Victor and Associates

Cannabis accounting firms

Why do you need a Cannabis Accountant?

Like every new industry, the Cannabis industry is suffering from growing pains. Currently, the search for qualified accounting support is one of the industry’s greatest challenges. Accounting for Cannabis companies is unique due to marijuana being illegal at the federal level and therefore subject to IRC 280-e. Hiring an accountant who is not specifically for the industry may well prove to be detrimental to Cannabis businesses. Canapreneurs need a Cannabis accountant. Here’s Why:

1. Audits

Cannabis companies are at high risk of being audited by the state and the federal government because of their Schedule I controlled substance status and the cash-intensive nature of the industry. Cannabis companies found to be non-compliant face extensive litigation and heavy fines, interest, and penalties. Severe cases have even resulted in prison sentences (Harborside). Marijuana companies need an accountant who knows the special requirements of their accounting function and keeps impeccable books and records. Each transaction must be linked to a supporting document and duly recorded in the books. This will not only reduce audit risk but also save costs.

2. Save thousands on your taxes.

Accounting for cannabis companies is very complex because of stricter regulations by the state and the federal government. The more complex issue in cannabis accounting is IRC 280e, which explicitly prohibits the deduction of regular and necessary expenses. To properly account for 280e cannabis companies need an accountant who is knowledgeable in laws governing the industry, cost accounting, absorption accounting, and generally accepted accounting principles (GAAP). If cost and absorption accounting is not done correctly all deductions will be disallowed which may result in under-reporting penalties. This skill is not common as GAAP accounting is only required for publicly traded corporations. Hiring an accountant trained specifically for marijuana will save thousands of dollars by legally maximizing all possible deductions, increase your ability to get financing and banking, and minimize audit risk.

3. Attract Investors & Get Funding

The time when investors were just handing out money to cannabis companies is coming to an end. Many investors have been burned and savvy investors have taken heed. Competition to attract legitimate investors is fierce and Canapreneurs must differentiate themselves from the pack to obtain financing vital to the growth of their business. Astute investors will certainly do their due diligence. Therefore, cannabis companies must have impeccable records that accurately reflect the financial health of the company. A knowledgeable Cannabis accountant is a Canapreneurs secret weapon in the search for funding. Using specialized training and skill Cannabis accountants provide the following:

  • An industry-specific accounting plan.
  • A unique month-end process that ensures that the cost allocation and accounting for cost absorption are performed properly.
  • Operational documentation enables the company to meticulously follow the life cycle of its product.
  • Internal controls that protect your company.
  • A perpetual data room that holds all business records always readily available and accessible from anywhere.

Outcome: Accurate and auditable records that demonstrate effective internal controls and showcase the integrity of the business to investors. This adds immense value to the company, and will easily impress investors and help secure financing.

4. Reduced risk of fraud and theft

Because the industry is very liquid, Canapreneurs face a heightened risk of fraud (misappropriation of funds) and theft. A Cannabis accountant will analyze your internal controls to identify weaknesses and provide strategies specific to your business to fix them. Some strategies can include segregation of duties, written cash processing policies detailing who does what and when with respect to cash, and internal control audits to ensure that the systems are operating properly. A Cannabis accountant is a priceless asset for a Cannabis business. We provide peace of mind, audit confidence, and protect your business from fraud.