use activity becomes harder inside a mixed market.

The state allows Alternative Treatment Centers to expand from medical into adult-use sales. The same operation can therefore support both sides of the business simultaneously. But while revenue separates at the register, shared costs do not.

If medical activity is no longer subject to 280E but adult-use activity still is, how much of the store manager’s salary belongs to each? What about rent, insurance, software, security or corporate overhead? A revenue percentage may be reasonable for one expense and a poor representation for another.

The state recently reported more than $1.16 billion in cannabis sales in 2025, with adult-use accounting for the overwhelming majority. Certified totals put recreational sales at roughly $1.118 billion and medicinal sales at about $46.2 million.

Treasury and the IRS say forthcoming guidance is expected to address businesses with multiple activities through apportionment of expenses and will include a transition rule generally covering the full taxable year containing the effective date. What operators still do not have is a universal allocation formula.

New Jersey operators are therefore uncertain about whether and how the books can support 280 relief. A dual-market operator needs to identify revenue and direct costs by activity and apply defensible methods to shared expenses. If those distinctions are reconstructed only at tax time, the accounting system is already behind the tax question.

New York: growth without the tax reset

New York sits closer to the other end of the spectrum.

The state still has a medical program, but the commercial market is overwhelmingly adult-use. OCM’s July 2026 board materials show 683 adult-use dispensaries operating in June, compared with 26 medical dispensaries. Combined retail sales reached $895.4 million through the first half of the year. June alone generated $157.8 million, of which $153.2 million came from adult-use sales.

For most of the market, then, April 28 did not remove 280E.

New York is also beginning to look like a maturing market. OCM reported that the average adult-use price per unit fell 6.9% from January through June while units sold per store rose 6.2%: more product moving, at lower prices.

A growing top line can hide weaker economics when prices compress, fixed costs remain high and ordinary operating expenses are still restricted federally. For adult-use retailers, understanding contribution by store, product or category becomes more important precisely because the medical tax benefit does not apply.

We Help You Deal With Uncertainty

Operators also should not treat the April change as settled.

First, because the order is under challenge in the D.C. Circuit through three consolidated petitions, with a stay motion pending. Separately, DEA’s broader marijuana rescheduling proceeding remains unresolved and could eventually erase much of today’s medical-versus-adult-use distinction.

Tax timing is unfinished too. The April order encouraged Treasury to consider retrospective 280E relief for years in which businesses operated under state medical licenses. Treasury has described an expected current-year transition rule, but has not adopted that broader retrospective relief.

Operators cannot control how those proceedings end. They can control whether their numbers are ready for more than one outcome.

That means keeping medical and adult-use revenue identifiable, tracing direct costs to the activity that generated them, establishing consistent allocation methods for shared expenses, and making sure inventory, payroll and entity structures tell the same story as the licenses under which the business operates.

D.C., New Jersey and New York now demonstrate three versions of the same federal policy: a medical market positioned for substantial 280E relief, a mixed market where relief depends on separating activities, and an adult-use-dominated market where the old tax constraint largely remains.

Verdant Strategies works with cannabis operators to build accounting, tax and reporting systems that can withstand exactly this kind of regulatory change. If your business spans medical and adult-use activity, multiple entities or multiple states, now is the time to make sure the way your numbers are structured matches the way your business is actually regulated. Contact Verdant Strategies to review where your current reporting and tax structure may need to adapt.