Accounting for cannabis is a complex task. On one hand, the cannabis industry is growing rapidly since 11 states have legalized cannabis completely, and 34 states have legalized medical marijuana. On the other hand, cannabis is still a Schedule I controlled substance, which means it is illegal under federal law. Since they are selling a controlled substance, cannabis companies have an extremely difficult time receiving tax breaks and getting banks to take their money.
Because of these restrictions, cannabis accounting must be accurate and tightly managed. If a cannabis company’s finances are not accurately managed, they can be penalized, fined, or even shut down, according to Dope CFO. Even in California, where cannabis is completely legal, cannabis companies must comply with Section 280E of the Internal Revenue Code, which prevents companies whose business “consists of trafficking in controlled substances (within the meaning of Schedule I and II of the Controlled Substances Act).” This is what prevents cannabis companies from receiving tax breaks, since the IRS sees them as drug traffickers rather than legitimate businesses. The IRS is currently enforcing Section 280E quite actively, which leads to the fines, penalties, and shutdowns mentioned above.
If you want to succeed in the cannabis industry, cannabis CPA services can help you structure your business so you can deliver your product from seed to sale while remaining within strict federal regulations. A California cannabis CPA service like GJR Consulting uses the following tools and strategies to help you do that.
Careful Tax Planning
When you work with cannabis accounting professionals, they will help you find and implement tax strategies that will comply with federal regulations while giving you room to access tax breaks where possible. For instance, they can help you implement Section 471 of the Internal Revenue Code, which governs taxes and accounting inventories. They can also help you with business structuring by handling the financial side of setting up cannabis and non-cannabis sides of your business or minimizing your tax liabilities with vertical integration. Working with a professional accounting firm to implement cannabis tax strategies will help your business secure a stable future.
Cannabis Accounting Software
While it’s not specialized exclusively for cannabis businesses, you can use QuickBooks to your advantage. Work with your cannabis CPA to draw up charts for the farm, chemical, and retail aspects of your business. This type of software solution will allow you to improve your inventory management.
Accounting Policies and Controls
Work with your CPA to create a summary of these policies and controls that clearly state how cash, insurance, inventory, and other financial aspects of your business will be handled. This will create trust between you and your CPA, and it will outline all parties’ responsibilities. This can help you down the road if the IRS scrutinizes your business or if you face a lawsuit from an investor.
Cannabis Compliance with GJR Consulting
As an entrepreneur in the cannabis industry, you will need high-quality accounting services to help your business grow, thrive, and survive under strict federal regulations and potential scrutiny. At GJR Consulting, we pride ourselves on staying on the cutting edge of the accounting landscape by working with cannabis clients. Not many accounting firms will reach out and help cannabis companies manage their finances during this period of great industry growth, but we are one of the few who will. If you are interested in our cannabis accounting services, contact us today.