How Cannabis Businesses Can Deal With Drug Trafficking Tax Code 280E

California is likely to see a boon to its weed economy in the coming years, with the industry expected to topple $6 billion by 2020. But for many looking to cash in on green, tax code 280E is a major buzzkill.

The tax code 280E specifically targets illegal drug traffickers. Regardless of whether your cannabis enterprise is legal under state law, the federal government still deems marijuana a Schedule I controlled substance, so it’s taxed accordingly. Under 280E, cannabis industry insiders who run businesses that touch the plant — dispensary owners, growers, product manufacturers — can deduct “cost of goods sold,” but no other “ordinary and necessary” costs related to running a business, such as payroll, rent and electricity.

Growers are least affected by 280E, since the majority of their expenses — paying trimmers and buying soil, nutrients and other necessities for cultivating cannabis — go into the cost of goods sold, namely, the actual bud. Dispensary owners, on the other hand, struggle the most with 280E.