Accounting For The Cannabis Industry: What You Should Know

The IRS Section 280E has become the biggest taxation-related challenge for medical marijuana businesses. For example, you can create specific accounts for cultivation, costs, retail sales, product manufacturing, regulatory fees, and compliance expenses. Failure to comply with these guidelines may result in severe penalties and major legal repercussions, which can range from hefty fines to closure. Cannabis businesses should work closely with qualified accounting professionals who understand the industry’s intricate taxation provisions and can help mitigate tax liabilities to ensure compliance. If you’re a cannabis business owner, this is your opportunity to learn more about medical marijuana accounting, related regulations, and the requirements you must meet to survive and succeed in this competitive market.

What should you look for in cannabis software?

Accounting and finance professionals must understand changing cannabis accounting practices and compliance with cannabis taxation. The SAFE Banking Act introduces a layer of complexity, and balancing shifting state and federal regulations requires expertise and strategic planning. Accountants are vital in supporting clients who are cannabis businesses owners. From financial reporting to ensuring operational efficiency, cannabis industry clients rely on your expertise. Resources are available so you can gain essential insights into cannabusiness-specific best practices. Best practices for medical marijuana accounting include maintaining robust accounting practices to ensure financial compliance and sustainability.

NOW CFO

When clients need accounting help, which they all do, you’ll be top of mind as the medical marijuana accounting industry specialist. It is important to know the difference between the corporate structures as well as the difference between state and federal designations. All orders of product and supplies should be necessary purchases, and be scrutinized with a critical eye that’s looking to keep stock fresh and on-point and the operating expenses low.

• Proper accounting practices, tailored to the specific needs of cannabis farming and dispensary operations, are not just beneficial—they’re essential.
• The hard part, of course, is keeping track of regulations that themselves have been subject to frequent changes, and that can vary across state and national borders.
• During M&A negotiations, a dependable, well-documented, and maintained inventory accounting system can be the deciding factor between success and failure.
• Marijuana companies need a cannabis accountant trained in keeping sound books and records.

Payroll

• In the realm of agriculture, farming operations have their own set of accounting principles.
• You can even add your accountant to your Xero profile to view your expense data in real time and integrate Gusto with your account to manage payroll for your employees.
• However, in keeping with good record keeping, these companies need to invest the time (or money, if you would like to outsource it) to write good job descriptions.
• Unannounced audits can act as a powerful deterrent that underscores the severe consequences of theft and its harmful effects.
• These processes should also easily align with accounting procedures and the business’ goals and objectives.
• This is great news for accountants and others in the financial sector if you aren’t squeamish about handling a marijuana client.

Here at Robert P. Russo CPA, we consult with marijuana-based businesses nationwide, and we can help you get the information you need to earn your green – and follow all necessary IRS rules along the way. As of March 2019, recreational use of cannabis is Bookkeeping for Painters legal in 10 states plus Washington D.C. As for medical marijuana? Brad is a nationally certified bookkeeper and has a Masters in Accounting and Finance. Find additional information about Brad Cocheran on the Vertices website; follow Vertices on Facebook for more helpful tips. Employees and managers need to learn to navigate both systems correctly to ensure that correct inventory amounts are maintained jointly. System updates of POS or seed-to-sale systems can necessitate the need for additional training.

The intricacies of the industry demand specialized financial expertise that goes beyond traditional accounting practices. However, the court sided with the taxpayer and determined that the organization operated two separate trades or businesses and apportioned the income and expenses to each. Note that the burden of proof with respect to the inventory writedown from cost rests with the taxpayer, and adequate records must be maintained to establish the values. Section 280E isn’t the only IRS-related challenge that medical marijuana businesses face. If you operate in this industry, you’ll be subject to additional reporting requirements under IRS Form 8300 for cash transactions that are over $10,000.

Conducting Financial Reporting

One area of a marijuana business that the IRS is especially focused on is Form 8300. This is the form you must fill out Certified Public Accountant if you make any cash deposits of $10,000 or more. Experts have noted that the IRS is watching to ensure marijuana businesses are filing this form on a timely and accurate basis.

• We suggest that if you are an accountant who is considering taking on a client in the marijuana industry, you take a few minutes to read the article we have referred to in this post from Marijuana Business Magazine.
• Conducting accounting for medical marijuana companies isn’t exempt from these regulations and knowing how to utilize accounting procedures can save the business time along with money.
• With the Magic Envelope, cannabis companies can outsource their receipt scanning to Shoeboxed.
• Maintaining meticulous records will help ensure you are able to maintain your license, banking, and funding.
• Our software is equipped with finance-oriented features and integrations that can help you save time, guarantee accuracy, and ensure compliance.
• From financial reporting to ensuring operational efficiency, cannabis industry clients rely on your expertise.

Our applications services group provides strategic direction to help with the entire cannabis license application process. Setting up a chart of accounts is essential to managing financial records of business operations from recording cash flow of income and expenses to recording financial activities. For example, ordinary business expenses often include rent, utilities, and wages. If you’re a cannabis business owner who can’t deduct these costs, you won’t achieve as much profitability as you expect because a high percentage of your profits will go to tax payments. Although accounting can be a complex practice if you’re operating in the medical marijuana market, some tools can help you record financial transactions to ensure compliance.