Cannabis startups are much more complicated than traditional startups. They face a set of unique challenges that require accountants to be clear on state licensing rules and federal regulations regarding controlled substances, making Cannabis companies 10x more likely to fail than non-Cannabis.
We’re not talking about not being successful in business -- we mean getting audited and paying massive fines, criminal charges against CEOs for illegal market activity, loss of licensure, and running out of money due to poor financial planning and insights.
We promise there’s a way to help things run smoothly and set your clients up for long-term success. It just requires understanding the day-to-day challenges a Cannabis startup faces and dedicating yourself to learning the skills necessary to help your clients navigate those issues.
Cannabis accounting software is hard to come by, and options that do exist are abysmal at best. Most vendors won’t come near the federally illegal industry. Also, the software that is available tends to be buggy and won’t typically integrate well with your clients’ existing accounting software.
Without efficient “out-of-the-box” software solutions in place, you’d have to resort to pen and paper and archaic spreadsheets. Not only is that method time-consuming, but it’s also incredibly error-prone and inconvenient. You need smooth, systematic, and repeatable software solutions and workarounds to streamline accurate Cannabis accounting, which will keep keep your clients profitable and compliant.
We questioned more than 800 accounting professionals that are currently in the DOPE CFO program and are successfully helping clients. To help you navigate the...
If you’re a Cannabis accounting professional, or are working towards learning how to serve clients in this space, you may have already experienced the frustrations of trying to reach out to Cannabis clients, only to be told that you’re not needed because they “already have an in-house bookkeeper” and that they’re sure their current accounting system is just fine. Until Cannabis CEOs understand that their practices are often inaccurate and self-damaging (as they likely don’t have access to or an understanding of the cost accounting tools required), they may not understand until they’re slapped with a severe penalty.
Understanding the myths that business owners believe about Cannabis accounting can give you a leg up on understanding their perspective, and may better form how you pitch your value to them when you do reach out. For every myth they believe, you can counter with a well-researched answer, illuminating the consequences of...
Cost accounting is essential for proper Cannabis and CBD/hemp accounting and tax; however, if you are not doing cost accounting correctly (or at all), your clients could be missing some benefit under IRC 471-11 and paying too much in taxes. On the other hand, if you claim a significant amount of costs allocated to inventory (and eventually COGS) incorrectly, your clients could end up in hot water when audited, and potentially owe thousands of dollars in back taxes, interest, and penalties.
Two tax codes make cost accounting imperative for your clients: 280E and IRC 471. 280E prevents Cannabis companies from deducting business expenses because, federally, they are trafficking Schedule 1 controlled substances. CBD and hemp aren’t subject to 280E, but must still comply with IRC 471. IRC 471 classifies which costs can go into inventory (and what cannot be allocated as an inventoriable expense). These costs will eventually be categorized as Cost of Goods Sold...
2021 is already shaping up to be a historic year for Cannabis, on the heels of the huge growth and developments the industry experienced in 2020. From skyrocketing sales amid the pandemic to five new states welcoming legalized Cannabis in the November elections, the industry is poised for big changes on the horizon.
Now, with the recent Senate power shift and the House voting on the MORE (Marijuana Opportunity Reinvestment and Expungement) Act, Cannabis may finally be removed from its Schedule 1 classification. At the very least, the pace at which new states continue to legalize marijuana is a harbinger that federal legalization is in the not-so-distant future.
With all this excitement and growth, here’s the thing: regulations are still tightening and the IRS is ever-sharpening its vigilance, winning nearly every court case filed. Even if Cannabis was de-scheduled, the industry would still need to do GAAP accrual accounting and accountants will still need to know how to...
Cannabis companies are springing up across the country, and for good reason. There is a huge opportunity for growth in this market and businesses are just scratching the surface. However, it’s your job to be the expert on the numbers and the complicated rules to stay ahead of the game and keep your clients moving forward.
Despite the many opportunities in the industry, Cannabis companies face certain challenges due to its federally illegal status, especially in regards to tax liabilities. CBD/hemp companies can deduct normal business expenses, but must proceed with extreme caution as they are still highly regulated and often audited. Both niches require complex accounting and tax processes to stay compliant.
According to 280E, any business associated with the “trafficking” of Schedule 1 substances may not deduct ordinary business expenses (i.e. rent, vehicle expenses, mortgage interest, and much more). The only way Cannabis companies can lower taxable income is by...
Properly quoting accounting fees is complicated in any industry, but establishing a pricing policy for the wily Cannabis and hemp/CBD niches can be especially challenging and overwhelming.
If you find it hard, or even scary, to price your Cannabis and hemp/CBD accounting services without undercutting your value, you are not alone.
Many accountants struggle with raising their fees beyond low hourly rates. Learning how to package your services, create clear offers to reflect your value, and develop a system for charging appropriately for cleanup, onboarding, and ongoing work will enable you to confidently set your price and find clients who will happily pay it.
Here are six easy steps you can take to make sure you're pricing your Cannabis accounting services correctly.
Stop charging for your hours and start charging for the value of your work. This is a complicated numbers game with ever-changing rules and regulations....
To say that Cannabis and hemp/CBD accounting is like the Wild Wild West, is a bit of an understatement. High regulation, unusual tax codes and penalties, cash handling issues, lack of reliable software, merchant services availability, and complex reporting and compliance needs make Cannabis accounting ridiculously complicated. Never mind the fact that Cannabis is still federally illegal, so businesses must adhere to 280E, which stipulates deductions can’t be taken (for the most part). Because of this, the IRS and local governments want their tax dollars, and are closely watching and are planning on auditing Cannabis businesses pretty heavily. Cannabis businesses that intend to limit their tax liability as much as possible must not only understand how to do it legally, they must keep impeccable records for when their business gets audited. The saving grace and one of the biggest keys to properly preparing for an audit is the permanent audit trail.
Any new Cannabis or hemp/CBD...
What is the first thing you think of when you hear the word “Cannabis”?
Did your thought(s) lean negative or positive?
The stigma surrounding the Cannabis plant often prevents seasoned accounting professionals from entering the Cannabis niche. There is sometimes a fear of not maintaining professionalism or damaging their reputation when they sign Cannabis clients, or a resistance to working with a federally illegal product and the accompanying tax complications.
You’re here, however, which means the Cannabis niche has piqued your interest. For a second, put aside your preconceived notions, and let’s address typical industry concerns and the potential opportunities.
Many people still think of Cannabis as a gateway drug that could lead to habitual hard drug usage or encourage laziness. This perception has been drilled into the brains of Americans since the early 1900s, when propaganda ...
Cannabis and hemp/CBD accounting is overwhelming for CEOs and seasoned accountants alike. At times, both niches can seem impossibly complex and leave you, the accounting professional, with a headache as you sift through state and federal rules and regulations.
Your clients’ success hinges largely on you unraveling the tangle of rules and regulations and implementing the necessary processes required to keep Cannabis companies compliant. Few standard procedures and controls have been set in this emerging industry, but you can still provide exceptional accounting services that allow your clients to run profitable and sustainable businesses. With proper training and resources, along with an understanding of your clients’ pain points, you can learn to navigate the common issues in Cannabis and hemp/CBD accounting, gain a competitive edge, land more clients, and help CEOs who are desperate for your services.