This article was originally published on Green Entrepreneur.

The archaic code bans Schedule 1 companies from deducting business expenses. Here’s how to get around it.

Although we continue to see rapid growth and hear about financial success stories in the cannabis industry, business owners are still facing massive challenges. One such hurdle is being taxed at an extremely high rate due to section 280e of the IRS tax code. Unfortunately, the IRS deems state-compliant cannabis business as federally illegal and this archaic code bans businesses that traffic Schedule I or Schedule II substances from deducting business expenses besides the cost of goods sold.

As a cannapreneur, that means you’re likely paying an effective tax rate 3.5 times higher than your neighboring business — just because you cannot take normal deductions associated with selling cannabis, including employee wages, technology, accounting, rent, and more. Examples of costs that are deductible are those that are attached to the production of cannabis, such as soil, water, lights, electricity, nutrients, and additional expenses related to the cultivation of cannabis.

But state-legal, compliant cannabis businesses can take steps to reduce the 280e tax burden and keep your operation safe and profitable.

Read the full article on Green Entrepreneur.