Video: How To Set Your Cannabis Business Up For Success From The Very Beginning
Updated: Dec 20, 2022
The cannabis industry is one of the fastest-growing industries in the United States. With more and more states legalizing the use of medical and recreational marijuana, the industry is expected to continue to grow at a fast rate.
For entrepreneurs looking to get involved in this rapidly growing industry, it is important to set your business up for success from the very beginning. This includes everything from choosing the right business structure to compliance with state and federal laws.
One of the most important – and often overlooked – aspects of setting up a successful cannabis business is accounting. Due to the federal government’s classification of marijuana as a Schedule I drug, businesses that sell or distribute cannabis are not able to deduct certain business expenses on their taxes. This can put your business at a serious disadvantage if you don’t plan ahead.
In the following video, Indiva COO Katye Maxson-Landis discusses what business owners need to think about in order to set your cannabis business up for success, including the importance of accounting and tax planning.
When I when I have a client that walks into my office and they're asking me to advise them from the very beginning, one of the most important things that you really need to understand is that since there is no silver bullet to saving, or changing your business structure, your contracts, your behavior and the way you've spent money at the end of the process. You need to be clear about that in the beginning.
I can't tell you how many times I see well-intentioned business owners or partners coming together that refuse to or don't think about actually putting their contract onto paper. They think they're in the honeymoon stage of their endeavor. They want to think that they're going to make millions of dollars, that they're going to come out and be successful, that they're going to change the industry overarchingly, but they haven't addressed what happens in the bad times.
What happens if things don't go to plan? Good contracts, make good business partners, much like fences make good neighbors.
Think of contracts as your friend to be able to put boundaries both on what your business needs to do and the obligations and expectations of all the parties. It also makes it clear for people like me when we come in and have to make a tax return to understand who owns what, why they own it, how much money they were expected to put in, and so forth. The clearer the documents, the less you will spend, both in the beginning and at the end.
Secondly, you really need to understand the landscape that you're working in. Right now in 2022. The federal government considers this an illicit, illegal drug, whether a state says something different or not. You're always going to be contending with this wide gap between what the state is allowing you to do and feels comfortable with you being involved with or allows you the privilege to deduct, like 280E expenses in Oregon are deductible. But the federal government isn't willing to do that.
So you need to be able to really understand the tax position. How much money you think you might make. Not pie in the sky, but really by looking at the actual economy that's happening, how much money do you think you're going to have, and how much tax is going to result from that.
So doing some preliminary budgets and projections is not a waste of your time. Many people get excited when they just want to start but if you don't know how much money you need, and how much money you need to hold back in order to be able to deal with your taxes, you have really set yourself up for failure from the beginning, because the federal tax debt does not vanish and just go away because you want it to or you don't think 280E is just.
So the ability to be able to have good contracts, the ability to educate yourself as a business owner as to what is includible in cogs and not includible in cogs, how to run your business so that it's as efficient as possible so that you are lean and mean, and that you've done some projection work and you're really looking at the availability of the economy in the state you're in. Because we can think about having a national presence and position but you really have to operate from where you are first.