How can I use python itertools.groupby() to group a list of strings by their first character?

You might want to create dict afterwards:

from itertools import groupby

d = {k: list(v) for k, v in groupby(sorted(tags), key=lambda x: x[0])}

groupby(sorted(tags), key=operator.itemgetter(0))

>>> for i, j in itertools.groupby(tags, key=lambda x: x[0]):
    print(i, list(j))


a ['apples', 'apricots']
o ['oranges']
p ['pears', 'peaches']