YOUR BOOKS ARE ABOUT TO MATTER MORE THAN EVER, ARE YOU READY?

If you're running a cannabis business right now, you've probably heard the buzz: Schedule III rescheduling is happening. And with it comes the end of Section 280E, the tax code provision that's been bleeding your profits dry for years.

But here's the thing most people aren't talking about: the businesses that win big from this change won't be the ones who wait. They'll be the ones who prepare their accounting now.

In this guide, we'll cover:

• What Schedule III actually means for your books
• Why 280E relief changes everything about expense reporting
• How to transition to standard GAAP practices
• Documentation strategies that protect you during the shift
• When to bring in expert help (and how to avoid overpaying)

Let's break it down.

What Schedule III Really Means for Your Accounting

Let's start with the basics, because if you don't understand the "why," the "how" won't stick.

For years, cannabis businesses have operated under Section 280E of the Internal Revenue Code. This nasty little provision says that any business trafficking in Schedule I or II controlled substances cannot deduct ordinary business expenses.

Read that again. You can't deduct marketing. You can't deduct accounting. You can't deduct advertising or office supplies.

The result? Cannabis businesses have been paying effective tax rates of 60-80% in some cases. It's brutal.

Once cannabis moves to Schedule III, 280E no longer applies to your operation.

This means you'll finally be able to deduct standard business expenses under Section 162, just like every other legitimate business in America. We're talking about a fundamental shift in how you report income, calculate taxable profit, and manage cash flow.

But here's the catch: your accounting systems need to be ready to handle this change. If your books are a mess right now, you won't be able to capitalize on this opportunity cleanly.

Step 1: Audit Your Current Financial State

Before you can move forward, you need to know exactly where you stand. This isn't the time for guesswork.

Start with a complete reconciliation of all accounts:

• Bank accounts (every single one)
• Credit card statements
• Accounts receivable and payable
• Inventory records
• Payroll records
• Loan balances

I've walked into cannabis operations where the owner thinks they know their numbers, but the books tell a completely different story. Inventory discrepancies of $50,000 or more aren't uncommon. These gaps will become major problems when you're trying to claim legitimate deductions under the new rules.

Pro tip: If you haven't reconciled your accounts in 90+ days, you're already behind. Block off time this week to get current.

Step 2: Transition to GAAP-Compliant Practices

If you're serious about growing your cannabis business, or positioning it for acquisition, investment, or banking relationships, you need to be thinking about Generally Accepted Accounting Principles (GAAP).

GAAP compliance isn't just about looking professional. It's about creating financial statements that banks, investors, and potential buyers can actually trust.

Key GAAP practices to implement:

1. Accrual-based accounting – Record revenue when earned and expenses when incurred, not just when cash changes hands
2. Consistent depreciation methods – Apply the same approach across all fixed assets
3. Proper inventory valuation – Use FIFO, LIFO, or weighted average consistently
4. Clear revenue recognition – Document when and how you recognize sales
5. Regular financial statement preparation – Monthly P&L, balance sheet, and cash flow statements

Many cannabis businesses have been operating on cash-basis accounting because it was simpler. That's fine for small operations, but as 280E relief opens up new opportunities, you'll want the sophistication that accrual accounting provides.

Step 3: Build Your Documentation Trail

Here's something we tell every cannabis operator we work with: the IRS doesn't care what you say happened, they care what you can prove happened.

With Schedule III rescheduling, you're going to be claiming deductions you've never claimed before. That means you need bulletproof documentation.

Essential records to organize:

• All vendor invoices and receipts
• Employee timesheets and payroll records
• Lease agreements and utility bills
• Marketing contracts and advertising invoices
• Equipment purchase documentation
• Vehicle logs (if claiming business use)
• Travel and entertainment records with business purpose noted

Create a system, digital or physical, where every expense has a corresponding document. If you can't prove it, you can't deduct it. Period.

Step 4: Review Your Tax Positions and Estimates

This is where things get strategically interesting.

The timing of Schedule III implementation matters for your tax planning. Depending on when the change becomes official, you may need to revisit your overall tax strategy for 2026 and beyond

A word of caution: Don't get too aggressive too fast. The IRS will be watching cannabis businesses closely during this transition. Make sure every deduction you claim is legitimate, well-documented, and defensible.

This is one area where having experienced guidance really pays off. The difference between aggressive-but-legal tax strategy and reckless positioning can be hundreds of thousands of dollars, or worse, an audit.

Step 5: Prepare for Better Banking Access

Schedule III rescheduling doesn't just affect your taxes. While in and of itself Schedule III rescheduling will not change anything from a banking or merchant processing perspective (cannabis will still be federally illegal and that means all of the banking restrictions that comes along with that), it will change the opinions of some financial institutions that have been largely closed to cannabis operators. And it very likely could lead to the Safe Banking Act being passed, which will completely change banking and credit card access.

Over time, either now or in the future, banks and credit unions will become more willing to work with cannabis businesses. That means:

• Traditional business bank accounts
• Lines of credit and business loans
• Merchant services for card processing
• Payroll services from mainstream providers

But here's the thing: these institutions will want to see clean, professional financial records before they work with you. If your books are a mess, you won't qualify for the best rates and services.

The accounting cleanup you do now directly impacts the financial opportunities available to you later.

When to Bring in Expert Help

Look, we get it. You started a cannabis business because you're passionate about the plant, the industry, the opportunity. You didn't get into this to become an accounting expert.

Here's our honest take: if your annual revenue is over $500K, you probably need professional help with this transition.

The stakes are too high and the rules are too complex to wing it. A single misclassified expense or documentation gap could cost you tens of thousands in disallowed deductions, or trigger an audit.

At Buds Group, our senior advisors have 15-20+ years of experience in finance, accounting, and cannabis operations. We've helped businesses of all sizes, from single-location dispensaries to multi-state operators, get their books ready for exactly this kind of transition.

What makes us different? We provide hands-on, implementation-focused support at better rates than the big accounting firms. We're not here to send you a fancy report and disappear. We roll up our sleeves and help you actually fix things.

If you want to learn more about our accounting services or talk strategy with our team, we're here to help.

The Bottom Line

Schedule III rescheduling is coming. The 280E relief that follows will dramatically change the financial landscape for cannabis businesses.

The operators who prepare now, cleaning up their books, transitioning to GAAP practices, building documentation systems, will be positioned to capture every dollar of benefit this change provides.

The ones who wait? They'll be scrambling to catch up while their competitors pull ahead.

Don't be the second group.

Start your accounting preparation today. Your future self (and your accountant) will thank you.

Hey Rick! 👋 Here's your draft for "How to Prepare Your Cannabis Accounting for Schedule III Rescheduling (Step-by-Step)" : a practical, step-by-step guide that walks cannabis operators through getting their books ready for 280E relief.

I kept the tone friendly and approachable while still establishing Buds Group's authority on the subject. The piece covers all the key points from the brief and includes natural CTAs pointing to your accounting services and team pages.

Let me know if you'd like me to adjust the tone, add/remove sections, or tweak anything! 🌿