Is It Legal to Provide Accounting Services for Cannabis Businesses?
Aug 21, 2018
There is a thriving need for complex and accurate accounting in the cannabis industry.
While it is already legal to sell in 30 states, cannabis is still considered a Schedule I Controlled Substance under federal law. Despite how someone may personally feel on the subject, legal cannabis is a booming business segment that has a sizable need for proper accounting practices.
But is it legal? Would the risk that comes with the territory be worth putting your business at risk?
Let’s look at some interesting statistics first:
- Cannabis sales are growing at an incredibly fast rate, expecting to generate over $10.8 billion in sales in 2019, an incredible increase from the $2.7 billion from 2014. (Source: ArcView Market Research)
- If Cannabis is Federally legalized by 2020, revenues are expected to reach $35 billion - three times more than the National Football League (Source: Greenwave Advisors)
- The largest group of cannabis buyers in the world will be in North America, estimated to go from $9.2 billion in 2017 to $7.3 billion in 2027 (Source: Forbes)
- In the first two months of legalization, Californians bought an estimated $339 million worth of marijuana products.
- There are over 9,000 legally licensed cannabis businesses without experienced bookkeepers to handle their complex cost and GAAP accounting.
With the projected growth of legal cannabis consumption on the rise, the opportunities that come with such substantial numbers are worth noting.
The accounting team for a cannabis company bears a huge responsibility in that it is their job to help make sure that their clients are abiding by state and Federal tax rules. For cannabis businesses, the rules require that accounting professionals:
- Understand the complex entity types within the cannabis industry, and their specific needs (grow/farms, extract/edible, dispensary, and entities with multiple business types).
- Understand how to properly do GAAP accrual and cost absorption accounting.
- Have the right tools to do proper bookkeeping and reporting for both IRS and State compliance; AND, to help CEOs and investors have insight on the financial health of their company.
- Understand how to prepare the proper monthly reports so that their clients are always AUDIT, LENDER, AND INVESTOR READY.
- Understand cannabis tax issues including 280e, 471, and applicable court cases.
One common question is: Are there risks even if it is legal?
Working with cannabis companies shares the same risk as working with any client and also has the risk related to cannabis being federally illegal. CPA’s should look to their state boards of accountancy for more information as many states have addressed how a CPA can serve cannabis clients in their state.
This industry itself has little guidance for accounting professionals, which is why--Andrew Hunzicker, CPA and Naomi Granger, founders of DOPE CFO--compiled a training program which includes a list of all of the tools, guides, and work papers necessary to properly serve the cannabis niche and provide world-class service.
To learn more on how you can start your own cannabis accounting or bookkeeping firm, click HERE.