5 Cannabis/CBD Accounting Headaches to Overcome That Will Help Land You Clients

Cannabis/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/CBD accounting, gain a competitive edge, land more clients, and help CEOs who greatly need your Cannabis accounting services and expertise.

Five Headaches Plaguing Cannabis/CBD CEOs and Accountants

You can be the solution to the challenges facing both you and your clients by understanding these accounting pressure points:

1. Cleanup- It can be difficult to set Cannabis/CBD businesses on a path to success when there are no controls or accounting policies and procedures in place. The first step to managing potential accounting pains is getting your clients’ books up to speed. For 99 percent of Cannabis/CBD companies that means major cleanup. 
   
   Precise cleanup also makes it easier to conduct proper cost accounting, which is essential for correctly allocating expenses to inventory and COGS (Cost of Goods Sold), and maintaining federal tax compliance. As part of the cleanup process, niche-trained accountants often have to file amended tax returns, reconcile complete inventories to seed to sale software, compile supporting documentation, and build a permanent audit trail. Such cleanup is not easy. It can be time-consuming and chaotic, but correctly cleaning the books will alleviate hundreds of future complications.
2. Insufficient Guidance - The presumed risks associated with Cannabis have prevented larger firms from entering the space. While more accounting firms are starting to service businesses in the niche, The Big Four are staying out of Cannabis/CBD accounting, at least for now. There’s no GAAP guidance or trained staff to help budding accountants learn the policies, procedures, and processes required to serve this fast-growing industry. Furthermore, case studies are limited, so there are few scholarly or industry resources. Google searches can be more frustrating than helping, since there’s an array of conflicting ideas and sorely inadequate solutions to complex accounting issues.
3. Lack of Tools, Workpapers, and Systems - The accounting systems, workpapers, and tools required to provide value in the Cannabis/CBD niches are severely lacking in mainstream accounting resources. Without any effective tools or workpapers, it can be nearly impossible to quickly set up internal controls, a perpetual data room, month end systems, and cash rolling forecasts—and that’s just the tip of the iceberg. It’s also hard to reach out to these clients effectively, engage them, and prove your value to them without some sort of a template to follow (unless you really like marketing and are good at selling your services).
   
   To an accountant not trained in either niche, the only solution may seem to be to build those tools, workpapers, and templates from scratch, at a loss of countless billable hours. The other more expedient option is to rely on the support and shared resources of proven experts in the industry who have paved the way and are happy to support you on your path. 
4. Poor Software Solutions - There’s a dearth of software solutions for the Cannabis/CBD industry. Most accountants have to use multiple programs that rarely integrate with one another, and many are subpar. State-mandated seed to sale software such as Metrc, MJ Freeway, and BioTrack can be buggy and doesn’t reconcile well with POS and accounting systems. Merchant service solutions are still relatively new to the space and besides offering limited functionality, they can be inadequate when it comes to meeting compliance standards. Cannabis ERP (Enterprise Resource Planning) software shows potential but currently has implementation issues, is very expensive, and offers poor customer support. Not knowing workarounds to manage these common Cannabis software issues can stunt your progress in supporting these businesses. Without informed solutions, creating a perpetual data room, tracking inventory, and doing correct cost accounting is impossible.
5. Difficult To Build a Team - Mature industries usually offer an established network and interconnectedness that provides unity and understanding. Working in the Cannabis/CBD space can be daunting for CEOs and accounting professionals who feel they are operating independently of a community that is dealing with, or who has overcome, similar headaches. Without that team of experts (professionals who work in tax preparation, accounting, bookkeeping, law, software, HR, etc.) ready to answer your questions or those of your client, you can end up confused and wasting valuable time.

The good news is, neither you nor your client is alone in experiencing these frustrations. Each and every one of these obstacles can be used to your advantage as an accounting professional. Once you receive the tools and training to find solutions to these issues, your cultivated expertise could be the remedy Cannabis/CBD companies seek.

Why Are These “Headaches” Good News for Cannabis/CBD Accounting Professionals?

As you ease the common pain points experienced by CEOs in the Cannabis/CBD industries, you’ll also open up these opportunities:

Higher Earning Potential 

Cannabis is being legalized on the medical and/or recreational level in states throughout the nation. Thousands of new Cannabis/CBD CEOs are filing business licenses each year in these high-growth markets. Even in an economic recession, sales remain steady. Each of these CEOs need an expert to navigate the tricky rules and regulations.

That’s where you step in.

When you become highly trained in Cannabis/CBD accounting, you will likely be able to charge higher fees, because you will be offering essential value-add services to clients who absolutely need you to keep their business moving forward. 

This industry is young, but many Cannabis CEOs have been privy to the cautionary tales (see Altermeds) of what happens when taxes and deductions aren’t completed accurately and correctly. By minimizing your clients’ risk of audit failures as well as maximizing their profit margins, you help them sleep better at night. Many Cannabis/CBD CEOs will compensate you well for this contribution, so you could potentially build a sizable annual revenue with a smaller number of clients.

Limited Competition

The frustration of insufficient tools and workpapers, along with big firms’ reluctance to serve the Cannabis/CBD industries has created a high barrier of entry into these niches. 

For those accounting professionals who may be interested in these markets—other solo/small firm accountants, CPAs, EAs, and bookkeepers—they often don’t know where to begin. Their hesitancy is your opportunity. One way to combat these barriers is by aligning yourself with mentors, coaches, and your industry’s community. When you’re part of a network, you can problem solve with niche-trained professionals, refer work to one another, and ease the headaches everyone struggles with in the licensed Cannabis/CBD industry.

Multiple Client Sources 

Many budding Cannabis/CBD accounting professionals struggle to generate leads and potential clients, yet numerous CEOs need help and don’t know how to ask for it until you approach them with assessments and expert industry knowledge. Understanding the complexities of accounting for Cannabis/CBD businesses allows you to offer specific solutions that alleviate those CEO’s headaches and earn you clients. 

You can start lead outreach through platforms such as LinkedIn where CEOs and operators search for professionals with niche-specific aptitudes and resources. When you begin to effectively help more CEOs stay compliant and successful, referrals can come rushing in, as other prospective clients often seek recommendations from their peers. 

These clients could come from areas outside your current location since you can work remotely and aren’t necessarily limited to specific regions (depending on your state board’s specifications). You have the potential to build a national practice and help those who need your services, potentially increasing your client base and revenue.

Empowered Investor Relations

Cannabis accounting, tax, & CFO level services should usually cost somewhere between 2-4% for every million dollars in forward revenue, adjusted up or down for the complexity of the client’s account and needs. If, once you assess all of the time and energy you will be spending on the client, you decide 3% is a price you feel good about, so be it. If, for example, that pre-revenue Cannabis cultivator expects to clear $1,000,000 in forward revenue in year one, you should assume a minimum price of $20-30,000 per year. 

Remember, positioning your accounting, tax, and CFO services as an investment is not some sales sleight of hand. If you provide a “Top Shelf Product” delivered with “White Glove Client Service,” which is what DOPE CFO enables its members to deliver, the entity value you provide over time will likely be at least an increase of 10-15%. As such, your fee is an investment for the client that directly impacts their growth and company’s value; it is not merely a cost. 

Want to learn more? Read the 5 Accounting Myths Cannabis CEOs Believe (and How to Debunk Them).