Cannabis business owner taxes and deductions

This changed on April 28, 2026 and the answer now depends on your license. Section 280E denies every ordinary business deduction to a trade dealing in a Schedule I or II controlled substance. From that date marijuana held under a state MEDICAL license, and marijuana in an FDA-approved product, moved to Schedule III. So 280E no longer reaches those businesses. Marijuana in any other form, including adult-use, stays Schedule I and 280E still applies to it in full.

For an adult-use operator nothing has changed. Rent, wages, marketing, utilities and insurance are not deductible federally, and what survives is cost of goods sold, because that reduces gross receipts to gross income rather than being a deduction from it. That single distinction is why so much turns on how costs are split between production and everything else, and why the split is examined so often. Federal tax ends up charged on a figure far larger than the profit the business actually made. For a medical-licensed operator 2026 is a split year, and the change landed part way through it. There is no IRS guidance yet on how the transition works, whether it applies from the effective date or the whole year, or what it means for earlier returns. Do not assume either answer. New York, California and Colorado already decouple from 280E and allow the deductions on the state return, so a state and federal return can show very different profit whichever schedule you are on. This is not a position to take without specialist advice.

The deductions with a rule attached

These are the lines where the answer is not simply "keep the receipt"each has a cap, a percentage or a test that decides how much of the spend you actually get:

Equipment: Section 179 property. Deduct the whole cost in the year it goes into service rather than spreading it over the asset's life, up to $2,560,000 a year, and 100% bonus depreciation is now permanent. The catch is the business-use test: anything used more than 50% for the business qualifies, and you deduct at that percentage rather than the full price. So anything you also use at home comes off at the share that is genuinely work, not the whole invoice.

The rest of the cannabis business owner deduction list

Ordinary and necessary business expenses, deductible in full in the year you pay them, provided they are genuinely for the business:

Stock, as cost of goods sold
Staff wages
Licensing fees state
Security and alarm
Compliance costs
Rent
Utilities

Worth knowing

Section 280E denies every ordinary business deduction to a cannabis business. Only cost of goods sold survives, which makes this the most punitive tax position in the code.

That is what is specific to this trade. The larger deductions are the universal ones, see the full checklist.

What each deduction is worth to you

On $100,000 of profit with no state income tax, $1,000 deducted saves $305, 30.5%, because it comes off self-employment tax and income tax together:

Net profit	Saved per $1,000 deducted	Effective
$40,000	$231	23.1%
$100,000	$305	30.5%
$200,000	$297	29.7%

The last row is worth less than the one above it, and that is not a mistake: past the Social Security wage base the self-employment part of the saving drops from 15.3% to 2.9%, and the higher income-tax bracket does not quite make up the difference. A deduction is worth most in the middle.

Add a state income tax and every row rises. The 1099 calculator applies that layer.

Where this comes from

The rules on this page that are specific rather than general are cited below. Follow a link to read the provision itself rather than taking our word for it:

Marijuana under a state medical license, and in FDA-approved products, moved to Schedule III on April 28, 202621 CFR 1308.13(g); 91 FR 22714
Section 280E denies deductions and credits, but not cost of goods sold, and reaches Schedule I and II onlyIRC 280E
New York, California and Colorado decouple from 280E on the state returnNY Tax Law 612(c)(46); Cal. Rev. & Tax. Code 17209; Colo. Rev. Stat. 39-22-104(4)(t)

What these words mean

Section 179: A rule letting you deduct the whole cost of equipment in the year you start using it, instead of spreading it over the years you own it.
Depreciation: Spreading the cost of something long-lasting, a vehicle, a camera, a tractor, across the years you use it, rather than deducting it all at once.
Gross receipts: Everything the business took in, before subtracting any costs. A tax on gross receipts is owed even by a business making a loss, which is what makes it different from a tax on profit.

General information about how these deductions work, not tax advice. Whether a particular expense is deductible for you depends on facts this page does not have, check with a tax professional before claiming anything listed here.