S-corp/LLC cannabis operators pay 37% on §280E-inflated income — C-corp caps federal rate at 21% flat.
§280E denies deductions but doesn't change entity classification. Pass-through cannabis operators face 37% federal + SE tax + state on income before §280E-disallowed deductions. Converting to C-corp caps federal at 21% flat — nearly halving the pain. Downside: double tax on distributions, but reinvestment-heavy operators (build-out, licenses, expansion) rarely distribute for years. Combine with §1202 QSBS if structured 5+ years pre-exit for potential $10M+ exemption.
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Cannabis businesses <$29M avg receipts elect §471(c) to capitalize most operating costs into COGS, bypassing §280E disallowance.
Separate ancillary services (consulting, IP, real estate, branding) into non-plant-touching entity — full deductions restored.
Owner-operator's real estate LLC leases to licensed cannabis co — rent is fully deductible to CannCo, tax-favored to Holdco.
100% ESOP-owned S-corp cannabis operator pays ZERO federal tax — ESOP is tax-exempt shareholder.