280E
The COGS Playbook for Dispensaries
Which indirect costs you can capitalize under 280E, and how to document them so they hold.
Start with the cost, not the deduction
Under 280E, the only spending a plant-touching operator can subtract is cost of goods sold. That turns ordinary bookkeeping into a defensible allocation exercise: every dollar you want to shelter has to be traced to inventory before it ever reaches the return.
What belongs in COGS
Direct costs are the easy part: cultivation labor, nutrients, packaging that moves with the product. The judgment calls live in the indirect layer. A portion of rent for the grow room, utilities that run the lights, quality testing tied to a batch. Section 471 gives you the framework, and the discipline is documenting the driver behind each allocation so it survives a second reader.
- Tie every allocation to a measurable basis: square footage, headcount, machine hours.
- Keep the workpaper next to the number, not in someone’s memory.
- Revisit the drivers when the footprint changes, not at year end.
Why the paper trail is the strategy
A well-built COGS schedule is not aggressive. It is legible. When the allocation method is written down and applied consistently, the position holds because a reviewer can follow it. That legibility is the whole game.
