Choice of Entity Under 280E
In a pass-through entity, disallowed deductions raise taxable income that flows to owners, who owe federal tax personally on income the business may never distribute. In a C corporation, the liability stays at the entity level and the effective rate is often more predictable, at the cost of double taxation on distributions.
The right answer depends on distribution needs, the owners' other income, expected holding period and the likely exit structure. We model the alternatives against the operator's actual numbers rather than applying an industry default.
- C corporation containment of 280E liability at the entity level
- Pass-through exposure at the owner level without corresponding cash
- Basis, distribution and reasonable compensation analysis
- Exit treatment: stock versus asset sale consequences
Multi-Entity Structures That Hold Up
Common structures separate the licensed operating company from a real property holding company and, sometimes, from a management or intellectual property company. Where the separation reflects genuine economics, it can provide liability protection, financing flexibility and, in narrow cases, a defensible position that a non-trafficking activity is a separate trade or business.
The failures share a pattern: no written agreements, no independent capitalization, shared employees with no time allocation, above-market intercompany charges, and no business purpose beyond the tax result. We build structure with real substance, or we advise against it.
RLD Licensing and Ownership Constraints
New Mexico's Regulation and Licensing Department requires disclosure of owners and financial interest holders under the Cannabis Regulation Act, and ownership changes can require notification or approval before they take effect. A restructuring that looks clean on paper can jeopardize a license if it's executed without regard to those requirements.
We coordinate with cannabis regulatory counsel so structural changes are sequenced against RLD and CCD licensing obligations rather than discovered after the fact.
Real Estate and Equipment Ownership
Holding property in a separate entity protects the asset from operating liabilities and creates financing flexibility, but lease terms between related parties must be at market and documented. Above-market rent to a related landlord is a standard examination adjustment.
Equipment ownership deserves the same attention, particularly where depreciation interacts with inventory capitalization for a producer.
Restructuring an Existing Business
Most operators aren't starting fresh. Restructuring an operating cannabis business carries tax consequences on the transfer of assets or interests, licensing implications, lender consents and, occasionally, municipal approvals.
We build the transition plan with the tax cost quantified up front, in sequence, and coordinated with counsel — never as a retroactive paper exercise.
