Cannabis processors face unique challenges when it comes to tax compliance. Under IRC 280E, most business expenses cannot be deducted, but costs directly tied to production—including labor—can be allocated to Cost of Goods Sold (COGS) under IRC 471.11. For processors, this opens up a significant opportunity to maximize deductions by strategically assigning labor and documenting processes.

In this blog, we’ll explore how cannabis processors can optimize labor allocations through strategic assignments, standard operating procedures (SOPs), and detailed job descriptions to reduce taxable income while staying compliant.

Labor costs are one of the most significant expenses for cannabis cultivators. While IRC 280E restricts most business deductions, direct labor costs tied to production can be allocated to Cost of Goods Sold (COGS) under IRC 471.11, offering a critical tax advantage. However, improper allocation or documentation of labor expenses can lead to IRS scrutiny or the disallowance of deductions.

To maximize deductions while staying compliant, cannabis cultivators should use strategic labor assignments, standard operating procedures (SOPs), and detailed job descriptions to justify labor allocations. Let’s dive deeper into how these strategies can be implemented.

At Niche Accounting, we specialize in cannabis accounting and are experts in applying 471-11 to cultivators. Our tailored solutions ensure that your inventory costs are properly allocated, maximizing your deductions and keeping you compliant with the law. With years of experience navigating the complexities of cannabis regulations, we’re your go-to partner for accurate financial reporting and peace of mind.

Effective cash flow management is crucial for the success and sustainability of any business, and the cannabis industry is no exception. Given the unique challenges faced by cannabis enterprises—such as regulatory complexities, limited access to traditional banking, and high operational costs—implementing robust cash flow strategies is essential. This article explores key strategies to help cannabis businesses manage their cash flow effectively.

As a cannabis dispensary owner, you operate in one of the most highly regulated industries, making compliance essential to your business’s success and longevity. High-profile court cases like Harborside and San Jose Wellness have shown that while many in the industry aim to minimize tax liabilities, improperly applying IRS codes can backfire. Let’s explore why 471-2 compliance is crucial and how tracking inventory allows for safe, audit-trailed COGS allocations that protect your dispensary from unnecessary tax burdens.

As a cannabis dispensary owner, you operate in one of the most highly regulated industries, making compliance essential to your business’s success and longevity. High-profile court cases like Harborside and San Jose Wellness have shown that while many in the industry aim to minimize tax liabilities, improperly applying IRS codes can backfire. Let’s explore why 471-2 compliance is crucial and how tracking inventory allows for safe, audit-trailed COGS allocations that protect your dispensary from unnecessary tax burdens.

As a cannabis business owner, you know the industry’s unique financial challenges—from stringent regulations to complex tax codes. Yet, with the right accounting practices, it’s possible to not only stay compliant but also maximize profitability. Here, we’ll explore key strategies for managing expenses, ensuring IRS compliance, and understanding allowable deductions under 471-11 accounting, which is essential for companies operating in this space.

A detailed breakdown of allowable and disallowed expenses for cannabis businesses under IRS §280E and §471-11, with a focus on how cultivators, processors, and dispensaries are affected differently. The following sections clarify the types of direct and indirect costs that each type of cannabis business can include in Cost of Goods Sold (COGS) and outlines the unique restrictions placed on dispensaries.