If you’re running a cannabis business and still unsure what you can legally deduct under 280E, you’re not alone.
And if you’re treating your general business expenses like traditional write-offs, you’re playing a dangerous (and expensive) game.

At Mindtrix Accounting, we’ve seen too many good operators overpay in taxes or worse, get flagged simply because no one ever sat them down and explained how Cost of Goods Sold (COGS) really works in cannabis.

Let’s change that.

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Why COGS Is Your Only Lifeline Under 280E

Federal tax code 280E prohibits businesses that “traffic in controlled substances” from deducting ordinary business expenses.

Translation: Your marketing? Non-deductible.
Your rent? Probably not deductible.
Your payroll? Depends.

The only category you can rely on to reduce your taxable income?
Cost of Goods Sold (COGS): the direct costs of producing or purchasing your cannabis products.

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What Can You Deduct Under COGS?

COGS includes costs that are directly tied to inventory. If it touches your product before it hits the shelf, you’re likely on solid ground.

Here’s what typically qualifies:

• Wholesale cannabis inventory
• Packaging and labeling tied to inventory
• Storage costs for cannabis product (if separately tracked)
• Labor for receiving, stocking, and inventory prep
• Shipping fees for inventory delivery
• Depreciation of equipment used in production

If you’re a cultivator or manufacturer, your allowable COGS list may be even broader including nutrients, utilities for grow space, and testing costs.

Here’s the kicker: These costs must be tracked with precision, categorized correctly, and supported with documentation or the IRS will disallow them in an audit.

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What Can’t You Deduct, Even If It Feels Essential?

280E is ruthless when it comes to non-inventory costs. That means you cannot deduct:

• Marketing or advertising expenses
• Administrative salaries (unless inventory-related)
• Banking fees
• Software, unless tied to inventory
• Legal, HR, or general consulting
• Office supplies and furniture

Even rent and utilities at your dispensary are usually non-deductible, unless you can specifically tie a portion to inventory handling (e.g., your back storage room, not your sales floor).

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The Risk of Getting It Wrong

Misclassifying expenses can lead to:

• IRS audits
• Penalties and interest
• Inflated tax bills
• Jeopardizing your cannabis license

We’ve seen too many cannabis founders rely on generalist accountants who mean well but don’t understand the granular reality of 280E.

That’s where we come in.

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Why Work With Mindtrix Accounting?

At Mindtrix, we live and breathe cannabis finance. We help operators:

• Build COGS strategies that hold up to audit
• Create custom cannabis-specific Chart of Accounts
• Split labor and expenses between deductible and non-deductible buckets
• Run monthly reviews to stay clean, lean, and compliant

We don’t just do your books, we protect your license, your sanity, and your bottom line.

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Ready to Optimize Your COGS?

Whether you’re still operating mostly in cash or scaling into multiple markets, it’s time to get strategic.

👉 Book a FREE 15-minute consultation

The IRS isn’t giving cannabis a break.
But we are and it starts with knowing what you can (and can’t) deduct.