If you’re in the cannabis industry, you’ve likely heard of IRS 280E. And if you haven’t, let us tell you about it… it’s a tax code that can make or break your business. As a company that works day in and day out with cannabis operators, and who deeply believe in the power of this plant to heal and improve lives, we want to break this down in a way that’s easy to understand. No accounting jargon, just the facts!

So, What Is IRS 280E?

Section 280E of the Internal Revenue Code was created in the 1980s during the height of the War on Drugs. It was originally intended to prevent illegal drug traffickers from writing off business expenses on their taxes. Fast-forward a few decades, and although cannabis is legal for medical or adult use in most states, it’s still federally classified as a Schedule I controlled substance.

That means cannabis businesses, even the ones following every state rule to the letter, are still considered “trafficking controlled substances” under federal law.

What Does That Mean for Your Taxes?

Here’s the kicker: Under 280E, cannabis businesses cannot deduct most ordinary business expenses like rent, marketing, salaries, utilities, or office supplies.

Let’s say you run a dispensary and you bring in $1 million in revenue. In a normal business, you might have $800,000 in expenses and pay taxes on your $200,000 profit. But under 280E, you might only be allowed to deduct $200,000 in Cost of Goods Sold (COGS), meaning you pay taxes on $800,000… even if you didn’t actually make that much profit.

It’s unfair, yes. And it’s one of the biggest financial challenges cannabis companies face today.

Is There Any Way Around It?

While we can’t necessarily get around 280E entirely until federal law changes, there are ways to structure your business and your accounting practices to mitigate its impact, legally and responsibly!

This includes:

• Accurate cost segregation to properly calculate COGS
  
• Entity structuring to separate plant-touching activities from ancillary services
  
• Meticulous recordkeeping (yes, down to the penny)
  

This is where a cannabis accounting company, professionals who truly understands both the industry and the tax code, becomes a critical part of your team.

Why We Care

We didn’t get into this line of work because we love spreadsheets (though we do). We got into it because we believe in cannabis. Our founder, Kevin, has seen firsthand how it helps people, as his wife battled a severe illness a few years ago, nearly losing her life, and she was able to find significant benefit from the plant. Cannabis has so many benefits, from pain relief and mental health support to improving quality of life for those with chronic conditions. Helping cannabis entrepreneurs succeed isn’t just a “job”, it’s about supporting an industry that’s doing good.

You’re not just running a business. You’re challenging stigma. You’re offering a safer, healthier alternative. And we are here to help make sure you don’t get crushed by a tax code that wasn’t written with you in mind.

Final Thoughts

Until federal laws change, 280E isn’t going anywhere. But with smart planning, transparency, and a team that understands the terrain, you can build a profitable, compliant, and resilient cannabis business.

If you’re in the cannabis space and want to talk about how to navigate 280E, let’s connect. We are here to support your growth, and the growth of the industry as a whole.