A Hidden Tax Lifeline

The cannabis industry has never had it easy. Between regulatory uncertainty, banking restrictions, and sky-high tax burdens, even the most successful operators often feel like they’re just treading water. At the heart of that financial squeeze is Section 280E of the Internal Revenue Code—an outdated tax provision that forces cannabis businesses to pay taxes on gross income rather than net profit.

But what if there was a way to turn the tables on 280E?

Growise CPAs, a firm dedicated to cannabis taxation, has done just that. While many accounting firms have relied on the well-known 471A strategy to mitigate tax liability, Growise has taken things a step further. By implementing a new tax strategy, they have slashed tax burdens by up to 57% for dispensaries and up to 25% for cultivators and processors. It’s a bold claim backed by hard numbers and real-world results.

The Tax Code That’s Bleeding the Cannabis Industry Dry

Section 280E was never intended to apply to legitimate businesses. Originally designed to prevent illicit drug dealers from writing off business expenses, it now unfairly penalizes state-legal cannabis operators.

“280E means cannabis businesses can’t deduct normal and necessary business expenses,” explained Lawrence Cagigal, Key Accounts & Partnerships Manager at Growise CPAs. “Salaries, rent, marketing—everything that would typically reduce taxable income—is completely off the table.”

As a result, cannabis businesses are often taxed at effective rates of 70% or higher. The difference between surviving and thriving in this industry often comes down to how well an operator navigates the 280E minefield.

From 471A to the Next Evolution of Tax Strategy

For years, Section 471A was considered the best workaround for 280E, allowing businesses to allocate more expenses to the cost of goods sold (COGS). But as the industry evolved, so did tax strategies.

“Two-thirds of cannabis businesses still rely on 471A,” said Cagigal. “But our strategy outperforms it significantly. We’ve had clients go from a $617,000 tax bill down to $265,000.”

The new strategy uses sophisticated allocation techniques that enable businesses to recognize deductions they previously couldn’t claim.

More Than Just Tax Savings

Beyond reducing tax liability, Growise’s strategy is transforming how cannabis businesses operate. With the money they save, companies reinvest in expansion, equipment, and personnel.

“With an extra $300,000, a dispensary can upgrade its facility, increase marketing, or open a new location,” said Cagigal. “That’s the difference between playing defense and playing offense.”

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The Cost of Waiting

With federal rescheduling discussions ongoing, some cannabis operators are taking a “wait and see” approach. That, according to Cagigal, is a mistake.

“If you wait and nothing changes, you’ve wasted another year paying excessive taxes,” said Cagigal. “The smart move is to implement a better strategy now and be in a stronger financial position no matter what happens with rescheduling.”

And while a move to Schedule III would eliminate 280E, it won’t retroactively return the money operators have lost over the years.

The Bottom Line

Tax strategy might not be the most glamorous topic in cannabis, but for those who understand its impact, it’s imperative. Growise CPAs is proving that even under 280E, cannabis businesses don’t have to accept sky-high taxes as an inevitable cost of doing business.

For those willing to take a proactive approach, the savings can be dramatic. In an industry where every dollar counts, that could mean the difference between just surviving—and thriving.

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