The cannabis industry continues to grow astronomically, with experts predicting the market value will reach $82 billion by 2027. With more states authorizing the use of cannabis, the public continues to favor legalizing it for medical and recreational purposes. Following this trend, an increasing number of cannabis businesses and dispensaries are opening across the states. We are seeing this portrayed right here in Connecticut. These new business owners should understand the accounting challenges faced by cannabis businesses and how they can proactively handle these challenges.
Accounting Challenges faced by Cannabis Businesses
These entrepreneurs may be surprised to discover the unique challenges dispensaries face, one of those being accounting. Cannabis accounting follows specific and complex regulations and requirements. With the industry being relatively new, all the kinks have yet to be leveled out. The best thing a cannabis business owner can do – whether you are new to the industry or an experienced veteran – is review these accounting difficulties early in the business’s lifetime and evaluate how you will tackle them.
Acquiring Business Loans
The first challenge when opening a cannabis business can be acquiring a business loan or funding to start the business. Due to cannabis not being legal at the federal level, most banks will be hesitant to work with cannabis businesses, let alone lend them money. This makes it extremely difficult to receive the necessary funding or open bank accounts. To apply for funding your company will need financial records that are appropriate and understandable.
Keeping Concise Records in case of Audit
Cannabis businesses are at an increased risk of being audited. This makes concise and accurate record-keeping a necessity in the industry. Every business transaction should be recorded properly. Cannabis businesses may consider hiring an accountant to assist them with this as they are familiar with the correlating laws and can help you steer clear of any filing errors that may pose a red flag to the government.
Unique Tax Laws and Regulations
Laws Differ from State to State
Cannabis laws differ from state to state so you will want to find an accountant who is knowledgeable in the state you are opening in or considering opening your business in. Many large accounting firms are not as accommodating as smaller firms that will take the time to research your state’s laws and discuss potential benefits regarding your business’s specific needs. Most states will want cannabis businesses to report their sales and follow their specific guidelines. This may require a point of sale and inventory system that tracks every transaction. An accountant will be able to help you determine what software will work best for your business and assist you in evaluating your profits and losses.
Finding an Accountant who is familiar with the Industry
It is hard to come by an accountant who not only understands the unique tax laws and regulations of the industry but also serves as a trusted consultant during this transition period as cannabis is legalized across many states. There is no doubt that the staff here at The Innovative CPA Group have both the experience and industry knowledge to help your cannabis business thrive. In addition, we stand behind building a strong personal relationship with our clients so we can address each and every question or concern.