Cannabis, unlike 99% of other industries, is new and until January 2018 there really wasn’t such a thing as cannabis accountant. There were experienced, talented accountants working with cannabis companies in legal states (medical and recreational) developing processes, creating cannabis-specific chart of accounts and staying up-to-the-minute on legal cases involving the application of 280E. There were, and still are, bookkeepers, accountants and CPA’s working with cannabis companies that don’t have the correct skills, the latest information or the right tools to keep their employers/clients compliant, audit ready and on a path to success.
That’s the long way of saying that…
As accounting professionals we are "lucky" in that we can transition into new industries fairly easily. GL (general ledger) accounts, systems and reporting will vary greatly between industries and from company to company, but the foundation is the same. A P&L (profit & loss statement) is a P&L whether you're a midsize seafood manufacturer or a 1000+ attorney law firm. Certain industries do prefer that you specialize (software companies, pharmaceuticals, hotels, etc.) but in general if you're a smart, driven person with strong technical skills, a fantastic manager and access to Google, you're able to get up to speed and add value in a relatively short amount of time.
Then came cannabis, different than any other industry. Why? Well, it’s based around a product that is a federally illegal Schedule 1 substance subject to IRC 280E. Unlike every other business, plant-touching cannabis businesses cannot deduct usual business expenses, i.e. marketing, security, utilities, wages, etc. which creates a significant tax burden.
You cannot get around 280E, regardless of what your CPA/attorney/bookkeeper/friend is telling you. You can minimize your taxes through consistent, documented cost accounting to maximize your one deductible expenses, COGS. Most accountants do not know how to do this. If I had moved directly from my last corporate into cannabis I could not have helped you either. You need a cannabis specific COA (chart of accounts), an in-depth understanding of 280E, the technical skills to do cost accounting and a very good grasp on compliance, licensing and regulations at the state and local levels. Now in mid-2019 there are accounting and finance professionals like myself who have invested in cannabis-specific training and tools, developed by those early pioneers, to be able to properly serve cannabis clients.
We, the cannabis community, know that there are many unique challenges in the industry that need to be navigate and handled correctly to stay compliant, from social media advertising bans to lack of access to banking. It’s interesting that one area cannabis businesses are so reluctant to commit to doing correctly is accounting, such an important foundation of any business. The cost of hiring a cannabis accountant, as a part-time CFO, virtual controller or accounting resource to support an internal finance team, is always going to be less than the cost of not hiring one. You’ll overpay or underpay on taxes. You’ll incur late fees, penalties and/or interest on late or incorrect tax filings. You’ll lose value and opportunities with investors, partners and potential buyers when your books and records are a mess.
At the end of the day a cannabis business is a business like any other, but until cannabis is no longer a Schedule 1 substance there are certain skills and expertise you must have to avoid higher taxes, compliance issues and being unprepared for the inevitable IRS audit. You can find a cannabis accounting firm quite easily these days, but I suggest Alice & Fran (surprise!). We offer the standard cannabis accounting along with CFO services and business consulting backed by fifteen years of progressive professional finance experience.