If you’re an investor, operator, executive, or compliance lead in the cannabis industry, let me be blunt: IRC § 471(c) is no longer just a tax footnote—it’s a strategic asset.

Thanks to the One Big Beautiful Bill Act (P.L. 119‑21), § 471(c) has been made permanent. That permanence means we finally have a stable, IRS-sanctioned way to reduce our effective federal tax rate — legally and proactively.

What Is § 471(c) and Why It Matters

Section 471(c), introduced in the 2017 Tax Cuts and Jobs Act, allows businesses with under $25 million in annual receipts (adjusted annually) to move away from GAAP inventory rules and instead apply alternative internal accounting methods for valuing inventory — so long as they reflect what’s in our books and records.

Here’s what that means in practice:

  • We can capitalize both direct and indirect costs — rent, payroll, utilities, packaging, security — into Cost of Goods Sold (COGS)

  • Doing so shifts expenses out of “non-deductible” land (thanks, 280E) and into federally recognized deductions

That’s real margin we’re talking about. For retailers, this could be the difference between bleeding cash and breaking even. For vertically integrated MSOs, it’s a critical way to normalize tax exposure across business units.

280E Still Applies — But § 471(c) Creates Options

The IRS reaffirmed in June 2024 that § 280E still applies. No surprise there.

What matters now is how we respond.
Most expenses in cannabis aren’t deductible under 280E — but COGS is.
That’s the entire reason § 471(c) matters.

As a CFO, I’ve seen how powerful it can be when we align our inventory accounting with this section. It’s not a loophole — it’s the law. And now, it’s permanently available.

The Real Win: Permanency Under the One Big Beautiful Bill

For years, we had to treat § 471(c) like a window that might close. That limited our ability to rely on it for long-term planning.

That’s over.

With the passage of the One Big Beautiful Bill, Section 112014 of P.L. 119‑21 removes the expiration clause. § 471(c) is now a permanent part of federal tax law.

We can:

  • Standardize inventory cost allocations across multiple licenses and entities

  • Forecast federal tax liability more accurately

  • Confidently build accounting systems that take full advantage of this treatment

  • Do it all without relying on new cannabis legislation or 280E repeal

This is IRS-approved. No advocacy needed. No gray area.

Key Points for Stakeholders

Investors: Expect stronger after-tax earnings potential when § 471(c) is implemented correctly.

Operators: If your CPA isn’t modeling 471(c)-compliant COGS treatment, your margins are suffering.

CxOs: This election isn’t a temporary workaround. It’s a permanent tool for tax positioning and strategic planning.

Compliance Professionals: Ensure your cost accounting system, chart of accounts, and documentation standards align with how the IRS expects inventory to be tracked under this provision.

Bottom Line

As a CFO in this space, I know how taxing (literally) it can be to operate under federal prohibition. But § 471(c) is a rare win — a section of the Internal Revenue Code that gives us a real, codified way to reduce our exposure to 280E.

Now that it’s permanent, I strongly recommend every cannabis company revisit their tax strategy and cost accounting model to ensure they’re making full use of this provision.

If you need help optimizing this across your organization, our team at BTA Cannabis CPA Tax is ready to assist.

We’ve been implementing § 471(c) strategies since it first became available. And now that it’s here to stay — we’re just getting started.