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.