IRS Tax Code 280E states that no deduction or credit shall be allowed in running a business that consists of trafficking a controlled substance. Since cannabis is considered a Schedule 1 Controlled Substance at a federal level, 280E applies to cannabis businesses regardless of whether it's a state-legal business.
The reduction of deductions means increased taxable income for a cannabis enterprise. It also means marijuana companies face higher federal tax rates (40-80% compared to 21% corporate tax). Since 280E is directly related to selling or the "trafficking" of cannabis-related products, it impacts retail operations the most. However, it is important to understand the entire seed-to-sale concept and overall structure to truly understand how your business will be affected.
Careful analysis with a cannabis accountant could be helpful to ensure you’re remaining compliant with 280E.