**The 280E Tax Challenge: Understanding the Hurdles Facing Cannabis Dispensaries**

In the evolving world of legal cannabis, dispensaries face numerous obstacles as they work to provide safe, accessible products to their communities. Among these challenges, one of the biggest is the impact of the federal tax code, specifically IRS Section 280E. For many dispensaries, 280E represents a significant financial hurdle, restricting their ability to grow and thrive. To better understand the landscape of cannabis business, let's dive into what 280E entails and how it affects dispensaries on a daily basis.

### What is Section 280E?

Section 280E of the IRS tax code originated in the 1980s as a way to prevent drug traffickers from deducting business expenses. According to the law, anyone "trafficking" in a Schedule I or II controlled substance is disallowed from claiming business deductions or credits beyond the cost of goods sold (COGS). While this may have targeted illegal enterprises at the time, today, 280E continues to affect state-legal cannabis businesses since cannabis remains a federally controlled substance.

For cannabis dispensaries, the restrictions of 280E mean that typical business expenses—such as rent, utilities, payroll, marketing, and even basic operating costs—cannot be deducted from taxable income. The result? Many dispensaries face tax burdens as high as 70% or more, squeezing their profit margins and limiting their ability to reinvest in their businesses.

### The Heart of the Issue: A Barrier to Growth and Accessibility

The restrictions imposed by 280E go beyond just numbers on a tax form; they impact dispensaries' ability to deliver quality products, invest in staff, and, ultimately, serve their communities. High tax liabilities prevent many dispensaries from expanding operations, improving customer experience, or lowering product costs. For dispensaries committed to health and wellness, it can be disheartening to see resources that could go toward education or community outreach instead diverted to meet tax obligations far higher than those of non-cannabis businesses.

### Limited Deduction Options: Navigating the Tax Maze

Most dispensaries can only deduct direct COGS, which covers expenses like the cost of raw materials or products purchased from suppliers. But everything else—from employee salaries to insurance—is off-limits for tax deductions. As a result, cannabis businesses are forced to get creative in managing operating costs and ensuring the business can stay sustainable. Unfortunately, this situation also limits small businesses’ ability to hire, reinvest, and expand, which can create a barrier for new entrepreneurs looking to enter the industry.

### The Push for Change

There is growing advocacy to amend Section 280E to allow state-legal cannabis businesses to be taxed like any other legal industry. Recent steps, like the DEA’s consideration of reclassifying cannabis to Schedule III, could lead to significant tax relief and normalize cannabis operations at the federal level. However, until this change comes, dispensaries will continue facing the harsh realities of 280E and the financial burdens it creates.

### Why This Matters to Us All

The 280E tax burden affects more than just dispensaries; it affects the broader community by limiting the resources dispensaries have to invest in quality, education, and outreach. When dispensaries have to focus primarily on meeting excessive tax demands, it means fewer opportunities to invest in better products, training, and health education that could directly benefit customers and patients.

At MKC Consulting, we understand the dedication and resilience it takes for dispensaries to operate within these constraints. Our mission is to support dispensaries through these challenges by providing guidance on compliance, tax efficiency, and sustainable business practices, so they can continue their mission to serve and educate.

### Looking Ahead: Hope for a Fair Tax Future

As we await change on the federal level, we remain committed to advocating for fair treatment of cannabis businesses. This industry has the potential to bring healing, well-being, and economic growth to our communities, but true progress will require lifting the tax burdens that hold it back.

Dispensaries, we see the hard work and passion you bring to this industry each day. You’re not just businesses; you’re pioneers in a new era of wellness and accessibility. Together, we’ll keep pushing for the respect and fairness this industry deserves.