280E & Tax

The Benefit of Having More Than One Business Entity for Your Cannabis Business

The idea, stated plainly

280E reaches the plant-touching business. It does not automatically reach everything around it. Real estate held in a separate entity and leased to the operator, management services provided by a separate company, brand IP licensed from a third entity — these non-plant-touching businesses can take ordinary deductions the licensed operation cannot. Structured well, the overall enterprise keeps deductions that a single-entity version would lose entirely.

The test that decides everything

Would this arrangement make sense between unrelated parties? Rents at market, management fees tied to real services actually performed, contracts in writing, separate books, separate bank accounts. When the answer is yes and the paper proves it, these structures hold. When the entities are fictions with inflated intercompany charges, the Tax Court has collapsed them repeatedly — and the penalty math after a collapse is ugly.

We build the real version and we decline to build the other kind. That distinction is the entire value of doing this properly.

Five years on: still true, higher stakes

Since this was first written, examinations of multi-entity cannabis structures have only grown more sophisticated. The structures that survive are the ones with operational substance and contemporaneous documentation — which is exactly what we said in 2021, and exactly what we build today.

This article is general information, not tax advice.