The cannabis industry is growing at an unprecedented rate. In the United States alone, the legal cannabis industry is expected to reach $30 billion by 2025. But as the industry grows, so does the complexity of cannabis accounting.
If we need a definition, cannabis accounting is the process of documenting financial transactions, analyzing records related to assets and liabilities, and ensuring that a business presents fiscal statements that comply with regulatory and tax laws governing the sale of Cannabidiol (CBD), Hemp, and THC products. Businesses can outsource this function to accounting firms or hire full-time staff depending on the size and volume of daily transactions.
It should go without saying, but cannabis accounting is not like traditional accounting. There are special rules and regulations that must be followed. For example, businesses in the cannabis industry must often pay taxes in cash because many banks do not provide financial services to cannabis businesses.
If you’re thinking of entering the cannabis industry, it’s important to understand the basics of cannabis accounting. This article will explain what you need to know about this unique aspect of the cannabis industry.
Three Ways Cannabis Accountants Add Value to A Business
1. Tracking the Daily Flow & Storage of Cash
Despite current trends in state legalization, the cannabis industry is still experiencing stigmatization from banks nationwide due to its classification as a Schedule I drug. Dispensaries and other cannabis businesses must contend with receiving and storing large volumes of cash from sales and tracking outflows for business expenses like payroll and taxes. This process can be cumbersome and at times dangerous for operators.
Additionally, large amount of cash creates opportunities for dishonest employees with access to the company’s safe to steal money from storage. A cannabis accountant tracks each dollar by doing daily or weekly counts to prevent theft of cash from the business, making it harder for money to slip away unnoticed.
2. Maintaining Compliance with State and Federal Laws
State authorities occasionally do random inspections on cannabis vendors to nab business owners that are violating laws and regulations. Cannabis accountants are obligated to maintain integrity when creating financial records to ensure that their clients present verifiable tax returns consistently.
3. Providing Timely Counsel Regarding The Financial Health Of A Cannabusiness
A cannabis accountant can assess business performance by analyzing assets and liabilities. This process produces information such as working capital cycles that help management make informed decisions regarding credit purchases.
A balance sheet is an accounting statement that presents assets and liabilities belonging to a business within 12 months. Business owners require this information because it's crucial to perform a valuation.
The financial health of your business can change rapidly, and you need an accountant who can keep up with the latest trends and developments. You also need an accountant who is available when you need them and who can provide you with the level of service you expect.
The Importance of Accurate Cannabis Accounting
Cannabis businesses are complex and highly regulated. As a result, accurate and compliant accounting is essential to the success of any cannabis business.
In theory, you should already be doing this. Cannabis companies must deal with stringent tracking and reporting requirements. They must also navigate the complex web of state and federal laws that govern the industry. However, the reality is that many companies fail to do an adequate job of tracking their finances, either because of a lack of expertise, lack of time, or a combination of factors.
A professional cannabis accountant can provide you with a range of services to help you more accurately keep track of your finances. They can help you choose and set up accounting software, train you and your staff on how to use the software, understand and interpret your financial statements, and provide advice on financial planning and reporting.
With the proper systems in place, not only will you save time and money, but you'll save even more money by maintaining compliance and avoiding expensive and burdensome fines that could have been avoided with accurate accounting practices.
Is It Better to DIY or Hire A Cannabis Accountant?
Sometimes a cannabis operator may feel it's unnecessary to hire an accountant or outsource this task because he or she has a background in bookkeeping. While it's certainly possible to save money when working with a lean staff, DIY accounting presents a number of pitfalls.
First of all, cannabis tax laws are complex. Cannabis vendors that take the DIY approach have to study both state and federal compliance regulations. These voluminous laws contain heavy jargon and nonspecialists require the assistance of an experienced tax attorney to provide correct interpretations.
Another key issue that seems to be at the forefront of this discussion is the question of how to account for inventory. Inventory is a particularly difficult issue because cannabis plants can take a long time to grow and harvest. This can create big problems for accountants who are trying to track inventory levels and cost, at least when they don’t have the necessary experience.
Ultimately, the decision of whether to hire a professional cannabis accountant or handle your finances yourself depends on a number of factors, such as the size and complexity of your business, your budget, and your own accounting knowledge.
If you have a small business with simple financial needs, you may be able to get by with doing your own accounting. However, if your business is more complex, it is probably best to hire a professional accountant. An accountant can help you navigate the often confusing world of taxes and regulations, and can also offer valuable insights into the financial health of your business.
Ultimately, the decision of whether to hire an accountant or not is up to you. But if you want the peace of mind that comes with knowing your finances are in good hands, it may be worth the investment.
The Benefits of Working with a Professional Cannabis Accountant
If you are involved in the cannabis industry, it is highly recommended that you partner with a professional cannabis accountant. Here are some of the benefits of working with a professional cannabis accountant:
A professional cannabis accountant can help you navigate the complex tax laws that apply to the cannabis industry.
A professional cannabis accountant can help you track your expenses and ensure that you are operating your business in a financially responsible manner.
A professional cannabis accountant can help you understand and manage the risks associated with the cannabis industry.
A professional cannabis accountant can help you plan for the future of your business.
If you are involved in the cannabis industry, working with a professional cannabis accountant is an important step to taking your business to the next level.
Professional Accounting Services From Indiva Advisors
As the cannabis industry continues to grow, it is important for businesses to understand the unique challenges that come with cannabis accounting. Indiva Advisors offers professional accounting services that can help businesses navigate the complexities of the cannabis industry. With our help, businesses can stay compliant and avoid potential financial pitfalls.
Contact us today to learn more about our services.