5 Cannabis/Hemp/CBD Accounting Headaches to Overcome that will Help Land You Clients (and Really Help Desperate CEOs)
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.
Five Headaches Plaguing Cannabis/Hemp/CBD CEOs and Accountants
You can be the solution to the challenges facing both you and your clients by understanding these accounting pressure points:
- Cleanup- It can be difficult to set Cannabis or hemp/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 and hemp/CBD companies that could mean major cleanup.
Precise cleanup also makes it easier to conduct proper cost accounting, which is essential for correctly allocating expenses to inventory and COGS, 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. It can be time-consuming and chaotic, but correctly cleaning the books will alleviate many future complications. - Insufficient Guidance - The presumed risks associated with Cannabis have prevented larger firms from entering the space. The Big Four are staying out of Cannabis and hemp/CBD for now, so there’s no GAAP guidance or trained staff to help budding accountants learn the policies, procedures, and processes required to accurately serve both niches. Additionally, case studies are limited, so there are few scholarly or industry resources. Even a Google search can lead to further frustrations, as there are often conflicting ideas and inadequate solutions to complex accounting issues. There are, however, individuals and firms who have pioneered Cannabis and hemp/CBD accounting and have remedies to these headaches. If you know where to look, you can successfully guide your CEOs through the murky unknowns.
- Lack of Tools, Workpapers, and Systems - The accounting systems, workpapers, and tools required to provide value in the Cannabis and hemp/CBD niches are severely lacking. 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 these are only the tip of the iceberg when it comes to required systems! 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. Once you find a community or program to clearly show you the way, you’ll be able to move along much more quickly and confidently. - Poor Software Solutions - Software solutions for the Cannabis and hemp/CBD industry are severely lacking as well. 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 new to the space and are often inadequate, with limited functionality. Cannabis ERP (Enterprise Resource Planning) software shows potential, but currently has implementation issues, is very expensive, and offers poor customer support. Without knowing workarounds to manage these software issues your progress will likely be stunted, as you can’t move forward with creating a perpetual data room, tracking inventory, or doing correct cost accounting.
- Difficult To Build a Team - Mature industries usually offer an established network and interconnectedness that provides unity and understanding. Working in the Cannabis and hemp/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, 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 and hemp/CBD companies seek.
Why Are These “Headaches” Good News for Cannabis/ Hemp/CBD Accounting Professionals?
As you ease the common pain points experienced by CEOs in the Cannabis and hemp/CBD industries, you’ll also open up these opportunities:
Higher Earning Potential
Thousands of new Cannabis and hemp/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 either Cannabis or hemp/CBD, 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 and maximizing their profit margins, you help them sleep better at night. Many Cannabis and hemp/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 and hemp/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. By building a network, you can problem solve with niche-trained professionals, refer work to one another, and ease the headaches everyone struggles with in both Cannabis and hemp/CBD.
Multiple Client Sources
Many budding Cannabis and hemp/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 Cannabis and hemp/CBD accounting, along with the accompanying migraines, allows you to offer specific solutions that alleviate those tensions and earn you clients.
You can begin 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, you may start collecting referrals, 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 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
Early investors (institutional and private) in the Cannabis space focused less on accounting and transparency. After valuations plummeted and significant capital was squandered in companies such as MedMen, investors learned to not simply fund “good products” and ideas. Today’s investors are much more demanding of emerging Cannabis and hemp/CBD startups in an attempt to avoid a similar fallout. They will require ironclad books, which means you need to know how to implement precise internal controls, accounting policies and procedures, create a permanent audit trail, and amass a robust accounting team that includes Cannabis and hemp/CBD accounting and tax experts who can provide accurate and timely reporting.
By implementing efficient systems and accounting processes now, you are setting Cannabis companies up for success both in daily operations and future progress as they seek strategic partners for accelerated growth.
You have the opportunity to transform these common Cannabis and hemp/CBD accounting headaches into hope for confused CEOs. In doing so, you can also end your own pain of trying to find a niche that is profitable, rewarding, and booming so you can add some spark back into your accounting life (and a better paycheck).
What’s the prescription? A good place to start is the DOPE CFO program, where you can learn to maximize the value that you bring to Cannabis companies and the CEOs that so desperately need solid accounting services.