Choosing an Entity Type Under 280E
In a pass-through, disallowed deductions raise taxable income flowing to owners, who owe federal tax personally on income the business may never distribute. In a C corp, the liability sits at the entity level and the effective rate tends to be more predictable, at the cost of double taxation on distributions.
The right structure depends on distribution needs, the owners' other income sources, the expected holding period and the likely exit path. We model the options against your actual numbers instead of defaulting to an industry norm.
- C corp containment of 280E liability at the entity level
- Pass-through exposure at the owner level without matching cash
- Basis, distribution and reasonable compensation analysis
- Exit treatment: stock sale versus asset sale outcomes
Multi-Entity Structures That Actually Hold Up
Common setups separate the licensed operating company from a real property holding company and, sometimes, a management or IP company. Where the separation reflects real economics, it can add liability protection, financing flexibility, and — in narrow cases — a supportable position that a non-trafficking activity is a genuinely separate trade or business.
The failures all look alike: no written agreements, no independent capitalization, shared staff with no time allocation, above-market intercompany charges, and no business purpose beyond a tax result. We build with substance behind it, or we recommend against building it at all.
Social Equity Ownership and Licensing Rules
Illinois licensing requires disclosure of owners and financial interest holders, and ownership changes can trigger IDFPR or IDOA notification or approval. Where a licensee carries Social Equity Applicant status, ownership-percentage covenants and equity-dilution limits tied to the Cannabis Business Development Fund and R3 program add another layer any restructuring has to respect.
We coordinate with cannabis regulatory counsel so structural changes are sequenced against licensing and social equity obligations up front, not discovered afterward.
Real Estate and Equipment Ownership
Holding property in a separate entity shields the asset from operating liabilities and adds financing flexibility, but related-party lease terms have to be at market and documented. Above-market rent to a related landlord is a standard examination target.
Equipment ownership deserves the same care, especially where depreciation interacts with a producer's inventory capitalization.
Restructuring an Existing Business
Most operators aren't starting from a blank page. Restructuring an operating cannabis business carries tax consequences on transferring assets or interests, licensing implications, lender consents and, sometimes, municipal sign-off.
We build the transition plan with tax cost quantified up front, in the right sequence, coordinated with counsel — never as a retroactive paperwork exercise.
