For decades, Section 280E of the Internal Revenue Code has prevented state-licensed cannabis businesses from deducting most ordinary business expenses. Changes in marijuana’s federal status eventually may reduce that burden for some operators, but the timing, scope, and tax treatment remain unsettled. Until the IRS provides clear guidance, companies should model potential relief without treating it as cash already available to spend.
That uncertainty makes disciplined risk planning more important, not less. Operators can prepare now by deciding how potential tax savings would be allocated and identifying the risks associated with each use. The objective is not to park every additional dollar in reserves or insurance, but to avoid committing capital to growth before the business can support what that growth entails.
Match capital plans to risk
Every proposed investment carries different exposures. Adding employees, increasing inventory, entering a new market, expanding production, or signing larger contracts can affect the company’s financial, operational, regulatory, and contractual risk.
Review the controls associated with each proposed investment. Depending on the plan, that may include:
- Cash reserves and debt obligations.
- Vendor and customer contracts.
- Employee policies and management capacity.
- Regulatory and compliance procedures.
- Cybersecurity and data-recovery systems.
- Inventory, property, and business-continuity protections.
- Insurance limits, exclusions, deductibles, and retention levels.
Insurance should be evaluated as part of that review, not treated as a substitute for operational controls. Companies also should confirm existing coverage reflects their current revenue, payroll, inventory, locations, and contractual obligations. Any expansion may require changes, but those decisions should follow a documented exposure analysis rather than an assumption that more cash automatically calls for more coverage.
A 90-day risk review
Because the timing and scope of any relief remain uncertain, companies should prepare for several possible outcomes rather than assume an immediate change. A phased review can help operators act deliberately if additional cash becomes available.
First 30 days
- Model best-case, base-case, and delayed-relief scenarios.
- Identify uses of capital that depend on tax savings.
- Inventory existing controls and major uninsured or underfunded exposures.
Days 31–60
- Review contracts, employee policies, compliance documentation, cybersecurity controls, and business-continuity plans.
- Compare insurance limits, exclusions, and retentions with the company’s current operations.
- Identify problems that should be corrected before expansion.
Days 61–90
- Establish priorities for reserves, debt reduction, remediation, technology, insurance adjustments, and growth.
- Assign responsibility and deadlines for corrective work.
- Require another risk review before entering new markets, adding facilities, or making major hires.
The long-term value of a risk-first mindset
Improved tax treatment could give some cannabis businesses more room to invest, hire, strengthen margins, or expand. But additional liquidity does not make growth less risky. Companies that establish priorities and correct vulnerabilities before committing capital will be better positioned to preserve any eventual gains.
Griffin Basden is a senior client manager at AlphaRoot, where she works with cannabis operators to design and manage insurance programs that align with the complexity of their businesses. She specializes in helping multistate operators and vertically integrated companies navigate risk, stay compliant, and structure coverage that supports growth. Previously, she served in similar roles at Founder Shield, Aon, and ECM Solutions.
