Cannabis companies are used to hearing "no" from the tax system, so a recent ruling from the Colorado Department of Revenue stands out. In Private Letter Ruling 26-005, issued in July 2026, the Department considered whether a licensed cannabis operator could buy its equipment and growing supplies without paying Colorado sales and use tax. 

For the most part, the answer was yes.

On the manufacturing side, the Department concluded that turning harvested cannabis into products like concentrates and vape cartridges counts as "manufacturing" under Colorado law. 

Equipment used in that process, from industrial freezers at the start to labeling machines at the end, qualified for the state's manufacturing machinery exemption. 

On the cultivation side, a 2025 law now treats marijuana as an "agricultural commodity." Because of that change, fertilizers and certain soil amendments were treated as tax-exempt wholesale purchases. 

A narrower group of farm equipment also qualified, including higher-cost irrigation systems and sprayers used only for fertilizer. 

However, grow lights, climate control, and similar items did not.

What makes this interesting is the wider context. At the federal level, Section 280E of the Internal Revenue Code has long kept cannabis businesses from deducting most ordinary business expenses. As a result, relief at the state level can matter more to cannabis companies than to businesses in other industries. This recent Colorado ruling shows cannabis being treated, for these purposes, much like other manufacturing and agricultural businesses in Colorado—welcome news!

For people who follow deal activity and corporate structuring in the cannabis space, the ruling gives a window into how the Department reads these exemptions. It also shows how much the results depend on specific facts. The outcome relied on several assumptions, including that each item would have qualified for a former federal investment tax credit. It also depended on local rules, since some cities and counties have not adopted these optional exemptions. 

A private letter ruling applies only to the company that requested it, and other taxpayers cannot rely on it. Even so, it is a useful signal of how state tax treatment of the industry may be changing, and a reminder that state-level tax developments may matter as much as federal ones.

This post is for general informational purposes only and is not legal or tax advice.