Sycamore Growth Group

Rick Kleban & James Bean & Jenna Tugaoen

Rick Kleban is the founder and president of Sycamore Growth Group. In addition to providing strategic R&D tax credit guidance to clients, he advocates at the federal and state levels to improve the credit to better incentivize innovation, which in turn helps communities by growing the tax base.

James Bean, CPA, is a senior researcher and R&D tax controversy specialist at Sycamore Growth Group.

Jenna Tugaoen is a tax attorney at Sycamore Growth Group, specializing in assisting businesses in obtaining and substantiating R&D tax credits and resolving tax controversies.

Together, their expertise shapes the work of Sycamore Growth Group, an Ohio-based firm specializing in federal and state research & development tax credits by providing elite written substantiation and legal analysis for credit claims.

Cannabis operators can now claim federal R&D tax credits, thanks to rescheduling for medical license holders. For owners enhancing or expanding a facility, much of the project cost is often eligible.

Medical Rescheduling Opens Door to Claim R&D Credits

In April 2026, the Department of Justice issued a final order placing state-licensed medical marijuana into Schedule III of the Controlled Substances Act. For years, Section 280E disallowed deductions for ordinary operating expenses, taxing operators on gross profit and pushing effective federal tax rates to 60 percent. Treatment under 280E also barred producers from claiming tax credits their operations would otherwise generate. Rescheduling frees medical operators from both limitations.

Most operators appreciate the immediate relief that deductions provide. Few have considered the R&D credit’s potential to reduce taxes further and free up cash.

The biggest R&D credit opportunities are in facility builds and expansions. For medical growers and processors, capital investment becomes a credit engine. Qualifying a project as R&D also makes the expenses eligible for accelerated cost treatment, even immediate deduction. The combination materially improves cash flow and return on investment.

Eligible Costs Generating Significant Credits

The qualifying systems exist wherever sciences were involved in the design and construction: grow rooms engineered for specific control of light, humidity, CO2 and temperature; extraction and processing equipment built to throughput and purity targets; packaging automation; HVAC for the particular cultivation environments; custom electrical, plumbing, fertigation and water treatment; and, in some builds, the structure itself. If a system had to be engineered rather than pulled off a shelf, it is likely eligible.

In a typical facility expansion or build, 60 percent to 70 percent of project cost can qualify. On a $30 million build with $20 million of qualifying expenses, the federal credit under the Alternative Simplified Credit method can approach $1.7 million, a dollar-for-dollar reduction in tax now usable because 280E no longer stands in the way.

State R&D credits stack on top, and the most generous regimes among cannabis-legal states can add seven figures more.

Accelerated Expensing, and the Path to Zero Taxable Income

The R&D tax law also offers generous options for treating underlying project costs.

Most operators planning a build know that a cost segregation study typically applies to 35 percent to 45 percent of build costs, allowing for bonus depreciation. Section 174A of the R&D tax code pulls in more costs and recognizes them earlier. A rigorous R&D study will typically substantiate that 60 to 70 percent of costs are eligible research and experimentation expenses. For instance, on a $30 million build, the deduction pool is $18 million to $21 million.

Faster Expensing

Section 174A allows R&D expenses to be deducted in the year they are paid or incurred. Bonus depreciation, by contrast, cannot be claimed until the project is placed in service (after the certificate of occupancy), which is usually 1 to 3 years after the first project expenses. Deducting expansion costs as R&D while construction is underway significantly accelerates tax savings.

Electing the Amortization Option

Section 174A also allows R&D costs to be amortized over a period of not less than 5 years, giving companies control over their tax picture. For a taxpayer who would otherwise generate a large NOL carryforward, which is usable against only 80 percent of a future year’s taxable income, amortization avoids that limitation, making it possible to reduce tax liability to zero.

State Credits: Present and Past

State credits have never been subject to 280E, a federal disallowance, so that opportunity has been available for years and is largely underclaimed. Facility work done as far back as 2021 may be eligible.

Why a Facility Build Generates R&D Tax Credits

Many miss the R&D tax credit opportunity by assuming that a new factory build or expansion is not eligible because it is depreciable. The plain text of Section 41 (R&D tax credits) shows that the depreciation limitation reaches only one category of qualified research expense, in-house supplies, while allowing internal labor and outside contracted services. A facility build is overwhelmingly contractor-driven: engineering firms, specialty contractors, and automation vendors designing and building systems to the company’s performance specifications.

Protective Returns

The federal prior-year picture has not been fully determined. The DOJ order encouraged Treasury to consider retrospective relief for years an operator held a valid state medical license. Treasury has said broader guidance is coming, but its initial statement addressed only a prospective 2026 transition rule and was silent on prior years. Meanwhile, the refund statute for 2022 returns three years from the filing date is closing. Filing a protective amended 2022 claim now preserves the position in case later guidance opens those earlier years.

Substantiation is Paramount

Whatever the year, the credit is won or lost on substantiation. Draw reports and invoices prove what was spent, not what was engineered, what technical uncertainties arose, nor how they were resolved. That knowledge lives with the general contractor and the trades. An experienced provider does the heavy lifting: collecting the specifications, meeting minutes, change orders and drawings from the taxpayer and each subcontractor, and conducting interviews and site visits. Most importantly, the provider builds the written substantiation, organized so an examiner can evaluate the claim with minimal effort. A claim that is easy to examine is one that stands.

Next, Accelerate Cash Flow

For years, 280E forced cannabis growers and processors to choose between heavy leverage and slower growth. With those shackles removed, facility investment can now generate credits and deductions that materially improve cash flow to accelerate growth or harvest cash.