Free Tool · DCClicensing by Baghoomian Law
IRS Section 280E Calculator
Section 280E of the federal tax code bars any business that “traffics” in a Schedule I or II controlled substance from deducting ordinary operating expenses — rent, payroll, marketing, utilities. Only cost of goods sold is subtractable. For cannabis retailers it is the single largest hidden cost of doing business. See what it does to a dispensary's bottom line.
Where things stand (2026): As of April 2026, medical cannabis sold under a state medical license was reclassified to Schedule III and is no longer subject to 280E. Adult-use (“recreational”) cannabis remains Schedule I and is still fully subject to it. A federal hearing beginning June 29, 2026 may extend relief to adult-use. Below, With 280E reflects an adult-use operation today; Without 280E reflects medical cannabis today — and where adult-use would land if rescheduling extends.
Your dispensary's numbers (annual)
Total gross sales for the year.
Wholesale cost of the product you sold. Still subtractable even under 280E.
Rent, payroll, security, marketing, utilities, insurance — the deductions 280E disallows federally.
Sets the default tax rates below — you can override them.
Rate 280E acts on.
State income / franchise tax.
Section 280E costs this operation
$0
How this is calculated
The 280E mechanic. Cost of goods sold is always subtractable. Under 280E, ordinary operating expenses are not deductible for federal tax. So federal taxable income becomes Revenue minus COGS only — operating expenses are ignored, even though you really paid them.
With 280E: Federal taxable income = Revenue − COGS. Federal tax = that × your federal rate.
Without 280E: Federal taxable income = Revenue − COGS − operating expenses — the way every other business is taxed.
California tax is calculated with operating expenses deducted in both columns, because California does not enforce 280E against licensed cannabis businesses. The entire 280E penalty is federal.
Net profit = your real pre-tax profit (Revenue − COGS − operating expenses) minus total tax. The effective tax rate is total tax as a share of that real pre-tax profit.
California note: California does not apply 280E to licensed cannabis businesses — C-corporations under the Corporation Tax Law, and licensed pass-through operators under current Personal Income Tax relief, may deduct ordinary expenses for state tax. The penalty shown here is entirely federal.
280E planning starts with how your business is built.
Entity choice, ownership structure, and how a medical and adult-use operation are organized all shape your 280E exposure. Baghoomian Law has guided 104 California cannabis licensees through structuring and ownership decisions.
Schedule a consultationEducational estimate only — not tax or legal advice, and not a substitute for a cannabis CPA or tax attorney. This is a simplified model: it applies flat tax rates (federal brackets are progressive) and does not account for the qualified business income deduction, alternative minimum tax, net operating loss carryforwards, tax credits, payroll taxes, local taxes, California's cannabis excise tax, or the inventory-accounting rules (IRC §471) that determine what costs may be capitalized into COGS. Federal scheduling and tax law are changing; figures are current as of the tool's last update. Using this tool does not create an attorney–client relationship. DCClicensing.com is a service of Baghoomian Law and is not affiliated with or endorsed by the IRS, the California Department of Cannabis Control, or any government agency. Confirm your own position with a qualified cannabis tax professional.