280E compliance

Section 280E of the U.S. tax code restricts businesses involved in the illegal drug trade from deducting certain expenses on their taxes. Although selling cannabis is legal in some states, federal law still considers it illegal. As a result, cannabis businesses can't deduct typical business expenses like rent, salaries, or utilities, except for cost of goods sold (COGS). This means they pay higher taxes compared to other businesses, complicating financial planning and profitability. Essentially, 280E creates a significant tax burden for legal cannabis businesses by disallowing deductions that would normally reduce taxable income.