Schedule III Split: Separating Medical and Adult-Use Books Before Dec 31
Accounting · By Headquarters · October 7, 2026
On September 29, Treasury and the IRS released their 2026-2027 Priority Guidance Plan. Item 9 under "Other Priorities" reads, in full: "Guidance under §280E." That one line is the rule dual-license cannabis operators have been waiting on since April, and the plan says plainly that it "does not provide any deadline for completing the projects."
The plan year runs through September 30, 2027. Your 2026 books close on December 31. Every operator with medical and adult-use activity under one roof will close the first year of the split without the rule for splitting it. The ones who come through cleanly will be the ones whose records already show the separation when the guidance lands.
None of this is tax or legal advice. Take it to a cannabis CPA and attorney who know your structure.
What the split already covers
The April 22 order moved marijuana sold under a state medical license to Schedule III. Adult-use stayed on Schedule I. The next day, Treasury and the IRS said rescheduling "will generally be considered to first apply for a business's full taxable year that includes the effective date," which for a calendar-year medical operator means January 1, 2026. The D.C. Circuit declined to pause the order on September 9 while the challenge proceeds.
The same April announcement said the coming guidance would clarify how 280E applies "only to those activities related to trafficking in Schedule I or II controlled substances (e.g., by apportioning expenses)." That's the piece now sitting on the priority plan. A medical-only operator has a fairly clean year. A company with a medical dispensary in one state and adult-use stores in two others has rent, payroll, software and management time that served both, and no official method for dividing them.
The method you pick can move six figures
Take a dual-license operator doing $12M in revenue, $4.8M of it medical (40%). It carries $3M in shared operating expenses outside COGS: rent, store and corporate payroll, marketing, G&A. Under 280E none of that was deductible. Now the medical share is, but how big that share is depends on the method.
| Allocation basis | Newly deductible (medical share of $3M) | Federal tax saved at 21% |
|---|---|---|
| Gross receipts (40% of revenue) | $1.2M | ~$252K |
| Transaction count (30% of tickets) | $900K | ~$189K |
| Square footage (20% of floor) | $600K | ~$126K |
Same business, same year, a $126K swing in federal tax depending on which number you use. The percentages are illustrative. The point is that the methods rarely agree, and each one is easy to defend for some costs and hard to defend for others.
The temptation is to pick the biggest number for everything. Don't. Adult-use activity is still fully under 280E, the IRS does not accept "non-280E" positions, and attorneys report more cannabis audit activity than ever. An allocation that shifts as much as possible to the medical side is exactly the kind of position that needs a written opinion meeting the "reasonable basis" standard. The defensible approach matches each cost pool to the method that actually reflects how it's used: receipts for marketing and processing fees, labor hours for payroll, square footage for rent.
What separation looks like by December 31
Revenue and inventory by channel. Medical and adult-use sales should already be split in the POS and Metrc. Make sure the general ledger shows the same split, by location and by month, not as a year-end journal entry.
Labor coded to the activity it supported. Budtenders who work both counters, a shared inventory team, and corporate staff all need a basis for their split: timesheets, scheduling data or a documented estimate. Rebuilding this next spring from memory is the weakest version.
A written allocation policy for every shared cost. One page per cost pool: which method, why it fits, the data source and who signed off. If the IRS guidance chooses a different method, you'll be adjusting a documented position, not defending a guess.
Separate accounts where you can. Attorneys are giving the same advice for DEA purposes, since DEA registration covers medical activity only. Separate bank accounts, inventory and records serve the tax file and the registration file at the same time.
A chart of accounts that can carry the split. If medical and adult-use expenses post to the same accounts with no class, location or department tag, the separation lives in a spreadsheet outside the books. That's fixable now. It's much harder to fix after the close.
The two dates that matter before the guidance does
December 15. Calendar-year corporations make their fourth estimated payment. April, June and September payments were likely calculated before the split was clear. Have your CPA re-run the 2026 provision using your allocation policy before then.
December 31. The year closes whether the IRS has published or not. If the guidance lands mid-2027 and differs from your method, a clean, documented allocation is a recalculation. A commingled ledger is a rebuild, and possibly an amended return.
The priority plan tells you the rule is coming. It doesn't tell you when. Plan for the year to close without it. The Q4 checklist covers the rest of what to finish by year-end, and the cost of 280E is worth re-reading with this year's numbers in hand.