280E & Tax · From the archive

Cannabis Businesses: Where to Start and How to Structure

Start with structure, because everything hangs on it

Entity choice in cannabis is not a formality. It decides how much of your operation sits inside 280E's reach and where the tax burden lands. Pass-throughs push 280E's phantom income onto owners personally; C-corps contain it at the entity level with their own tradeoffs. Multi-entity structures separating real estate, management, or IP can be powerful — when the separation is real and documented, and a liability when it is fiction.

Capitalize for the business you'll actually run

New operators consistently underestimate two numbers: the working capital a cash-intensive, slow-banking business needs, and the tax reserve 280E demands. A budget built on normal-business assumptions runs out of money in year two even when revenue performs. Model the tax line on gross profit, not net income, from day one.

Build the books before the first sale

A chart of accounts designed around the COGS-versus-expense distinction, payroll that can split labor by function, and a seed-to-sale system that reconciles to the ledger monthly. These cost little to set up at the start and a fortune to retrofit after two years of operating.

The founders who get this right treat accounting as infrastructure, not paperwork — and it shows in every valuation, every raise, and every examination that follows.

This article is general information, not tax advice.