As the cannabis industry in the US matures, there’s a growing need for accountants to service canna-businesses and further professionalize the sector.
But given the complexities and risks faced by marijuana businesses due to the plant’s federally-illegal status, it is essential to hire an accounting firm with cannabis industry-specific expertise for three hugely significant reasons.
First, the IRS audits canna-businesses much more frequently than traditional businesses, so if you don’t have your accounts in order you are at a bigger risk of a fine or penalty.
Second, IRC Tax Code 280E means marijuana businesses are unable to deduct normal operating expenses, like rent and payroll, from their tax bill. An accountant specialized in cannabis finances will be able to help you navigate these restrictions and maximize your savings.
Third, federal prohibition means banks often do not want to do business with cannabis enterprises due to the risk of federal interference. This means many canna-businesses operate on a cash-only basis, which makes money flows harder to track and organize.
Any accounting firm can try to pass itself off as having marijuana-specific expertise though. To determine if an accounting firm really has the necessary credentials, you need to ask yourself these four questions.
1. Do they have cannabis-specific accounting experience?
The marijuana industry is heavily regulated, extremely complex and the rules are constantly evolving. An accountant without a firm grasp of these dense, ever-changing details is more likely to make mistakes or have an oversight, which could land you with a big fine. Similarly, you don’t want your accountant to be learning the ropes of the cannabis industry at your expense.
2. What kind of canna-businesses do they work with?
Does the accounting firm deal with canna-businesses across the entire supply chain, or in one specific sector like retail, cultivation or processing?
The regulations, licensing processes and standards vary considerably depending on the types of marijuana business. An edibles manufacturer has very different regulatory and compliance concerns than a medical marijuana dispensary.
3. How many canna-business clients are on their books?
Don’t be afraid to ask an accounting firm to divulge how many other cannabis clients they have, and to share any case studies of how they helped their business. Testimonials from satisfied clients can also be incredibly revealing.
4. How long have they been doing canna-business accounts?
While most accounting firms are relatively inexperienced when it comes to cannabis finances, given it is a nascent industry, a business with a few solid years of marijuana accounting is much more preferable than one that’s only been in the game a few months. Many marijuana business owners are reluctant to leave their old accountant behind. This is understandable, but the challenges presented by the complexity of the marijuana industry landscape means cannabis-specific expertise should take precedence.
Key Takeaways
Recruiting an accounting firm with no cannabis industry experience puts you at greater risk of fines, and means you’re less likely to save money on your tax bill.
Pay close to attention to what kind of cannabis industry expertise the firm has, how many cannabis clients are on their books, and what those clients have to say about their service.
