Key Takeaways

• Cannabis accounting services protect your business from costly 280E tax mistakes
• Proper COGS structuring can legally reduce your tax burden
• Inventory tracking is critical for both compliance and profit visibility
• Outsourcing to specialists often costs less than building an internal team
• Otterz provides compliance-driven, profit-focused cannabis accounting solutions

Why Are Cannabis Accounting Services Different from Traditional Accounting?

Cannabis businesses operate under a unique federal restriction: IRS Section 280E. This rule prevents most cannabis companies from deducting ordinary business expenses.

That single regulation changes everything.

Failing to navigate Section 280E properly can lead to overpaid taxes, cash flow strain, and heightened audit risk.

Understanding IRS Section 280E

Under 280E, you cannot deduct:

• Marketing
• Payroll (non-production)
• Rent (outside COGS allocation)
• Administrative expenses

The only major deduction allowed? Cost of Goods Sold (COGS).

That’s why cannabis cost accounting is critical. If your COGS isn’t structured correctly, you could be overpaying tens or hundreds of thousands in taxes annually.

Cannabis Cost Accounting vs Traditional Cost Accounting

Traditional accounting spreads expenses normally.

Cannabis accounting requires:

• Strategic inventory capitalization
• Proper labor allocation
• Detailed production tracking
• Audit-ready documentation

At Otterz, we build defensible COGS strategies that withstand IRS scrutiny while maximizing deductions, legally.

How Does Accounting for Cannabis Growers Differ from Dispensaries?

Not all cannabis businesses operate the same, and neither should their accounting.

Accounting for Cannabis Growers

Growers must focus heavily on:

• Production cost tracking
• Labor capitalization
• Cultivation supply allocation
• Harvest yield reconciliation
• Work-in-progress inventory

Cannabis inventory accounting for growers includes seed-to-sale reconciliation and biological asset valuation.

Dispensary Accounting Priorities

Dispensaries focus more on:

• Retail inventory turnover
• Sales tax compliance
• Cash management
• POS system reconciliation
• Multi-location reporting

The accounting structure must reflect your license type. Otterz customizes cannabis accounting services based on your operational model — not a one-size-fits-all template.

Also Read:  10 Common Accounting Problems That Cannabis Businesses Face

What’s the Difference Between COGS and Operating Expenses in Cannabis?

This is one of the most searched cannabis accounting questions — and for good reason.

COGS (Cost of Goods Sold)

COGS includes:

• Direct production labor
• Raw materials
• Packaging
• Facility costs (allocable portion)
• Certain utilities tied to production

These reduce taxable income.

Operating Expenses

Operating expenses include:

• Marketing
• Admin salaries
• General rent
• Office supplies

Under 280E, these are not deductible for cannabis plant-touching businesses.

Real-World Example

If your dispensary generates $2M in revenue:

• $1.2M COGS
• $600K operating expenses

You may only deduct the $1.2M in COGS, meaning you pay federal tax on $800K, not $200K.

This is why strategic cannabis tax planning matters.

How to Reduce Taxes for Cannabis Dispensaries Legally

If you’re asking, “How to reduce taxes for cannabis dispensaries legally?” here’s the framework we use here at Otterz:

Step 1: Optimize COGS Allocation

• Properly allocate rent
• Allocate production labor
• Capitalize eligible indirect costs

Step 2: Improve Inventory Accuracy

• Monthly physical counts
• Real-time POS reconciliation
• Identify shrinkage early

Step 3: Entity Structure Review

• Evaluate management company structures
• Ensure compliance with current IRS interpretations

Step 4: Quarterly Tax Forecasting

• Avoid surprise liabilities
• Plan cash flow around tax payments

Most competitors stop at bookkeeping. Otterz provides strategic 420 accounting services that proactively manage tax exposure year-round.

What Is the Best Cannabis Accounting Service for Dispensaries?

The best cannabis accounting service should offer:

• Deep 280E expertise
• Cannabis-specific inventory accounting
• Audit defense preparation
• Cash flow forecasting
• Regulatory compliance monitoring

Otterz combines tax strategy, AI monitoring and risk detection, automated bookkeeping, and financial advisory in one integrated service. We focus on profitability, not just compliance.

When Should You Outsource Cannabis Accounting Services?

Consider outsourcing if:

• You’re unsure about your COGS allocation – professional insight could drive huge tax savings!
• Your books aren’t audit-ready
• You’re growing quickly
• You lack cannabis-specific expertise internally
• You want predictable monthly accounting costs

Building an in-house department often costs 2–3x more when factoring salaries, training, and compliance risk.

Why Should I Choose Otterz for Cannabis Accounting Services?

Here’s what makes Otterz different:

• Cannabis-exclusive expertise
• Advanced cannabis tax planning strategies
• Transparent pricing
• Real-time financial dashboards
• AI risk detection
• Proactive compliance monitoring
• Experience with growers, manufacturers, and dispensaries

We don’t just record transactions. We help you pay less in taxes, maintain cash flow, track profitability, and build a financially resilient cannabis operation.

FAQs

What do I look for to find the best cannabis accounting service for dispensaries?

The best specialized service offers deep 280E expertise, inventory accounting accuracy, cannabis-specific tax planning, and audit defense. Specialized firms like Otterz provide industry-specific strategies.

Why should I choose Otterz for cannabis accounting services?

Otterz professionals are cannabis industry experts with specialized experience, offering compliance-driven, tax-optimized accounting solutions that protect margins and reduce audit risk.

What’s the difference between COGS and operating expenses in cannabis?

COGS (Cost of Goods Sold) includes the direct costs of producing or purchasing cannabis inventory and can reduce taxable income. Operating expenses cover overhead and administrative costs, which are generally nondeductible for federal tax purposes under Section 280E.

Are cannabis accounting services near me necessary?

Working with an accountant who understands your state’s cannabis regulations can be beneficial. Otterz has strong local ties in California, New York, and Delaware, along with extensive experience navigating state-specific compliance requirements. That said, cannabis accounting is highly specialized, and expertise in Section 280E, multi-state operations, and industry-specific financial strategy is far more critical than geographic location. As a national virtual firm, we provide compliant, cannabis-focused accounting services to operators across the U.S.

Conclusion

Cannabis accounting services aren’t optional; they’re essential for survival and profitability in this highly regulated industry.

With IRS Section 280E limiting deductions, accurate cannabis cost accounting and inventory tracking can mean the difference between scaling successfully or struggling with cash flow.

Otterz delivers specialized, proactive, and strategic accounting for cannabis growers and dispensaries alike. We focus on maximizing deductions legally, maintaining compliance, and helping you grow with confidence.

Schedule a meeting with a CFO today and discover how Otterz can transform your financial operations with automation, accuracy, and predictive insights. Questions? Reach us via email at hello@otterz.co or call us at (857) 234 4000 we’d love to hear from you.