280E & Tax

LLC, S-Corp, or C-Corp? Entity Structure for Cannabis Businesses

Why this decision is bigger in cannabis

In most industries, entity selection is a moderate optimization. In cannabis it can determine viability — because structure decides how much of the operation sits inside 280E's reach and where the resulting tax burden lands.

The pass-through trap is the clearest example: in an LLC or S-corp, 280E-disallowed deductions flow through to owners as phantom income — taxable income that never arrived as cash. Owners discover this in April, and the gap can be brutal. A C-corp contains the distortion at the entity level, at the cost of the usual double-taxation tradeoffs.

The multi-entity question

Sophisticated structures separate plant-touching operations from things that need not be inside the license: real estate held in one entity and leased to the operator, management services in another, brand IP in a third. Done legitimately, the non-plant-touching entities take ordinary deductions the licensed operation cannot.

Done as fiction — inflated management fees, above-market rents, no operational substance — these structures collapse under examination, and the Tax Court record is littered with exactly that. The test is simple to state and demanding to meet: would these entities and prices make sense if the parties were unrelated?

Timing matters enormously

Structure is easiest to set before operations begin and progressively harder after. Restructuring a running business is possible — we do it regularly — but license transfer rules, built-in gains, and state approval processes all constrain the options. If you are pre-license, this is the highest-leverage conversation you can have. If you are operating, it is still worth reviewing whenever the business materially changes.

This article is general information, not tax advice. Cannabis tax outcomes depend on facts, documentation, and jurisdiction — talk to a qualified professional about your specific situation.