Discover · Section 280E practice
Most cannabis retail weeks come down to two things: whether the cash covers what's already promised, and whether the business is improving rather than just getting bigger. This page walks that week, then draws a hard line around the part of it this practice will and won't touch.
01 — The boundary
Each item below carries an ownership marker, in words, not colour. Where it says we don't do it, that is not modesty — it means hire someone else for it, and we'll work alongside them.
● Ours
Under §280E the business is taxed on gross profit — sales minus the cost of what you actually sold, which the code still lets you subtract. Rent, payroll and marketing get no federal deduction. So the tax number moves with inventory costing, not with overhead, and it can be estimated well before filing.
● Ours
Because gross profit is the taxed base, how inventory is capitalised under §471 is the largest single lever on the tax line. That is a documentation job as much as a calculation: method, consistency, and a paper trail that survives a question.
● Ours
An Enrolled Agent is licensed to represent you before the IRS — examination, appeals, collections. If correspondence arrives, you forward it and we answer it. No outcome is ever promised.
◐ Shared
You know the floor, the vendors and the crew. We know what the tax code does to each option you're weighing. The read is better when both are in the room; neither of us should be doing it alone.
○ Not ours
We do not do your bookkeeping. Daily entry, reconciliation, closing the month — that belongs to a bookkeeper or controller who is in the file every week. We read what they produce and tell you what it means for the tax position.
○ Not ours
Point-of-sale hygiene, purchasing cadence, scheduling, menu pricing, staff coaching. We have opinions and no mandate. Our only ask is that the cost data coming out of those systems is clean, because the tax work is built on it.
Sales
What the register took in
Cost of goods sold
What the sold product cost you — still deductible
▲ Taxed here
Gross profit — the federal base under §280E
○ No federal deduction
Rent · payroll · security · marketing · professional fees · everything else it takes to open the doors
The standard we hold ourselves to
If the Review finds your position sound, it says so in writing and stops there. You will have spent $375 to put the question down.
02 — The week
Not a dashboard. Two questions, each ending somewhere you can act — because a review that ends in a number ends nowhere.
Question one
Bank balance on its own tells you almost nothing. What matters is the balance set against the payments you have already committed to over the next four to six weeks — vendor terms, rent, payroll runs, tax set-asides — and how much slack is left after them.
Ends in a decision
Which vendor payment moves, and whether this week's buy gets trimmed.
Question two
Growth hides a lot. The honest version is per-dollar and per-hour: margin on what sold, share of first-time buyers who come back, payroll as a share of sales. A store can add revenue every month and be worse to own than it was in spring.
Ends in a decision
Whether the thing that's growing keeps its funding for another month.
03 — Reading it
Illustrative, not prescriptive — every store's version of these has a different cause. The point is the walk from a symptom to something you do by Friday.
| What you noticed | Where to look first | What it usually turns out to be | What you do this week |
|---|---|---|---|
| Revenue held. Margin didn't. | Cost per unit by category against the last four weeks, then the receiving log. | Quiet cost creep on received product, or discounts running deeper than anyone approved. | Freeze the promo on the two categories that moved; re-check the last three vendor invoices against what was actually received. |
| First-time buyers aren't coming back. | Share of first visits that return within 30 days, split by the staff member who opened the sale (ids only: B-01, B-02, B-03). | The spread between staff is wider than the spread between products. The first visit is uneven, not the menu. | Put the lowest-return id on shifts beside the highest for two weeks, then read the same split again before touching ad spend. |
| Labour is climbing faster than sales. | Payroll as a share of sales by day-part, not by week. | The schedule is still built on last quarter's traffic pattern. | Cut one shoulder shift on the two slowest day-parts, hold everything else, and re-read in two weeks before cutting again. |
Staff appear as opaque ids throughout. Nothing on this page reflects a real store, a real person, or a real figure.
04 — The stack
Nine recurring reports in three groups. Open any one for the question it answers, a sample table, and an honest line on whether we own it, share it, or stay out of it.
Everything that answers question one.
Will the account cover the next quarter's committed payments?
◐ Shared · open sample →
What is due, to whom, and what happens if it slides a week?
○ Not ours · open sample →
Is enough being held back each week for the federal number that's coming?
● Ours · open sample →
The group that decides the tax line, which is why most of our attention is here.
Where did the margin actually go, and is it price or cost?
◐ Shared · open sample →
Does what arrived match what the invoice says it cost?
○ Not ours · open sample →
What is capitalised into inventory, on what method, and is it documented?
● Ours · open sample →
Mostly not our work — but it sets the numbers the other two groups read.
Which hours are carrying their own labour cost?
○ Not ours · open sample →
What has to sell each week before a site stops costing you money?
◐ Shared · open sample →
Do first-time buyers come back, and does the basket grow when they do?
○ Not ours · open sample →
05 — The test
Correct books are the entry requirement for doing any of this — they are not the product. Plenty of operators get a tidy, reconciled, entirely accurate package every month and cannot name one thing they changed because of it.
Reporting has stopped earning its place when it arrives late enough that the decision is already made, when it reports the past without naming what changed, or when it lands as three separate files nobody reconciles into a single conversation.
What we require of our own pages
06 — Sequence
Automating a process multiplies whatever it already produces. If the output is worth having, you get more of it, sooner. If it isn't, you get more of nothing, faster, and now it's harder to inspect. This is ordinary operations thinking, not a proprietary idea — it just gets skipped a lot when software is the exciting part.
STEP 1
Name the result. What decision should this produce, and for whom?
STEP 2
Do it by hand, weekly, until it's boring and the numbers hold up.
STEP 3
Then automate the assembly — never the judgement.
▲ PAYOFF
You see the thing that matters days earlier. Not more paper — earlier sight.
Ordinary practice, example one
Standard in multi-location retail: the same handful of per-shift measures assembled on a schedule so a manager sees staff-level patterns without anyone spending a morning in a spreadsheet. Worth automating only after someone has built it by hand enough times to know which measures actually change behaviour.
Ordinary practice, example two
Also standard: flag it when the cost recorded on received inventory doesn't match the vendor invoice, at the door rather than at month-end. Bad cost data doesn't stay put — it corrupts every margin read downstream of it, and under §280E it lands in the tax calculation too.
07 — One next step
A licensed Enrolled Agent reads your inventory costing and §280E position and tells you, in writing and in plain language, where it stands. One engagement, one price, no retainer attached to it.
You get
A written read on how inventory is being costed, what that does to the taxed base, and the specific documentation gaps we'd close first.
You need to send
Last filed return, current inventory and cost-of-goods detail, and whatever your bookkeeper already produces. No new reporting to build first.
A clean finding counts
If the position holds up, the letter says so and we don't invent work. That is a complete, successful outcome of the Review.
Please read this part
Nothing on this page is tax advice, and reading it creates no engagement or client relationship. Everything here is general information about how retailers and their advisors commonly work; your facts change the answer. The federal treatment of cannabis businesses is unsettled and subject to change — nothing here should be read as resolving that question, or as suggesting §280E has stopped applying to you. No refund, examination, or audit outcome is promised. Enrolled Agent licensure is federal; representation before the IRS is authorised, and nothing here is legal advice.
All figures, tables and staff ids on this page are sample data created for illustration.
Every table below is illustrative sample data. Staff appear as ids.
The question: across the next quarter, does the account cover everything already committed, and where is the thinnest week?
| Week | Inflow | Committed out | Closing |
|---|---|---|---|
| W1 | 148,000 | 131,500 | 92,400 |
| W2 | 139,200 | 166,800 | 64,800 |
| W3 ▲ thinnest | 141,000 | 178,300 | 27,500 — attention |
| W4 | 152,700 | 129,400 | 50,800 |
◐ Shared. You own the forecast and the payment choices. We own the tax set-aside line inside it, and we'll tell you when a timing decision changes what's owed.
The question: what's due this fortnight, and which of it can move without damaging a supply relationship?
| Vendor id | Terms | Due | Flexible? |
|---|---|---|---|
| V-04 | Net 15 | 38,600 | No — sole source |
| V-11 | Net 30 | 21,150 | Yes — 7 days |
| V-17 | COD | 9,400 | No |
○ Not ours. Purchasing relationships and payment sequencing are the operator's call, informed by their bookkeeper. We stay out of it — and only speak up if a timing choice has a tax consequence you might not have priced.
The question: given gross profit to date, is the weekly hold-back on pace for the federal number, or is a shortfall building quietly?
| Month | Gross profit | Held back | Status |
|---|---|---|---|
| M-01 | 214,000 | 52,000 | ◆ On pace |
| M-02 | 238,500 | 41,000 | ▲ Behind — attention |
| M-03 | 226,900 | 58,500 | ◆ On pace |
● Ours. The estimate behind this line is ours to build and defend, because it depends entirely on how gross profit is computed under §280E.
The question: when margin moves, was it the price you charged or the cost you paid?
| Category | Margin now | 4-wk ago | Driver |
|---|---|---|---|
| Cat A | 44.1% | 48.6% | ▲ Cost up at receiving |
| Cat B | 39.8% | 40.2% | ◆ Flat |
| Cat C | 51.3% | 55.0% | ▲ Discount depth |
◐ Shared. Pricing and promotion are yours. The cost side is where we live, because the same figure lands in the tax computation.
The question: does the cost recorded when product arrived match what the vendor invoiced?
| Receipt | Recorded | Invoiced | Status |
|---|---|---|---|
| R-2210 | 8,420 | 8,420 | ◆ Match |
| R-2214 | 12,100 | 12,860 | ▲ Under-recorded — attention |
| R-2219 | 5,300 | 5,300 | ◆ Match |
○ Not ours. This is a receiving-desk and bookkeeping control, and it should run without us. We say it out loud anyway, because if it isn't running, the cost of goods sold figure we're asked to defend was wrong before it reached us.
The question: what is being capitalised into inventory, under what method, applied consistently — and can it be shown on paper?
| Cost element | Treated as | Documented |
|---|---|---|
| Product purchase | Inventory | ◆ Yes |
| Inbound freight | Inventory | ▲ Partial — attention |
| Store overhead | Period cost | ◆ Yes |
● Ours. This is the centre of the work. Method selection under §471, consistency, and the documentation that supports both — that's what the Risk Review examines first.
The question: which hours of the day are paying for their own labour, and which are being carried?
| Day-part | Sales | Payroll % | Status |
|---|---|---|---|
| Open–12 | 6,900 | 21.4% | ▲ Over-staffed — attention |
| 12–17 | 19,400 | 9.8% | ◆ In band |
| 17–close | 24,100 | 8.6% | ◆ In band |
○ Not ours. Scheduling is an operations decision made by people who know the crew. And under §280E labour on the sales floor generally isn't deductible anyway, so this report is about the business, not the tax return.
The question: how much has to sell each week before a site stops taking money out of the group?
| Site | Weekly break-even | Actual | Status |
|---|---|---|---|
| S-1 | 96,000 | 118,300 | ◆ Above |
| S-2 | 84,500 | 79,100 | ▲ Below — attention |
| S-3 | 71,000 | 73,400 | ◆ Above |
◐ Shared. You set the cost base and the targets. We make sure the tax obligation sits in the calculation, because a site can clear its operating break-even and still not cover what it generates in federal tax.
The question: what share of first-time buyers comes back within 30 days, and does the second basket grow?
| Opened by | First visits | Returned in 30d | 2nd basket |
|---|---|---|---|
| B-01 | 142 | 38% | +11% |
| B-02 | 128 | 19% | +2% |
| B-03 | 151 | 34% | +9% |
○ Not ours. Customer behaviour and staff coaching are the operator's ground, and reading it well takes floor knowledge we don't have. We only note that it moves gross profit, which is the number we're accountable for.
Book a 30-minute consult with an Enrolled Agent — no obligation.