Building a successful Cannabis/CBD Hemp accounting, tax, and Chief Financial Officer firm within six months is highly possible. Many DOPE CFO members have done it themselves, some in just a matter of weeks or months. It will however require work, commitment, putting in the time, and going through all of the necessary steps we will talk about in this blog post. If you’re wondering whether you can build your own firm while you keep your day job, the answer is yes.
One major thing to know about providing accounting and CFO services for this industry is that it is NOT easy. Complexity is the norm and is a big reason why DOPE CFO exists. If you find yourself intrigued rather than dismayed by that statement, this could be the niche for you, and it’s a profitable one too. The majority of the businesses now operating in this industry (and those coming into it) know how important it is to have a solid accountant with expertise specific to their needs. They need the right accountant or CFO who will help get them cleaned up, compliant, and safeguard their business’s financial concerns.
When you pick the right niche and become an expert, you provide significantly more value to your clients, leading to claiming higher fees. It’s purely a matter of supply and demand, good ol’ Economics 101.
The Cannabis/CBD Hemp industry has five main verticals. There’s farming and cultivation, which are basically the same thing. Growers in that vertical are growing the plants. Chemical processing (turning the flower into oil) is the second vertical. After that, manufacturing is vertical three. A manufacturer is taking what they consider raw material and turning that into a finished product, and these products range from edibles, foods, and beverages, to tinctures, and lotions and other products. They might also start with oil they’ve received from another manufacturer, a chemical processor that specializes in extraction, in which case the oil is the raw material, and the finished product might be a gummy bear, a cookie, or even lotion.
Distribution is obviously the vertical that distributes products to various retailers. Some states, such as California, mandate that all distribution of Cannabis products must be handled by licensed distributors, whereas others do not. Hence, you may have many distribution clients in certain states, but few in others.
Retail is the vertical that sells to the public. Dispensaries are what come to mind for most. In most states, Cannabis and CBD products must be sold at licensed dispensaries, although hemp can be sold retail and online with little to no restrictions.
Saying there’s complexity in this accounting niche is no joke or understatement. It is the name of the game. If really and truly accounting is not for you, and you do not like or get a sense of fulfillment from helping to solve your clients’ problems, this probably is not the niche for you. It is not easy. Let’s say that again: it is NOT easy. Nevertheless, for many, it’s downright fun, and one big upside is no two days are ever the same.
A great many, many vendors will not service the Cannabis industry. A majority of Point of Sale (aka POS) systems providers, merchant services, payroll companies, and insurance companies still do not do business with licensed Cannabis companies. Things are definitely improving, however, and vendors that specialize in providing services to the licensed Cannabis industry are launching all the time.
Lack of access to banks and banking services remains a major problem. Because many of these businesses cannot take their cash to the bank, cash management is often a huge concern. Therefore, serving these businesses as an accounting professional requires helping them develop top-down corporate governance that flows into effective internal controls that mitigate theft and other losses. Segregation of Duties (SOD), daily reconciliations of cash, daily inventory counts, and other procedures should be the norm, but often are not. Such controls help ensure the profitability and safety of the workplace as well as ensure investors that all of the necessary measures are being taken to mitigate risk and protect their investment.
Want to use your favorite accounting software when working with Cannabis clients? Think again! An array of very well-known accounting tools will not support Cannabis accounting. And when it comes to industry guides, workpapers, guidance on GAAP accounting, and charts of accounts, well… you get the picture.
Along with licensure on the state level comes state-mandated “seed to sale” tracking software, which tracks the cultivation, harvesting, processing, and sale of Cannabis to ensure it does not enter the unregulated market. Different states use different seed-to-sale programs. They are notoriously buggy, difficult to use, and do not integrate with accounting software tools.
And then there’s the legal stuff. Companies may operate in multiple verticals; accounting for them requires knowledge and tools specific to each. Furthermore, a simple dispensary might have multiple entity structures, as well as Cannabis and non-Cannabis divisions.
With legalization happening in states throughout the nation, there’s absolutely no shortage of startups out there who need help with their pitch decks, financial models, cap tables, and funding structures from Cannabis CFOs and accounting professionals who know how this industry is different, and can speak to investors’ concerns.
If you’re wondering how anyone can build their Cannabis/CBD firm in six months considering the many facets we just mentioned, you’re not alone. And did you notice the words “tax” and “compliance” weren’t even mentioned?
The secret to doing it is to become a VIP.
Being a VIP has nothing to do with self-aggrandizing behavior; it’s anything but! At DOPE CFO, VIP stands for being a Valuable expert, an Instructor, and a Participant.
You become a valuable expert by learning all of the important tax codes and legal cases that surround tax laws, as well as the cash and banking issues faced by licensed Cannabis and CBD businesses. Dip your toe in the water and you’ll undoubtedly hear about IRC 280E. The most common ones after that are 471-3 and 471-11. But you also must be an expert in “gaap” cost accounting as well as compliance, HR, state laws, products, brands, and software.
Once you’ve delved in and learned more about the industry, its history, and the rules and regulations that determine how it operates, you will soon find that you know a great deal. You then become an instructor who can instruct others on accounting best practices, taxes, and entity structure concerns. Benefitting the wider community by sharing knowledge is at the heart of what we do. Across the country, our members speak at conferences and live events, as well as on webinars and various podcasts. “Instructing” can also be just answering posts online, or educating a new prospect.
While you’re becoming a VIP you’re also adding to your toolbox. Skills, workflows, and charts of accounts are tools that help you serve your clients well, but making your life easier should also be a priority. Going remote has never been easier. Video conferencing platforms like Zoom make having meetings a cinch. Google’s many tools can assist you in scheduling meetings, document management, and cloud file storage. Even Microsoft’s Office 365 has many robust tools that make being on the cloud a breeze. With DOPE CFO you can get 100+ workpapers as well as charts of accounts, tools, and our plug and play program to start serving this fast-growing niche right on day one.
A system that’s simple, automated, and repeatable is one that can be maintained in the long term and tweaked as needed. The system you use to reach clients can be as easy as this:
The email you send should highlight the unique value you can provide to that CEO and company. The discovery phone call is your opportunity to learn more about their needs, speak to those needs, and show them how you can go above and beyond what the others provide. DOPE CFO helps make that possible.
After you land that first client, provide world-class service to offer the utmost value and build an excellent reputation—word will get around. DOPE CFO’s many tools including workpapers, accounting policies & procedures, engagement letters, onboarding docs, cleanup systems, closing checklist tools, cost accounting templates, month-end tie out systems, and more, give you everything you need to provide top-tier accounting services for every vertical in the Cannabis space. Commit to the work at hand and prioritize delivering excellent service and your accounting firm can take off fast.
Finally, having a world-class team of mentors, coaches, and members of your industry’s community ensures you have support. When you have questions or need help, there are professionals you can reach out to. Get answers to your questions, and continually demonstrate value to your clients.
Without a strong team, you're all on your own. If and when there’s a problem, you need to find resources and potentially do a lot of legwork to find the answers you need. Misinformation, especially when it comes to the Cannabis/CBD industry, is rife! With membership in DOPE CFO’s VIP Community, you have access to the nation’s leading experts in providing GAAP-compliant, strategic, cost-saving accounting and tax services—a world-class team of more than five hundred CPAs, Accountants, CFOs, Tax Attorneys, Enrolled Agents, and Bookkeepers. When you or your clients have questions, you can reach out to an entire community of professionals who currently serve as Cannabis accounting experts.