We have expert tax professionals, from tax attorneys and certified public accountants to tax preparers, case managers and enrolled agents. CannCount, an AAFCPAs subsidiary, provides tailored consulting to help you boost efficiency, streamline operations, and maximize profits. An asset sale typically results in double taxation but can be advantageous for the buyer. On the other hand, stock sales may qualify for QSBS benefits, allowing up to $10 million of gains to be excluded from tax if the stock meets specific criteria. Additionally, ESOPs offer a tax-free exit strategy, providing a way for owners to transition out while retaining control over the company. The information contained in this website is meant only for guidance purposes and not as professional legal or tax advice.

Are cannabis businesses eligible for federal tax credits?

Under federal law, Marijuana is a Schedule I controlled substance, making it illegal. Despite legalization in some form in more than Partnership Accounting 50% of the states, the federal government considers any cannabis business to be drug trafficking. Rescheduling cannabis to Schedule III could unlock significant tax advantages, including access to depreciation deductions and tax credits that have previously been out of reach. By leveraging strategies such as cost segregation studies and accelerated depreciation, businesses can reduce taxable income and improve cash flow—all key factors in maintaining competitiveness. In addition to impacting the financial and regulatory aspects of the cannabis industry, state, and local taxes can also influence market dynamics.

Getting Professional Help

Cannabis businesses are not exempt from paying employment taxes, including Social Security and Medicare contributions. Navigating these requirements in a cash-heavy industry adds another layer of complexity. The Michigan Department of Licensing and Regulatory Affairs and the Michigan Department of Treasury are responsible for tax administration. You must provide accurate reports about your employee salaries to ensure tax code compliance. To fulfill this obligation, you must designate each employee’s position in the company and pay them accordingly. This is because an employee who works part-time as a cultivator will fall under a different tax code than a part-time budtender.

Janice O’Reilly, CPA, CGMA

Repealing Section 280E would allow cannabis businesses to deduct ordinary and necessary business expenses, leveling the playing field with businesses in other industries. The classification of cannabis as a Schedule I controlled substance under the Controlled Substances Act (CSA) has profound implications for the industry. While many states have legalized cannabis for medicinal or adult-use purposes, at the federal level, it remains illegal. This dichotomy creates a unique challenge for cannabis businesses, particularly in the realm of taxation.

In addition to the financial implications, Section 280E compliance presents operational challenges for cannabis businesses. The inability to deduct common business expenses discourages investment in best practices that would typically improve operational efficiency or employee satisfaction. For example, offering competitive wages and benefits becomes more difficult when those expenses cannot be deducted from taxable income. Not only does it reduce the taxable income each year, but it also provides a more accurate reflection of the business’s financial health. For cannabis businesses, where every dollar saved on taxes can be pivotal, this strategy offers a way to mitigate the harsh effects of 280E.

Additionally, cannabis businesses should prioritize cash management to ensure they can meet their tax obligations. The inability to deduct significant expenses under 280E means that businesses must carefully plan and allocate their cash resources to cover tax liabilities. Cash management practices can help cannabis accounting businesses maintain financial stability and avoid potential issues arising from tax obligations exceeding available funds. While the current tax regime is challenging, there are opportunities for reform and improvement.

Minimize year-end inventory to match demand

• This should include periodic reconciliations between your physical counts and your inventory system.
• In the same vein, President Trump may task Attorney General nominee Pam Biondi to draft a memo that could promote state autonomy in cannabis regulation.
• We recommend minimizing year-end inventory as much as possible to reduce your tax liability, yet still have enough to meet market demand.
• Rescheduling cannabis to Schedule III could unlock significant tax advantages, including access to depreciation deductions and tax credits that have previously been out of reach.
• Contact Us for a free consultation to learn how to keep more of what you earn.
• However, there are strategies that companies can adopt to navigate these taxes effectively.

In this blog post, we will explore the importance of year-end tax planning, provide valuable tips and strategies, and discuss how working with professionals like GreenGrowth CPAs can benefit your cannabis business. The end of the year is busy for most businesses and individuals, and it can be incredibly hectic for cannabis business owners and operators also. While it’s ideal for cannabis businesses to prepare their books for year-end in the fall proactively, it’s not uncommon for owners and operators to consider tax planning endeavors as the year begins to close. One such evolving and complex issue my organization has been focused on is the tax implications for the rapidly growing cannabis/marijuana industry. The specific rules and regulations regarding how it is taxed at the federal level provides the IRS an opportunity to promote voluntary compliance, not only through audits, but also through outreach and education. At last count, 36 states plus the District of Columbia have legalized marijuana for recreational or medicinal use, or both.

• The Internal Revenue Code doesn’t differentiate between income derived from legal sources and income derived from illegal sources.
• We asked the cannabis community how they plan to thrive in 2025; from emphasizing teamwork to putting a new perspective on business, these pot pros put a positive spin on what’s ahead.
• They can also assist in navigating the intricacies of filing Form 3115, should a change in accounting methods be warranted.
• However, until rescheduling occurs, businesses must make careful decisions about their tax strategies.
• Whether you’re a cultivator, manufacturer, distributor, or retailer in the cannabis industry, our team is equipped with the knowledge and expertise to address your unique accounting and financial challenges.
• BGM CPA, LLC is a licensed independent CPA firm that provides attest services to its clients, and BGM Group, LLC and its subsidiary entities provide advisory, and business consulting services to their clients.

Accurate Record-Keeping

• Under the federal tax code, specifically Section 280E, businesses engaged in the “trafficking” of controlled substances are prohibited from deducting ordinary and necessary business expenses.
• Like federal taxes, maintaining impeccable records is crucial regarding state and local taxes.
• Each jurisdiction adopts its approach, with varying tax structures and strategies.
• Moreover, the descheduling would enable cannabis businesses to revisit their overall tax strategy.
• In the cannabis industry, the excise tax is typically imposed at the state level and is based on the weight or potency of the cannabis product sold.

The information contained herein is general in nature and is not intended, and should not be construed, as legal, accounting, or tax advice or opinion provided by AAFCPAs to the user. The user of this should contact his or her AAFCPAs advisor prior to taking any action based on this information. AAFCPAs assumes no obligation to inform the reader of changes or other factors that could affect the information contained herein. Cannabis Gross Sales are material in the cannabis industry, but at the end of the day, how much profit and cash are you able to generate?

• As the cannabis industry continues to grow, so does the need for proper tax planning.
• Our commitment to supporting businesses has won us several awards and recognitions.
• Federal reforms, state policy changes, and local ballot measures can all impact your obligations.
• Our consulting services help operators optimize everything from cultivation practices to retail operations, ensuring clients can navigate the industry’s challenges and drive lasting success.
• These experts understand the intricacies of Section 280E, state-specific regulations, and cash-based accounting, ensuring your business stays compliant while maximizing savings.
• In the meantime, CFOs should remain vigilant in managing their tax strategies under the current rules, while being prepared to adapt as changes occur.
• You can enter the year from a position of strength by focusing on tax planning, tax compliance, and budgeting to ensure healthy cash flow.

It should incorporate effective inventory management techniques to optimize stock based on customer preferences and sales data, ultimately maximizing profitability. Investing in both crisis management and insurance planning not only protects against potential pitfalls but also reinforces consumer trust. With increasing scrutiny on cannabis businesses, effective risk mitigation strategies enhance resilience and sustainability in the marketplace. By integrating robust sales strategies with effective inventory management, cannabis businesses can position themselves for contribution margin sustained growth and profitability in 2025 and beyond. Understanding these complexities not only supports compliance but also positions cannabis businesses for sustainable growth amidst an evolving regulatory landscape. Attempting to sidestep Section 280E through improper deductions is a risky move.