Why RE OR DE -scheduling Won’t Save You—But a Cost Accountant Will Part 1

These Roots Don’t Budge — Why § 471-11 Isn’t Going Anywhere (Even if Cannabis Is Descheduled)

Ever hear a cultivator say, “Once they legalize it, I won’t need all this tax nonsense”? That’s like saying, “Once I clean my car, I won’t need oil changes.”

Descheduling won’t erase your accounting obligations—it’ll magnify them. And the IRS? They've had their roots in agriculture since the '60s. This blog is for every grower who knows the only thing older than § 471 is the dirt under their greenhouse.

A History of Inventory Costing in Agriculture

Section 471 of the Internal Revenue Code didn’t sprout out of cannabis legalization. It’s been the backbone of agricultural and manufacturing accounting since the Kennedy era. Cultivators, like all farmers, are required to use the full absorption method under § 1.471-11 to allocate both direct and indirect costs into inventory.

Translation: You can’t just expense everything in QuickBooks and call it a day.

What Cannabis Cultivators Must Capitalize

If you’re growing plants, you’re a manufacturer in the IRS’s eyes. So get familiar with:

• Direct costs: soil, water, seeds, wages for trimmers

• Indirect costs: depreciation on grow lights, rent for grow rooms, supervisory labor

Fail to properly capitalize these? You may be overpaying tax or opening yourself to audit risk.

Conclusion

Not all accountants and CPA’s are equipped to handle the unique demands of the cannabis industry. Look for one who is deeply immersed in the space, proactive about regulatory changes, and ready to act as a strategic partner in your business growth.

At Niche Accounting, we specialize in cost accounting for cannabis cultivators. Don’t wait until you’re in the weeds—book a free consultation and let’s grow your profit margins like your yield.

🌿 Schedule a strategy call today

1.471-11- Inventories of Manufacturers