280e for Growers: What Cannabis Growers Need To Know

Small Business
September 20, 2022

280e guide for growers.

Does the 280e tax law apply to cannabis growers? Yes, the 280e tax law applies to all businesses that produce and sell federally illegal drugs, including cannabis. Any business deductions or expenses related to the production or sale of cannabis are not tax-deductible under 280e. This means that growers may have a higher tax burden than others.

In this article, we’ll explain what 280e is, how it affects growers, and some tips for minimizing your tax burden.

What Is 280e?

280e is a section of the US Tax Code that disallows businesses from deducting any expenses related to the production or sale of federally illegal drugs. This includes expenses like rent, utilities, payroll, and marketing. Congress passed the 280e law in 1982 in response to the growing illegal drug trade in the US, and it has been applied to cannabis businesses since the plant was classified as a Schedule I drug in the 1970s.

While 280e was originally intended to target drug dealers, it also applies to legal businesses that produce and sell federally illegal drugs. This includes medical and recreational cannabis dispensaries, growers, and manufacturers.

How Does 280e Affect Growers?

Because cannabis is still federally illegal, growers are subject to 280e. This means that they can’t deduct any business expenses related to their growth, which can increase their overall tax burden.

The law can also make it difficult for growers to get financing because banks are often hesitant to lend money to businesses that can’t deduct their expenses. This can limit a grower’s ability to expand their business or invest in new equipment.

280e Deductions for Growers

Despite the restrictions of 280e, there are still some deductions that growers can take. These include:

  • Cost of goods sold (COGS): This deduction allows growers to deduct the cost of the materials used to produce their product, including the cost of cannabis plants, grow supplies, and packaging.
  • Employee expenses: Growers can deduct the salaries and benefits of their employees.
  • State and local taxes: 280e does not preempt state and local laws, so growers can deduct any state and local taxes that they pay.

What Deductions Can’t Growers Make Under 280e?

There are a number of deductions that growers cannot take under 280e, including:

  • Rent or mortgage payments: These expenses are not tax-deductible under 280e.
  • Utilities: Growers cannot deduct the cost of electricity, water, or gas used to power their operations.
  • Insurance: Business insurance premiums are not tax-deductible for growers.
  • Marketing: Any expenses related to marketing and advertising are not deductible under 280e.

280E is a rule that disallows deductions for businesses that sell Schedule I or II drugs. Even though medical marijuana is considered legal by some states, it has not been removed from Schedule I of the Controlled Substances Act, and, thus, 280E applies to cannabis businesses.

Tips for Minimizing Your Tax Burden

Taxes can be a significant expense for growers, but there are some strategies that you can use to minimize your tax burden. There are a few things that growers can do to minimize how tax affects the business:

  • Keep detailed records of all expenses
  • Hire an accountant who is familiar with 280e
  • Deduct the cost of goods sold (COGS)
  • File for a research and development tax credit

The challenges of 280e for growers can be significant, but there are ways to minimize the impact of the law. These roadblocks also should not deter existing and would-be cannabis business owners from securing the funds they need to succeed in this industry.

Securing Financing As a Cannabis Business Owner

Despite the restrictions of 280e, it is still possible to secure financing as a cannabis business owner. You can boost your chances of securing funding by:

  • Building a strong business plan
  • Working with a lender who is familiar with 280e
  • Demonstrating that your business is profitable despite the restrictions of 280e.

Being in the cannabis business comes with a unique set of challenges, but 280e doesn’t have to be one of them. By being prepared and working with the right partners, you can overcome any obstacle.

If you’re a cannabis grower in need of financing for your business, LendThrive can help. We are a provider of loans for cannabis businesses, and we can help you secure the funding you need to succeed. We have been in the industry for years, and we understand the challenges that growers face. More importantly, we want to help you overcome challenges and grow your business.

Contact us today to learn about our fixed-rate business loans, or apply directly and get as much as $150,000 in as fast as 24 hours.

Disclaimer: LendThrive provides information that may help cannabis business owners succeed and does not offer financial advice.

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