Cannabis has its Financial Reporting Challenges Accountants and Advisors May 14, 2024/ Bookkeeping/ 0 comments

how to do cannabis accounting

It is also important to note that fair value of cannabis varies significantly by state. Companies must monitor the state-specific markets for fluctuations in prices, along with regulatory changes and other inputs, to determine fair value at each reporting period. Other significant inputs include the grow date, estimated maturity or harvest, and estimated net yield of the plants on hand. This is an industry in distress, and it’s important for people to recognize that. But in any event, the access to cannabis came up with ordering online and drive-through, curbside service, and everything, and that’s stuck around.

F&A Services

But rescheduling in itself would have some impact, particularly on research and marijuana business taxes. Investors interested in an up-and-coming sector with an uncertain but potentially lucrative future should pay attention. The cannabis sector is slowly emerging from its long period of prohibition, and the investment opportunities are turning heads. Retail investors believe in the industry’s future and want to participate before regulations change. The institutions covering the sector are keeping a close eye on it even if most have yet to dip their toes in. Working with a Cannabis accountant who is not only knowledgeable about the sector but also about cultivation businesses and can guide you through the intricate procedure will give you a head start.

Does Federal Law Allow Cannabis Businesses to Make Deductions?

how to do cannabis accounting

Cannabis businesses risk losing inventory when not many banks let them open a business account. A COA for your cannabis operation will help you document your business and keep track of your expenses. Under each main category, transactions are further itemized into smaller categories.

  • Whatever may happen, keeping accurate and organized books will enable you to enjoy smooth business operations.
  • (Yes, at least some cannabis businesses, particularly state-licensed ones, do pay taxes to the federal government, despite its prohibition on marijuana.) Industry groups say the tax rate often ends up at 70% or more.
  • Synthetic cannabinoids are similar to the compounds found in the cannabis plant.
  • With the right tools and World Class accounting systems, you can command high fees and take on less clients, make more money, and have more free time.
  • Federal policy continues to prevent cannabis business owners from fully accessing their organization’s powers.

Bookkeeping Services for Cannabis Businesses

how to do cannabis accounting

Now, let’s talk about how to organize your financial records like a pro to maximize those deductions. Keeping things tidy and organized is key, which is why our tax services for the cannabis industry make such a significant impact on our cannabis clients’ profitability. At Northstar, we’re the accounting and tax professionals you want handling your cannabis-related businesses’ finances. Book your free consultation to discover how our assurance services support your operation’s success.


Compliance with cannabis laws and regulations matters for the obvious, legal reasons, as well as for securing funding. The hard part, of course, is keeping track of regulations that themselves have been subject to frequent changes, and that can vary across state and national borders. If no one person has total oversight, a natural system of checks and balances follows, allowing one person to catch another’s errors. So for instance you might allot your accountant the role of cross-checking 280e compliance, after you’ve implemented up-to-date software with a built-in compliance check. Systems and software with controls built into them are the way of the future in tax accounting for cannabis businesses. That way, the burden of compliance does not fall exclusively on human shoulders.

That’s feeding the fact that 8 out of 10 Americans want access to medical cannabis because of that research and results. If you run a business with multiple locations and many employees, payroll will only get harder, so you should hire someone else to do it before you lose control. Before giving you money, a bank or other lender will probably want to know more about your business.

This program is meant to be DIY and plug and play, so you can go through the different modules at your own pace. Our hope is that you’ll be proficient in providing Cannabis and CBD/hemp accounting services within 90 days, which is totally possible if you invest on average at least an hour a day into learning and implementing the materials. Minimizing excise tax liabilities while complying with the law is a goal shared by many cannabis cannabis accounting companies. One strategy to achieve this is to explore tax planning opportunities and credits available in certain jurisdictions. For instance, some states offer tax incentives for cannabis businesses that engage in research and development activities or comply with social equity initiatives. By understanding these incentives, businesses can take advantage of potential tax breaks and reduce their overall excise tax burden.

how to do cannabis accounting

Don’t be afraid to offer your client an audit at any point in their cannabis journey to ensure they’re on the right track. The Secure and Fair Enforcement Banking Act (SAFE) of 2021 has proven there’s light at the end of the tunnel as banks will soon be able to service cannabis sellers without fear of federal-level repercussions. With competitors breathing down their necks, people are hesitant to give away details on their plans. Those that have been in business before are more likely to understand why you need information to support them, but those that haven’t may need some understanding and hand-holding to help them understand why it matters. Whatever may happen, keeping accurate and organized books will enable you to enjoy smooth business operations.

Accelerate Growth with Dedicated Cannabis Accounting Software

  • The more accurate these records are, the better you, your own team, your accounting team and your investors can understand the business and its direction.
  • Whether you’re an accounting professional or a Cannabis business owner, you’ll learn the ins and outs of Cannabis accounting so that you can better understand how to be complaint in this industry.
  • Jen Benda, who’s an incredible legal mind, will be speaking, I think Nick Richards on some industry accounting techniques from a legal perspective.
  • Accordingly, significant changes in the market price of cannabis in the states where the biological assets are held can have a significant impact on the changes in the fair value of a company’s biological assets between reporting periods.
  • CFA Institute is the global, not-for-profit association of investment professionals that awards the CFA® and CIPM® designations.

Expense tracking is an indispensable part of effective cash flow management. Regularly monitoring and categorizing expenses allows businesses to identify trends and patterns in spending. This knowledge can inform smarter financial decisions, such as renegotiating contracts with suppliers or reallocating resources to areas with higher ROI. This tracking also helps ensure compliance with tax regulations and can streamline the tax filing process. Northstar’s cost accounting services maintain your compliance with the IRS tax code.

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