Ask most cannabis operators to name their worst tax and they say 280E. Of course, the tost obvious answer. Now take a look at your last twelve months and add up what you actually remitted in state cannabis excise tax. For a lot of operators that number is bigger than the federal check, and it is growing at the exact moment the federal burden is finally starting to ease.

Rescheduling moved state-licensed medical cannabis to Schedule III this spring. States moved the other way. Michigan added a 24% wholesale excise tax on adult-use product effective January 1, 2026, stacked on top of the 10% retail tax it already had. Maryland took its retail rate from 9% to 12%. California jumped to 19% last July, then pulled back to 15% in October after the legislature reversed course.

Your federal exposure changed and so did your state exposure. Most books have not caught up to either.

Excise Tax Is Not a Tax Expense

Start with where it lives on your P&L, because this is where the errors begin.

Excise tax is not income tax. It does not belong on the “taxes” line near the bottom of your income statement next to franchise fees and licensing. Depending on the tax and who it is legally imposed on, excise belongs either in the calculation of net revenue at the top of your statement or in the cost of your inventory. Almost never at the bottom.

Red Flag: If your P&L shows a gross margin that looks healthy alongside an operating loss that makes no sense, go find your excise tax. A misplaced excise line is one of the most common reasons a cannabis P&L reads as profitable right up until the cash runs out.

Where excise lands determines your gross receipts, and under 280E your gross receipts are the starting point for a tax you pay on gross profit rather than net income. An error at the top compounds all the way down.

Who the Tax Is Imposed On Changes Your Revenue

The piece almost nobody gets right.

Not every excise tax is the same animal. Some are legally imposed on the purchaser, with the retailer acting as a collection agent, no different in character than sales tax. Others are imposed on the seller and built into the price. That distinction, the legal incidence of the tax, drives whether the money you collect is your revenue at all.

• Imposed on the purchaser. You are collecting and remitting somebody else’s tax. There is a well-supported position that it is not your gross receipts and should not be reported as revenue.
• Imposed on you as the seller. It is part of your selling price. It goes into gross receipts, and under 280E you generally cannot turn around and deduct it as an operating expense.

What this means for you: the same 15% collected at the register can be revenue in one state and a pass-through in another, purely because of how the statute was written. That answer is not portable. It has to be determined statute by statute and written into your revenue recognition policy.

Get this backwards toward over-reporting and you inflate gross receipts on a return where inflated gross receipts cost you real money. Get it backwards the other way and you have understated revenue on a return that already draws attention being that it is cannabis. (https://mindtrixaccounting.com/cannabis-tax-audit-defense).

Michigan Turned Excise Into an Inventory Question

Michigan’s new wholesale tax is worth studying even if you never set foot in the state, because it changes the character of the tax entirely.

The 24% applies to the first sale or transfer of adult-use product from a licensed establishment to a retailer, and the wholesaler remits it. For a Michigan dispensary buying product, that tax is embedded in what you pay to acquire inventory.

Costs incurred to acquire inventory are a different creature from operating expenses. Cost of goods sold is not a deduction. It is an adjustment to gross receipts in arriving at gross income, and that is precisely why COGS survives 280E when your marketing budget does not. We walked through those boundaries in COGS for Cannabis.

The Truth: A wholesale-level excise tax that forms part of your cost to acquire product has a materially stronger claim to inventory capitalization than a retail-level tax on a sale you have already made. That is a position, not a settled rule. It depends on how your purchase documents and your inventory costing are built, and it is not something to assert on a return without support behind it.

Vertically integrated Michigan operators have it harder. The state does not let you value an internal transfer at your own cost. Treasury applies an average wholesale price methodology to product you move to your own retail location, dropping a state-determined transfer value into the middle of your books that has nothing to do with what the product cost you to produce.

The trap: Pushing that state transfer value straight into your internal inventory records because it is the number printed on the tax form. Your tax basis in that inventory and the value the state taxes are two different numbers. You need both, tracked separately, and reconcilable to each other.

Last Year’s Setup Is Already Wrong

Rates moved in three different directions across three states in roughly fourteen months. That is the environment now. States are using cannabis excise as a budget lever, and the direction depends on whether the legislature is chasing revenue or trying to keep the legal market alive against the illicit one.

The fix: Stop treating your excise configuration as infrastructure. It is a policy, and policies need a review date.

• Confirm the current rate in every jurisdiction you operate in, and the effective date of any change that landed mid-year. A rate that moved in October means two different calculations inside one tax year.
• Check what your POS is calculating on. Tax-on-tax errors, where excise is computed on a figure that already includes another tax, are common and compound quietly across thousands of transactions.
• Reconcile collected against remitted, by month. If those do not tie, you either have a liability you have not recorded or a payment you cannot support. Both are worth finding in August rather than in March.

Everyone in this industry has spent a decade learning to think about 280E. That was the right fight but while the federal picture finally starts to loosen, the state picture is getting heavier, and it is landing in the part of your books most operators configured once and never revisited.

280E decides what you get to deduct. Your excise setup decides what you report as having earned in the first place.

Are you certain your excise taxes are hitting the right line of your books? Mindtrix works exclusively with cannabis operators. We’ll map every excise tax you’re subject to by jurisdiction, determine who the tax is legally imposed on and whether it belongs in revenue or in inventory, reconcile collected against remitted, and document the positions so they hold up under examination. Schedule your free assessment here.

Pull up your last P&L and find your excise tax. What line is it on? Tell me in the comments.