Before you hire your first employee or open your doors, you must make a critical decision: how to legally structure your cannabis business. In New York, this choice directly affects your licensing eligibility, ownership flexibility, and your tax exposure under IRS Code 280E.
This guide breaks down what you need to know about entity selection, ownership rules, and compliance strategies to set your dispensary up for long-term success.
1. Understand New York’s Ownership Restrictions
New York’s cannabis laws limit how many licenses a person or business can hold. Vertical integration is largely prohibited, meaning:
- You can’t own both a cultivation and retail license
- Passive investors are subject to disclosure and background checks
- “True parties of interest” include spouses, relatives, and financial backers
Choose a structure that enables full transparency and aligns with OCM reporting requirements—especially if you’re seeking social equity status or external funding.
2. Choose the Right Entity Type for Tax Efficiency
The most common cannabis business entities include:
✅ LLC (Limited Liability Company)
- Offers flexibility in ownership and tax treatment
- Ideal for startups or investor syndicates
- Can elect to be taxed as a partnership or corporation
✅ S Corporation
- Pass-through taxation avoids double taxation
- Limited to 100 shareholders and one share class
- Not ideal for complex investor structures
✅ C Corporation
- Allows easier access to outside capital
- Pays corporate taxes on profits (280E exposure is higher)
- Can retain earnings for growth or expansion
Your structure should reflect your long-term growth goals and funding needs.
3. Prepare for 280E Tax Exposure
Under IRC 280E, cannabis businesses can’t deduct most business expenses—making your entity type and accounting practices essential.
- C-corps pay tax at the corporate level, increasing 280E burden
- LLCs and S-corps pass income to owners, taxed at personal rates
- Regardless of structure, precise COGS tracking is required
👉 Ensure your accounting system can properly allocate deductible vs. non-deductible expenses.
4. Draft an Operating Agreement That Meets Licensing Rules
Your operating agreement or shareholder agreement must match what’s filed with the New York Office of Cannabis Management (OCM). It should clearly define:
- Ownership percentages and voting rights
- Buyout and transfer restrictions
- Roles and responsibilities of managing partners
- Profit-sharing and investor terms
Inaccurate or missing documentation can delay or jeopardize your license.
5. Avoid Co-Mingling Across Entities
If you operate multiple licenses (e.g., dispensary and delivery) or separate real estate holdings, you must maintain financial separation:
- Use distinct bank accounts and accounting systems
- Draft intercompany agreements for shared services
- Report income and expenses per entity
This prevents compliance issues and simplifies audits.
6. Plan Ahead for Investors and Profit Distribution
If you’re raising capital, your structure must allow for:
- Proper cap table management
- Investor disclosures in line with OCM rules
- Legal and transparent profit distribution mechanisms
Never rely on handshake deals. All equity and revenue arrangements should be formally documented and compliant with NY cannabis law.
Final Thoughts: Structure Today for Success Tomorrow
Choosing the wrong structure can result in higher taxes, licensing setbacks, or limits on your growth potential. The right structure—built for compliance, tax efficiency, and investor readiness—lays the foundation for long-term success.
Work with GreenGrowth CPAs to Structure Your NY Cannabis Business
At GreenGrowth CPAs, we help cannabis founders in New York navigate complex decisions around entity selection, licensing compliance, and 280E tax strategy.
