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 suggested marijuana encouraged crime and sloth.
Cannabis, however, has only been synonymous with counterculture for a short period of time. Medicinal Cannabis has been used for thousands of years and scientists are finally researching and documenting the modern medical benefits. More than 224 million people use medicinal marijuana, and Americans are increasingly supportive of the legalization of both recreational and medicinal marijuana.
Research is now showcasing Cannabis’s ability to help people cope with health issues like epilepsy, multiple sclerosis, inflammation and chronic pain caused by arthritis and cancer. It’s no secret that our country struggles with opioid addictions and marijuana could prove to be a great alternative. The research is just scratching the surface, and as new studies emerge the “evil drug” stigma will likely wane.
The Cannabis industry is also destigmatizing the plant by demonstrating the financial benefits of legalization. More and more states are acknowledging the magnitude of the Cannabis market and the potential tax revenue legal business could generate. The economic fallout of COVID-19 prompted some legislators to accept Cannabis’s inherent value as both a necessity for American citizens and an income generator for local communities. When the U.S. issued shelter-at-home orders, Cannabis was labeled an essential business in most states, because patients needed access to their medicine through dispensaries.
COVID-19 also proved that the Cannabis industry is recession-proof. The market continues to bring tax dollars to cities, counties, states, and the federal government. Americans are witnessing the Cannabis market’s consistent employment of people in stable jobs and overall positive impact on the economy, which should further eliminate the stigma surrounding Cannabis.
Section 280E of the Internal Revenue Code is the killer of Cannabis companies and has cost many Cannabis CEOs a great deal of money. IRC 280E prohibits companies from deducting otherwise ordinary business expenses from gross income associated with the trafficking of Schedule I or II substances, as defined by the Controlled Substances Act. Cannabis is still a Schedule I substance, so the IRS applies Section 280E to state-legal Cannabis businesses.
IRC 280E isn’t scary once you understand that the only deductions allowed in Cannabis accounting are the cost of goods sold (COGS). It is possible to maximize these deductions correctly, but you have to know which expenses can be allocated to COGS and you must understand cost accounting, which requires knowing all processes from the time a seed is planted to the time it is sold and consumed.
280E should not deter you from entering the space; it should excite you. You have the opportunity, when armed with proper training, to keep Cannabis companies compliant and profitable.
Many seasoned accountants interested in the Cannabis niche are worried about what will happen to their reputation if they are aligned with a federally illegal drug. Fear not, you can be deemed an expert in the Cannabis niche without your reputation and credibility taking a hit by, quite simply, doing good work. No matter what industry you serve, you are responsible for ensuring your work is of the caliber of an esteemed professional. Your satisfied and compliant clients’ streamlined accounting processes and profitability will be a ringing endorsement of your skill level.
Regardless of which niche you specialize in, it is important to follow industry standards for your particular license. For example, the AICPA has good guidelines for all accountants, including requirements for those serving the marijuana industry. When you remain aware of, and in accordance with, the appropriate standards, you are maintaining the integrity of an elite professional.
If you’re still hesitant to broadcast that you work for canna and non-canna companies within your current practice, you can set up a secondary business. You can employ a DBA or a separate legal entity, but essentially run two accounting firms within your current operations. This is also an option if you live in a state where Cannabis isn’t legal.
Building a network of fellow professionals working in the Cannabis industry will offer you a support system, as well as a peer group who appreciates the profitability and growth of this industry. Working alongside them and having an open communication will allow you to work through any of your own preconceived beliefs concerning Cannabis, and learn proven responses to clients or peers who might have an initially negative opinion. Most people who choose to speak badly about Cannabis do so because they don’t understand it. The easiest way to eliminate Cannabis’s stigma is to have open and honest conversations about the market, the product itself, and the people it serves. Keep in mind, the majority of your future clients will be passionate about the Cannabis industry.
Becoming an expert in the Cannabis industry is an ideal way to attract top clients who will likely pay you what you’re worth, because Cannabis business owners and investors have a lot to lose. It's incredibly expensive to get a Cannabis business off the ground. No matter which Cannabis vertical your client is working in—retail (dispensaries), cultivation/farming, chemical, delivery, or food—it is extremely competitive to get a license, gain the trust of investors, and cultivate a loyal customer base.
There are countless unknowns and the industry’s rules and regulations are still being determined, which means niche-trained accounting professionals aren't just needed, they are mandatory. Without proper accounting procedures and recordkeeping, Cannabis business owners risk losing their licenses and may face steep fines, jail time, being shut down, or even just failing to be profitable.
It is true that the stigma surrounding Cannabis has prevented some from entering this niche, but don’t let it deter you. By entering the industry during the earlier years of Cannabis’s legalization status, you are setting yourself up for the opportunity to become an authority on Cannabis accounting.
If you are hesitant to get into the Cannabis space, but still interested, we urge you to ask other Cannabis accounting professionals for their opinions. If you decide to dive into this exciting and growing industry, use this time to gather the necessary tools, network, and knowledge to protect your clients’ investments and their businesses. Once you have the resources to begin your Cannabis accounting journey, go online to connect with Cannabis CEOs. Proudly shout from the LinkedIn rooftops that you are a Cannabis accounting professional, because there are business owners and investors seeking your skills.
Another way to connect with potential clients is through Cannabis networking events, both locally and virtually. By getting involved with people who are completely undeterred by Cannabis’s stigma, you’ll meet lots of investors and future clients who are pushing things forward in terms of legislation, business development, medical research, and more. It is the ideal time to get involved as you will be on the forefront of a game changing industry.
Your path to maintaining professionalism, while overcoming all of the buts holding you back, is through understanding how to properly serve the Cannabis industry and seeking an education that keeps your clients (and yourself) compliant.
If you’re ready to overcome your hesitations regarding Cannabis and launch your own Cannabis accounting firm, while maintaining your professionalism, we invite you to subscribe to our monthly podcast, where we show accounting professionals how to become experts in the Cannabis niche!