By Daniel Sabet · Cannabis CFO & Financial Advisor, GreenGrowth CPAs · 280E, Tax Strategy & Growth Planning · Los Angeles, CA | Published June 2026 | Cannabis Tax
Bonus depreciation in 2026 is one of the biggest capital planning changes cannabis operators have seen in years. The One Big Beautiful Bill Act (OBBBA, P.L. 119-21, signed July 4, 2025) permanently restored 100% first-year bonus depreciation for qualifying property placed in service after January 19, 2025. For most businesses, the math is simple: buy the equipment, place it in service, deduct the full cost this year. For cannabis operators, two filters change that outcome. The first is IRC Section 280E, which controls how much of that deduction actually lowers federal taxable income. The second is state conformity. California, New York, and New Jersey do not follow the federal OBBBA rules on this point.
QUICK ANSWER
Cannabis operators can claim 100% bonus depreciation under the OBBBA for qualifying assets placed in service after January 19, 2025. The effective benefit depends on whether the asset is tied to a COGS-eligible production function or a 280E-restricted retail function. Operators in California, New York, and New Jersey must maintain separate state depreciation schedules because those states do not conform to the OBBBA bonus depreciation rules.
Bonus Depreciation 2026 for Cannabis: At a Glance
- What it is: A first-year 100% deduction for the full cost of qualifying depreciable property, permanently restored under the OBBBA for assets acquired and placed in service after January 19, 2025.
- Who it applies to: Any cannabis business acquiring qualifying tangible personal property, computer software, or qualified improvement property with a MACRS class life of 20 years or less.
- Key constraint: The 280E filter determines effective deductibility. Equipment tied to production flows through COGS. Equipment tied to retail functions faces 280E disallowance limits.
- Primary mistake: Assuming 100% federal bonus depreciation produces the same result at the state level. California, New York, and New Jersey do not conform to the OBBBA restoration.
- Timing rule: The asset must be placed in service (operational) before December 31 of the tax year to claim the deduction that year. Ordered or delivered is not sufficient.
- GreenGrowth's role: We model the 280E interaction and state conformity impact before cannabis clients make capital purchase decisions, not after.
Planning an equipment purchase in H2? Talk to our team before you sign anything →
What the OBBBA Changed About Bonus Depreciation
The Tax Cuts and Jobs Act of 2017 introduced 100% bonus depreciation, but it also built in a phase-down. The rate dropped to 80% in 2023, then 60% in 2024, then 40% in 2025. Without the OBBBA, it would have fallen to 20% in 2026 and disappeared entirely in 2027. The OBBBA reversed all of that. It permanently restored 100% bonus depreciation under IRC Section 168(k) for property placed in service after January 19, 2025. There is no phase-out scheduled. The IRS issued Notice 2026-11 to answer transition questions for property near that effective date.
What Property Qualifies
Qualifying property includes tangible personal property with a MACRS recovery period of 20 years or less. It also includes computer software and qualified improvement property. Both new and used assets qualify. The one condition: the taxpayer must not have used the property before. The OBBBA also added a separate, temporary provision for qualified production property. That covers nonresidential real property used in manufacturing, and it carries different eligibility rules from standard bonus depreciation.
How 280E Changes the Bonus Depreciation Analysis for Cannabis
For a non-cannabis business, the bonus depreciation analysis is simple. Identify qualifying assets, confirm the placed-in-service date, take the deduction. For cannabis operators, IRC Section 280E adds a filter. Section 280E blocks federal deductions for businesses that sell Schedule I controlled substances. Cannabis remains Schedule I. The one exception is cost of goods sold under IRC Section 471. COGS reduces gross income directly, rather than flowing through as a standard deduction.
How the 280E Filter Works by Asset Type
Production-tied assets: Equipment used in cultivation, extraction, or processing generally flows through COGS via inventory accounting. Bonus depreciation on these assets produces real tax benefit. A cultivator that buys $400,000 of grow systems, deducts the full amount in year one, and codes that cost through COGS will see a direct drop in federal taxable income.
Retail-tied assets: Equipment tied to dispensary or retail functions hits the 280E wall. The operator can still claim bonus depreciation on the federal return. But the taxable income it offsets is limited by the 280E framework. A dispensary-only operator claiming 100% bonus depreciation on POS systems and display cases will get less out of that deduction than the headline number suggests.
Vertically integrated operators: MSOs with both production and retail functions need allocation records. What share of each asset serves a COGS-eligible production function? What share serves a 280E-restricted retail function? You must document this consistently across years. The IRS looks here during audits. For more on how we structure this, see our cannabis tax strategy page.
💬 The Conversation Worth Having
The question I get most often on bonus depreciation from cannabis clients is whether they can just deduct all of it. The honest answer: it depends on what the asset does. A $300,000 extraction system at a California cultivation facility has a strong case for full COGS allocation. A $300,000 buildout at a New York dispensary has a weaker case under 280E and faces state non-conformity on top of that. Same dollar amount. Very different outcome. The time to run this analysis is before you sign the purchase agreement, not after.
State Non-Conformity: The Issue California, New York, and New Jersey Operators Cannot Ignore
The OBBBA's bonus depreciation restoration applies at the federal level. State conformity is a separate question, and for cannabis operators in three of the largest U.S. markets, the answer is non-conformity.
▶ State Conformity Quick Reference
| State | Conforms to OBBBA Bonus Depreciation? | What This Means |
|---|---|---|
| California | No | Depreciate over standard MACRS life for state purposes |
| New York | No | State depreciation follows MACRS; separate schedule required |
| New Jersey | No | Has historically decoupled from federal bonus depreciation |
| Minnesota | Generally yes | Confirm current-year status for OBBBA amendments |
| Delaware | Generally yes | Confirm current-year conformity with your CPA |
Take a California cannabis operator claiming 100% federal bonus depreciation on a $500,000 equipment purchase. The federal return shows a full $500,000 deduction in year one. The California return shows far less. The operator must depreciate that asset over its standard MACRS life for state purposes. That could be 5, 7, or 15 years depending on the asset class. The result is two separate depreciation schedules. You track one for the IRS and one for the state. Setting this up correctly from year one prevents errors that compound across the full recovery period.
Operating in CA, NY, or NJ? We set up dual depreciation schedules before you file, not as a correction after.
Book a Review →Bonus Depreciation vs. Section 179: Which Makes More Sense for Cannabis?
The OBBBA raised the Section 179 cap to $2.5 million. The phaseout starts at $4 million in total property placed in service. Both Section 179 and bonus depreciation allow first-year expensing. But they work differently in ways that matter for cannabis operators.
Section 179 cannot create a net operating loss. Bonus depreciation can. If a cannabis operator has limited taxable income in a given year, Section 179 stops at that income threshold. Bonus depreciation can push income into a loss and create an NOL to carry forward.
Section 179 applies asset by asset, in exact amounts you choose. That gives cannabis operators more control over the 280E interaction. You can target the deduction at assets with a clear COGS link and leave retail-function assets on a standard schedule.
More states follow Section 179 than bonus depreciation, though conformity still varies and must be confirmed. For most cannabis operators in California, New York, or New Jersey, Section 179 tends to produce a more predictable combined federal-state result than bonus depreciation on the same asset. The right answer depends on your income, entity type, and the assets involved. Our tax planning and depreciation services team models this before you commit to a purchase.
The Placed-in-Service Rule: The Timing Mistake That Moves Your Deduction a Full Year
"Placed in service" means the asset is operational and ready for use. It does not mean ordered, purchased, or delivered. If a cannabis cultivator orders $600,000 of lighting systems in October and takes delivery in November, but installation does not finish until January 2027, the deduction belongs to 2027. One month of delay can shift a six-figure deduction to the following tax year.
For any large H2 purchase where you want the current-year deduction, confirm the vendor's installation timeline before you sign. Get the completion date in writing. Build in buffer if the schedule is close to year end. The IRS does not bend the placed-in-service rule for delays.
KEY TAKEAWAYS
- ›The OBBBA permanently restored 100% bonus depreciation for qualifying property placed in service after January 19, 2025. There is no scheduled phase-out.
- ›The 280E filter is the most important variable for cannabis operators. Production-tied assets flow through COGS and produce real benefit. Retail-function assets face 280E deduction limits.
- ›California, New York, and New Jersey do not conform to federal bonus depreciation under the OBBBA. Operators in those states must maintain separate state depreciation schedules.
- ›Section 179 (now $2.5M cap) can be used alongside or instead of bonus depreciation. For cannabis operators managing the 280E filter, Section 179's asset-by-asset flexibility is often the better tool.
- ›Placed in service means operational before December 31. An asset that is not up and running by year end does not qualify for the current-year deduction regardless of when it was purchased.
Frequently Asked Questions
Qualifying property under the OBBBA includes tangible personal property with a MACRS class life of 20 years or less, computer software, qualified improvement property, and other IRC Section 168(k) property. Both new and used property qualify, provided the taxpayer has not previously used the asset. The property must be acquired and placed in service after January 19, 2025 to receive the 100% rate.
Common qualifying assets for cannabis operators include cultivation equipment, extraction systems, processing machinery, refrigeration and HVAC components classified as personal property, and interior improvements classified as qualified improvement property. Real property (buildings) does not qualify for standard bonus depreciation, though specific building components may qualify under QIP or cost segregation analysis.
A cannabis dispensary can claim bonus depreciation on qualifying retail improvements on the federal return. The OBBBA does not exclude dispensaries. The 280E interaction limits the effective tax benefit for retail-function assets, because those assets support the trafficking function that 280E restricts. The dispensary may still claim the deduction on the return, but the taxable income it offsets is constrained by the 280E disallowance framework.
For dispensaries in California, New York, or New Jersey, state non-conformity with federal bonus depreciation adds another layer. The combined federal-state benefit for retail-function assets in non-conforming states is more limited than the headline federal deduction suggests. Many dispensary operators in these markets find Section 179 produces more predictable and manageable tax treatment for retail improvements.
No. California has historically decoupled from federal bonus depreciation under IRC Section 168(k) and has not conformed to the OBBBA restoration of 100% bonus depreciation. Cannabis operators in California who claim 100% federal bonus depreciation must maintain a separate California depreciation schedule for each affected asset, depreciating it over the standard MACRS recovery period for California state tax purposes.
This creates a book-tax difference between the federal and California returns in the acquisition year: federal shows a full deduction, California shows a standard first-year depreciation amount. In subsequent years, the pattern reverses: federal shows nothing (fully depreciated), California continues the annual depreciation. Both schedules must be tracked independently across the full recovery period. New York and New Jersey have similar non-conformity issues.
An asset is "placed in service" when it is in a condition of readiness and availability for its assigned function in the business. This means operational, not merely ordered, purchased, delivered, or in the process of installation. If an asset is not operational by December 31 of the tax year, it does not qualify for bonus depreciation in that year regardless of when it was purchased or delivered.
For cannabis operators making H2 capital purchases with current-year deductions in mind, confirming the placed-in-service date is critical. A piece of extraction equipment ordered in October, delivered in November, but not fully installed and operational until January will not produce a current-year deduction. Confirm vendor installation timelines in writing before signing purchase agreements. If the timeline is close to year end, build in buffer or accept that the deduction may belong to the following year.
Both are available and can be combined, but they work differently in ways that matter for cannabis. Section 179 cannot create a net operating loss. Bonus depreciation can. Section 179 can be applied selectively asset-by-asset, which gives cannabis operators more control over the 280E interaction. Bonus depreciation applies to the full cost of qualifying assets and has no dollar limit (unlike Section 179's $2.5M cap under OBBBA).
For most cannabis operators navigating 280E, applying Section 179 to assets with clear COGS allocation and using bonus depreciation for remaining production-tied assets often produces the best combined outcome. For assets where 280E limits the benefit, standard depreciation may be more appropriate than front-loading a deduction that does not fully flow through. The right answer depends on your income level, entity structure, active states, and specific asset mix. This is a calculation we run before the purchase decision, not after.
We run a four-part analysis for every significant capital purchase: first, confirm the asset qualifies for bonus depreciation and the placed-in-service date is achievable before year end; second, apply the 280E filter to determine the effective deduction based on the asset's function (production versus retail); third, evaluate the state conformity position for each active state; and fourth, model Section 179 versus bonus depreciation to determine the optimal first-year expensing approach given the client's income, entity structure, and NOL position.
This analysis needs to happen before the purchase agreement is signed. After the fact, the options are limited. We work with cannabis operators across California, New York, New Jersey, Minnesota, and Delaware. To discuss a specific capital purchase or your overall H2 depreciation strategy, book a CFO Discovery Call.
Know Your Effective Rate Before You Buy
For cannabis operators, bonus depreciation benefit depends on what the asset does and which state you are in. GreenGrowth CPAs models the 280E filter and state conformity impact before you make capital purchase decisions. We work with operators in California, New York, New Jersey, Minnesota, and Delaware.
KEY NUMBERS
100% Bonus Depreciation Is Back. Know What It Actually Delivers for Your Operation.
For cannabis operators, the 280E filter and state non-conformity rules determine what bonus depreciation really produces. GreenGrowth CPAs models both before you make capital investment decisions.
Book Your Free CFO Discovery Call →GreenGrowth CPAs · Cannabis Tax Team
