How to Legally Maximize Your Clients’ Tax Benefit: An Introduction to Cost Accounting for Cannabis/CBD/Hemp

cost accounting gaap Mar 05, 2021

Cost accounting is essential for proper Cannabis and CBD/hemp accounting and tax; however, if you are not doing cost accounting correctly (or at all), your clients could be missing some benefit under IRC 471-11 and paying too much in taxes. On the other hand, if you claim a significant amount of costs allocated to inventory (and eventually COGS) incorrectly, your clients could end up in hot water when audited, and potentially owe thousands of dollars in back taxes, interest, and penalties.   

Two tax codes make cost accounting imperative for your clients: 280E and IRC 471. 280E prevents Cannabis companies from deducting business expenses because, federally, they are trafficking Schedule 1 controlled substances. CBD and hemp aren’t subject to 280E, but must still comply with IRC 471. IRC 471 classifies which costs can go into inventory (and what cannot be allocated as an inventoriable expense). These costs will eventually be categorized as Cost of Goods Sold...

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Lessons in Compliance from 4 Notorious Cannabis Court Cases

2021 is already shaping up to be a historic year for Cannabis, on the heels of the huge growth and developments the industry experienced in 2020. From skyrocketing sales amid the pandemic to five new states welcoming legalized Cannabis in the November elections, the industry is poised for big changes on the horizon.

Now, with the recent Senate power shift and the House voting on the MORE (Marijuana Opportunity Reinvestment and Expungement) Act, Cannabis may finally be removed from its Schedule 1 classification. At the very least, the pace at which new states continue to legalize marijuana is a harbinger that federal legalization is in the not-so-distant future.

With all this excitement and growth, here’s the thing: regulations are still tightening and the IRS is ever-sharpening its vigilance, winning nearly every court case filed. Even if Cannabis was de-scheduled, the industry would still need to do GAAP accrual accounting and accountants will still need to know how to...

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4 Things Cannabis and CBD/Hemp Accountants Need to Know About 471 (That Will Save Your Clients Money and Frustration)

280e 471-11 irc 471 Jan 05, 2021

Cannabis companies are springing up across the country, and for good reason. There is a huge opportunity for growth in this market and businesses are just scratching the surface. However, it’s your job to be the expert on the numbers and the complicated rules to stay ahead of the game and keep your clients moving forward.

Despite the many opportunities in the industry, Cannabis companies face certain challenges due to its federally illegal status, especially in regards to tax liabilities. CBD/hemp companies can deduct normal business expenses, but must proceed with extreme caution as they are still highly regulated and often audited. Both niches require complex accounting and tax processes to stay compliant.

According to 280E, any business associated with the “trafficking” of Schedule 1 substances may not deduct ordinary business expenses (i.e. rent, vehicle expenses, mortgage interest, and much more). The only way Cannabis companies can lower taxable income is by...

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How to Properly Price Your Cannabis and CBD/Hemp Accounting Services in 6 Easy Steps

Properly quoting accounting fees is complicated in any industry, but establishing a pricing policy for the wily Cannabis and hemp/CBD niches can be especially challenging and overwhelming. 

If you find it hard, or even scary, to price your Cannabis and hemp/CBD accounting services without undercutting your value, you are not alone. 

Many accountants struggle with raising their fees beyond low hourly rates. Learning how to package your services, create clear offers to reflect your value, and develop a system for charging appropriately for cleanup, onboarding, and ongoing work will enable you to confidently set your price and find clients who will happily pay it.

Here are six easy steps you can take to make sure you're pricing your Cannabis accounting services correctly.

Position Yourself as a Premier Provider 

Stop charging for your hours and start charging for the value of your work. This is a complicated numbers game with ever-changing rules and regulations....

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How to Survive a Cannabis Accounting Audit: A Look at the Permanent Audit Trail

Uncategorized Nov 02, 2020

To say that Cannabis and hemp/CBD accounting is like the Wild Wild West, is a bit of an understatement. High regulation, unusual tax codes and penalties, cash handling issues, lack of reliable software, merchant services availability, and complex reporting and compliance needs make Cannabis accounting ridiculously complicated. Never mind the fact that Cannabis is still federally illegal, so businesses must adhere to 280E, which stipulates deductions can’t be taken (for the most part). Because of this, the IRS and local governments want their tax dollars, and are closely watching and are planning on auditing Cannabis businesses pretty heavily. Cannabis businesses that intend to limit their tax liability as much as possible must not only understand how to do it legally, they must keep impeccable records for when their business gets audited. The saving grace and one of the biggest keys to properly preparing for an audit is the permanent audit trail.

Any new Cannabis or hemp/CBD...

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How To Maintain Your Professionalism and Be on the Forefront of the Cannabis Industry

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.

“But Cannabis has an ‘evil drug’ stigma…”

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 ...

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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...

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5 Keys to Properly Managing Cost Accounting & Taxes in Cannabis\Hemp Cultivation Verticals

Proper cost accounting is essential for all Cannabis and hemp verticals, but it gets particularly tricky when you're dealing with cultivation. From the moment a seed is planted in the ground to the harvest of the crop, high-level accounting procedures are mandatory to keep cultivation companies compliant. 

Cannabis growers tend to be uninformed as to the importance of proper accounting. Often focusing more on the science and passion of growing, they have little patience for numbers. Because the growers take such pride in their operations (and need to be educated on the processes and regulations required to keep those operations compliant with the IRS), you may have to work harder to prove the necessity of sound accounting practices. 

Cannabis and hemp both require different approaches to monthly accounting and year-end taxes. Cannabis is federally illegal, although more than 30 states have licensed businesses to sell legal medicinal and/or recreational marijuana. Hemp has...

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5 Workaround Tools to Manage Essential (But Frustrating) Seed to Sale Compliance

5 Key Workaround Tools for Navigating Seed to Sale Challenges

Cannabis accounting is a complex, ever-changing niche due to the plant’s federally illegal status (regulations and rules vary from state to state). One key (but extremely complicated) aspect of Cannabis accounting is seed to sale tracking and compliance. Cannabis business owners can easily flub these complex accounting and compliance processes without the help of a trained Cannabis accountant on board. Even worse, inaccurately inputting seed to sale data can lead to significant penalties or even loss of license.

Because the seed to sale processes are complex, difficult to understand, involve several sub niches, and are a veritable maze for Cannabis CEOs and accountants, it takes some skill and understanding to fulfill state and federal accounting and tax requirements. As an accountant, you are in a powerful position to add significant value to a client’s company by expertly navigating the seed to sale process....

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9 Industry Secrets to Raising Capital in the Cannabis, Hemp, or CBD Niche

investing investors May 30, 2020

$8.1 billion of capital was raised by Cannabis companies in 2019 alone and, as more states move toward full legalization, that amount will only continue to grow. Additionally, industry experts are seeing that these niches appear to be recession-resistant (even “virus-resistant”) with many states experiencing recent record sales, mainly since Cannabis and hemp/CBD markets have been deemed essential during the pandemic. 

However, even recession-resistant companies can experience challenges when finding capital for funding or seeking investors. Many Cannabis companies have been looking to debt and creditor solutions for capital growth, but that’s not the only solution business owners should take into consideration.

Beyond putting a company further in debt just to raise capital, Cannabis CEOs need solid, non-resource-draining solutions to build capital. From startups to founders of established companies, the following nine tips can help you significantly boost...

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