IRC §280E is the federal provision that strips most business deductions from cannabis operators. It is not optional and it does not have exceptions for medical programs. The only legal tax reduction strategy available under 280E is precise Cost of Goods Sold structuring. 420Ledger prepares 280E-compliant federal and state returns for dispensaries, cultivators, processors, and MSOs across 27 states — and we build every client's books to maximize their defensible COGS position from the first month.
Every 280E client gets the full scope — COGS structuring, federal and state return preparation, and ongoing quarterly reviews.
We analyze your entire operation — purchasing, production, packaging, and inventory — to identify every cost that legitimately qualifies as COGS under §280E. Most operators leave substantial money on the table here.
We prepare your federal income tax return with 280E compliance built in from the ground up. Every COGS position is documented and defensible. Your return is prepared by someone who does this exclusively for cannabis businesses.
Many states tie their taxable income calculation to federal taxable income, so your federal 280E position flows directly into your state return. We prepare state returns for all 27 states we cover.
Vertically integrated operators — those who cultivate, process, and retail — must allocate costs between plant-touching and non-plant-touching activities. We establish a documented allocation methodology that holds up under audit scrutiny.
280E exposure compounds. We review your COGS position quarterly so categorization errors and new product lines are caught before they affect your annual return.
21 states have decoupled from 280E at the state level — including CA, CO, IL, MD, MN, MT, NJ, NY, OR, and more. Operators in those states need two separate income calculations: one under federal 280E rules, one for the state return that allows all deductions. We handle both correctly.
280E affects every plant-touching operator. The complexity scales with your structure — we handle all of it.
A $700K/yr dispensary that isn't optimizing COGS under 280E is likely overpaying federal taxes by $25,000–$70,000 annually. This is the single highest-ROI engagement we offer.
Each location is a separate COGS calculation. We track per-location and produce a consolidated 280E position across your portfolio.
When you cultivate, process, and retail, cost allocation between segments is complex and high-stakes. Misallocation in either direction creates audit exposure. We do this correctly.
280E exposure multiplies across state lines. 21 of our covered states have decoupled from 280E at the state level — and each state applies its own rules. We manage the entire matrix: COGS-only federal positions, dual-method state returns, and audit-ready workpapers for every entity.
IRC §280E is a federal tax code provision that disallows cannabis businesses from deducting most ordinary business expenses because cannabis remains a Schedule I controlled substance under federal law. The result is an effective federal income tax rate that can be two to three times higher than a non-cannabis business of comparable size. The only legal strategy for reducing this burden is COGS — Cost of Goods Sold — which §280E does not disallow. 420Ledger structures your books to maximize your defensible COGS position.
Under IRC §280E, cannabis businesses can deduct Cost of Goods Sold (COGS). For a dispensary, COGS includes the purchase price of cannabis inventory. For a cultivator or processor, COGS includes labor, materials, and overhead directly tied to production. 280E disallows all other ordinary business deductions — rent, salaries for non-production staff, marketing, insurance, and general administrative costs. Proper COGS structuring and allocation is the primary tax mitigation strategy available to cannabis operators.
COGS optimization is the process of identifying every cost that legitimately qualifies as Cost of Goods Sold under §280E and ensuring it is properly allocated and documented. For a vertically integrated cannabis operator, this can include production labor, packaging, facility overhead allocated to production, and certain management costs tied to plant-touching activities. The dollar impact varies by business — operators running $1M–$5M in annual revenue typically see $20,000–$150,000 in annual federal tax savings through aggressive but defensible COGS structuring.
Yes. IRC §280E applies to all state-licensed cannabis businesses regardless of whether they sell adult-use or medical cannabis. Being a medical-only operator provides no federal tax exemption. 420Ledger serves medical cannabis operators in Oklahoma, Pennsylvania, West Virginia, and dual-program operators in states like Maine, Maryland, and California.
As of 2026, 21 states in 420Ledger's coverage area have decoupled from IRC §280E at the state income tax level: Alaska, California (AB 195, Jan 1 2023), Colorado, Connecticut, Delaware, Illinois, Maine, Maryland, Massachusetts, Michigan, Minnesota, Missouri, Montana, New Jersey, New Mexico, New York, Oregon, Pennsylvania, Rhode Island, Vermont, and Virginia. Two more states (Nevada and Ohio) have no state income tax, so 280E has no state-level income tax impact there either. Arizona, Washington, West Virginia, and Oklahoma follow federal 280E at the state level. In decoupled states, operators can deduct ordinary business expenses on their state returns while federal 280E still applies in full — requiring dual-method accounting.
All tiers include 280E return preparation, COGS optimization, and ongoing compliance. Pricing scales with entity count and complexity.
Single-location dispensary. Monthly bookkeeping, 280E prep, and federal + state return preparation.
Multi-location operators. Per-location COGS tracking, consolidated returns, and quarterly 280E reviews.
MSOs and vertically integrated operators. Full 280E management across all entities and states.
Every month you don't optimize your COGS position is money you can't recover. Book a free consultation and we'll assess your current 280E exposure.
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