Section 280E Strategic Tax Planning
The single largest financial burden a licensed cannabis business carries — and the engagement where a specialist firm earns its fee several times over.
Section 280E of the Internal Revenue Code denies ordinary and necessary business deductions to any business trafficking in a controlled substance. Cannabis remains Schedule I federally, so a compliant, licensed, state-legal dispensary can owe federal tax on income it never actually earned.
We have been building 280E positions since 2015. This is the engagement where a specialist firm earns its fee several times over.
What 280E Actually Does
What survives is cost of goods sold. COGS is not a deduction — it is a reduction in gross income, reached before 280E applies. Section 471 governs what may be capitalized into inventory, and the space between what a business could properly capitalize and what it actually does capitalize is where most operators overpay.
A cultivator can generally capitalize substantially more than a retailer — direct labor, cultivation supplies, allocable indirect production costs. A dispensary's capitalizable costs are narrower. A vertically integrated operator's picture depends on how the entities are structured and how product moves between them.
This is why structure is a tax decision, not a legal formality.
What's Included
Why Structure Is The Whole Game
Aggressive allocation without documentation is a deferred bill with penalties and interest. Conservative allocation without analysis is a donation to the Treasury.
The work is finding the defensible maximum and then papering it properly — knowing which costs genuinely belong in inventory under §471, having the records to prove it, and being able to explain the methodology to an examiner years later. That judgment comes from doing this repeatedly, in this industry, for a long time.
Why MCA
We have served licensed operators since 2015 — one of the first firms in the country to build a practice around it — and we have worked with more than 100 operators across 30+ states. Every 280E position we have built has been for a cannabis business, because cannabis is all we do.
We visit facilities. We walk cultivation sites and dispensary floors. A cost allocation built without understanding how product physically moves through an operation is a guess, and guesses do not survive examination.
Frequently Asked
How much can 280E planning actually save?
It varies with your structure, vertical position, and how your books are currently set up. Cultivators typically have more room than retailers. We can estimate in a first conversation and give you a real number after reviewing your return and P&L.
Is this aggressive tax positioning?
No. It is the correct application of §471 to what you actually spend. We build positions we can defend, and we tell you plainly where the line is.
What if rescheduling ends 280E?
Then the burden lifts going forward and planning shifts to normal tax strategy — plus a careful analysis of whether amended prior-year positions make sense for you. We are advising on both tracks simultaneously.
Can you fix prior years?
Sometimes. Amended returns are evaluated case by case, in writing, weighing the benefit against the risk of drawing attention.
We're pre-license — is it too early?
It is the ideal time. Structure decided before you open determines your exposure for years.