Webinar: What Cannabis CEOs Need to Know About Accounting Practices

Accounting Practices for Cannabis Businesses

Last, the Certified Public Accountant could modify the engagement letter to clarify expectations regarding staying in compliance with all state and local regulations and federal tax code. Five Certified Public Accountant participants indicated that they do serve the cannabis industry. Seven CRB participants and three Certified Public Accountants who currently serve the industry made a point to note that regardless of the service to be provided, Certified Public Accountants must have in-depth knowledge of the industry. Tax compliance was the service indicated as being needed most by CRBs from fifteen participants. Table 5 summarizes the responses when asked what professional accounting and tax services are most needed in the industry. The primary reason given that Certified Public Accountants choose to not serve the industry is that cannabis remains illegal at the federal level.

IRS (finally) issues guidance for the cannabis industry

Whether upstart or experienced, small-scale or large, cannabis operators face a fairly unique set of business and operational challenges, with accounting chief among them. For one, the standby accounting software, Quickbooks, is necessary although not sufficient to smooth 280e accounting, which regulates the deduction of business expenses for alcohol and drug companies. As the first full-service CPA and Consulting firm to advise Massachusetts cannabis companies, we have over 10+ years of proven cannabis experience nationally.

Getting to the root of cannabis accounting

But there still may be significant savings opportunities for patients and new business opportunities for Washington’s dispensaries. The 37% reduction, combined with the 6.5% savings on sales tax that already exists, may be enough to spark a resurgence in medical cannabis sales. Moreover, efficient accounting practices are vital for the sustainability and growth of any cannabis growing business.

  • Pay for entry-level accountants has risen 7% on average, according to Randstad data.
  • In the rapidly growing cannabis industry, understanding the complexities of cannabis inventory accounting has never been more critical.
  • Eight of the Certified Public Accountant respondents indicated that the primary reason to avoid the industry was because the industry is federally illegal and/or they feared federal criminal prosecution.
  • Well, we all pretty much know at this point, there are hundreds of medical benefits that are being documented and tested in hospitals and labs and science all over the globe actually, and so real science is catching up.
  • It’s slowly getting better, but we’re talking about literally building accounting from the base up.

Is there a difference between the recreational and medical marijuana industries?

Initially, accountants and attorneys advised cannabis clients to set up as C corporations. This was primarily due to the difference in tax rates between C corporations and other types of tax entities. As a result, practitioners are more likely now than ever to be asked to consult with clients that may either be considering or are currently involved, directly or indirectly, in a state-legal cannabis business. This is an industry in distress, and it’s important for people to recognize that. But in any event, the access to cannabis came up with ordering online and drive-through, curbside service, and everything, and that’s stuck around. Now we have an over-saturated market in many areas, particularly out west in Oregon and California and even Colorado.

  • They just want to go to one source — you — to have all their financial concerns addressed.
  • They also mean additional costs for dispensaries who choose to sell medical cannabis, which must end up being passed on to the patients in the form of higher prescription prices.
  • Federal law, on the other hand, still identifies marijuana as a Schedule I substance, contradicting the legal status of cannabis at the state level.
  • With 26 million businesses that use QuickBooks, it’s no wonder businesses in the cannabis industry are hopping on the bandwagon.
  • Despite this tax limitation, professional accountants can help to legally reduce taxable income by allocating costs to inventory and the cost of goods sold, which is mandated by IRC 471.

Without proper tracking of day-to-day expenditures and transactions, your bookkeeping logs might become a nightmare with a higher tendency for errors. Cannabis accounting processes, as a result, must implement complete record-keeping to ensure a compliant inventory environment. Be ready to deal with application procedures in which regular financial statements must go through reviews. Industry Differences – cultivation, manufacturing, distribution, retail/dispensary, other ancillary businesses. Creating a practical and manageable COA requires a balance between detail and simplicity.

Accounting Practices for Cannabis Businesses

The regulatory environment for cannabis inventory accounting is complex, shaped by international and national standards, along with specific laws and regulations related to the cannabis industry. There are a growing number of cannabis-related businesses (CRBs) in the USA as many states have legalized cannabis for medical and/or recreational use even though it remains illegal at the federal level under the Controlled Substances Act (CSA). Regardless of state laws, cannabis is a Schedule I drug according to the federal government, and those found trafficking in cannabis could face criminal prosecution (Uniform Controlled Substances Act 1970).

The Risk and Reward of a Cannabis Business COA

The firm launched a BT Finance and Executive Search group this year and it’s in the process of establishing a private fund accounting administration practice. “For private investment funds, a lot of times they like to outsource their private fund accounting administration,” said Call. “We brought in somebody that worked with a large local private equity firm here, and she’s launched the practice for us.” The firm ranked No. 64 on Accounting Today’s 2024 list of the Top 100 Firms, with $102.79 million in annual revenue in fiscal year 2023.

Accounting Practices for Cannabis Businesses

Uncovering Actionable Intelligence Behind Big Data

  • On the litigation side, one possible way to address this problem is by relying more on contingency fees.
  • As interviews took place, responses were analyzed for clarity and understanding.
  • Quickbooks and Xero are popular choices for accounting, although some attempts must be made to create charts of accounts for each business stage.
  • Ten cannabis-related business owners were recruited from a convenience sample after attempting a broad recruiting effort.
  • Many operators finished 2018 with high hopes, only to discover the tax bill that awaited them was unlike anything they anticipated!
  • In addition, the accountant may want to interview a Certified Public Accountant from a more mature state to get advice on how to competently proceed and minimize risk.

A COA can help marijuana businesses meet the tough reporting standards of the cannabis industry. By taking the position, you’ll build experience, cultivate your skills, and even learn more complex accounting and bookkeeping tasks that general accountants may not know how to perform. If you’re a professional accountant just getting into the world of bookkeeping services, you may be hesitant to get into cannabis bookkeeping. However, medical marijuana accounting can have additional complexities due to its involvement with the medical industry and insurance of qualifying patients.

Top Tax & Accounting Challenges for Cannabis Operators

So for instance you might allot your accountant the role of cross-checking 280e compliance, after you’ve implemented up-to-date software with a built-in compliance check. Systems and software with controls built into them are the way of the future in tax accounting for cannabis businesses. That way, the burden of compliance does not fall exclusively on human shoulders. You have to remain on high alert due to complex and disparate federal, state, and local laws and regulations cannabis accounting and complex reporting and compliance requirements. In combination with the overzealous scrutiny from regulatory agencies, it’s challenges like these that solidify why understanding cost accounting is essential in the cannabis industry. For Certified Public Accountants that are considering accepting CRB clients, this study showed that there are risks that should be weighed such as the risk of federal prosecution and potential loss of the Certified Public Accountant license.

Unfortunately, cannabis accounting platform software designed to assist this complicated process is still lacking and doesn’t work well with widely used accounting systems. A Chart of Accounts is an index of the financial accounts within an organization’s general ledger. It is the backbone of your accounting system, offering a structured view of the financial transactions https://www.bookstime.com/ transpiring during a specific accounting period. Maintaining a clear, well-organized financial record is fundamental to any successful business, particularly within the complex and highly regulated cannabis industry. We’re not just accountants, we’re partners in your business journey, helping you navigate the complex regulatory landscape with confidence.

2 months ago

Leave a Reply

Your email address will not be published. Required fields are marked *