Cannabis Bookkeeping: Tips, Fundamentals & Best Practices

Accounting Practices for Cannabis Businesses

Cannabis inventory accounting is a multifaceted discipline with unique challenges and considerations. The Cost of Goods Sold (COGS) is a crucial concept and involves accounting for all costs used to produce the finished products sold by the company. It’s a world where traditional accounting principles meet unique regulatory challenges, creating a labyrinth that can confound even seasoned professionals. The National Association of Cannabis Accounting and Tax Professionals (NACAT Pros) was founded to standardize bookkeeping, accounting, and tax practices in the Cannabis industries.

  • Accurate accounting is crucial for ensuring the financial health of the business and for making informed strategic decisions.
  • Initially, accountants and attorneys advised cannabis clients to set up as C corporations.
  • Blockchain technology is also playing a part, providing a secure and transparent way to track the entire lifecycle of cannabis products.
  • A trade or business involving the cultivation of land or the raising or harvesting of any agricultural or horticultural commodity.
  • For example, if you have access to industry-specific software and point-of-sale systems at all, using them  often leaves you feeling like the victim of a never-ending beta test, forever subject to working through the glitches.
  • The Colorado Department of Revenue publishes lists of licensed cannabis facilities on their state website.

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Quickbooks and Xero are popular choices for accounting, although some attempts must be made to create charts of accounts for each business stage. Each requires various reporting under the many legislations at the state and federal levels. A cannabis company is a complicated entity that involves several sub-industries (farming, chemical manufacturing, food production, and retail). Moreover, based on the tax collected, it will be easier for them to plan, using the expected tax refunds for business operations. Even for pre-revenue companies, having a comprehensive bookkeeping system in place is essential at the beginning of your journey, when you will need to know how much was spent on what. However, the three popular seed-to-sale software, Biotrack, MJ Freeway, and METRC, tend to have unreliable reporting.

Accounting Practices for Cannabis Businesses

Cannabis Industry Chart of Accounts

  • Industry operators must be prepared to develop, implement, and annually document all security measures, including video surveillance, record maintenance, and a host of others.
  • A dispensary must be a medically endorsed approved store to sell state-compliant cannabis.
  • In the intricate and ever-evolving world of cannabis business, having access to expert accounting advice is not just a luxury, but a necessity.
  • While you shouldn’t attempt to do your own accounting, you should understand what’s going on with your money, inventory, controls, and reporting when the IRS schedules an audit.
  • The end of each month marks an opportune time for accountants to exercise their expertise.

He established a law and accounting practice in an office in downtown Baltimore. He worked in the Knickerbocker building and shared an office with Leon A. Rubenstein, at the time a City Council member. “We’ve had tremendous growth in those advisory practices and that lower middle market where we play hasn’t been quite as impacted as the Big Four advisory practices,” said Call.

The spend culture of cannabis is “out of control”

In other words, the weight of evidence convinced the court that these activities were separate and distinct and did not primarily support the trafficking of marijuana. I tell people in a 30-year career, you may have the chance to get involved in a new industry maybe once in your career, and the time is now for cannabis. By the way, Ron will attest to this, we have a lot of fun to these AICPA events. Jen Benda, who’s an incredible legal mind, will be speaking, I think Nick Richards on some industry accounting techniques from a legal perspective.

In turn, it helps you ensure your business is not losing profit by overpaying taxes. It’s the documentation, analyzation, and categorization methods you use to account for the fixed and variable costs incurred by your business in providing your product or service. It helps you cannabis accounting ensure efficiency, productivity, and reliable data for forecasts and projections. Inventory management software specific to the cannabis industry is an integral tool, automating the tracking of product flow from seed to sale, thus reducing errors and simplifying record keeping.

Knowing what items are allowed to be part of COGS for dispensaries is THE major hurdle to having proper and accurate accounting. Only inventory purchases and shipping for inventory to your dispensary are allowed as COGS items for Dispensaries. If COGS are incorrect from accounting, they will be incorrect on the Tax Return.

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Once you’ve shown them the landscape, it then becomes about what you can do to help them build a profitable business structure. Also think about how crucial it is to use the right time-tracking software that differentiates between tax-deductible vs non tax-deductible tasks? Effective regulation and auditing of cannabusinesses contributes to a better social climate too, with one study finding that medical marijuana laws directly reduced violent drug-related crimes. With all this scrambling, it’s difficult to get everything aligned in a way that works—especially when it’s time to think about clients and numbers at the end of the year.

  • Regulations are complex, vary by state, and continue to evolve–and, the gap between federal and state law remains a challenge for operators.
  • This is consistent with how many other Big Law firms are approaching use of AI.
  • Emerging industry trends, such as the rise of cannabis-infused products and increased consumer demand for sustainable and organic cultivation practices, will also influence accounting practices.
  • While this study found there are Certified Public Accountants that specialize in providing, or are at least willing to provide, accounting and tax services to the cannabis industry, there are not many firms that will do an audit for the industry.
  • Any cost which (but for this subsection) could not be taken into account in computing taxable income for any taxable year shall not be treated as a cost described in this paragraph.
  • Cannacctg stands ready to assist with these specialized needs, offering a depth of knowledge and experience in cannabis accounting unparalleled in the industry.

Accounting Practices for Cannabis Businesses

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