In many states, the legalization of the marijuana business is still only a couple of years old. Some cannabis accounting services are still trying to find their footing and figure out the best practices for their clients. GJR Consulting is ready to hit the ground running for your company. We already have experience in the cannabis space and the codes that govern how these businesses operate. We can tell you what to avoid and what will serve you well in the future.    

3 ‘Tricks’ to Avoid in Cannabis Accounting

Being a relatively new industry is not slowing the growth of cannabis companies across the U.S. Inexperience in this thriving market has led many organizations to try to find shortcuts or ‘tricks’ around the tax codes and accounting regulations of selling cannabis. Here are three accounting practices to avoid in your cannabis business. 

  1. Trusting the CEO to handle everything.
    The cannabis industry is one of the most strictly regulated in the country. You must comply with local and federal regulations just to keep the doors open. Your tax planning and accounting services should not be left to just anyone with some bookkeeping experience. Without a professional, experienced partner in your corner, your business could be hit with significant fines or just be shut down altogether.

  2. Trying to shortcut the IRC 280E and IRC 471 Codes.  
    Section 280E of the IRS code prevents any business or trade from making tax deductions or receiving tax credits if any part of their business sells controlled substances. Cannabis is still considered a Schedule 1 substance and falls under this federal law.

    Unlike with other industries, this means you can’t claim typical business deductions such as the costs of administration, marketing, or rent. The one thing you are allowed to deduct is the “cost of goods sold” or (COGS). These rules have led many businesses to wildly over-inflate their COGS. They try to move costs around in complicated ways that can backfire. If done incorrectly, this can end up costing much more than if you had not tried to shortcut the system.    
  3. Not investing in the latest financial tools and processes.

    The strict regulations of the cannabis field require software solutions tailored to their standards. GJR Consulting has the cannabis accounting software to perform all the tasks you need. We even offer training for your staff to keep your books more accurately. Trying to save money by not investing in cannabis software like this ends up costing your business more in the long run. 

Cannabis Accounting Services From an Experienced Firm

GJR Consulting is the accounting firm your cannabis business needs. One of our specialties is navigating the intricacies of Section 280E and other regulations like it. We offer a broad range of financial consulting solutions and business tax services. We believe in collaborating with our clients. You can take advantage of our comprehensive services or just come to us for targeted assistance with things like payroll or tax preparation. 

To learn more about the things to avoid in the cannabis industry or the ways we can help your business, contact GJR Consulting today.

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.