Marijuana legalization has well and truly established itself as more than a movement in recent years. It’s now big business, with retail sales expected to top $37 billion in 2024.
But while more and more states move to legalize cannabis, the marijuana industry continues to be underserved by financial institutions, including accountants.
This not only puts canna-businesses at a distinct disadvantage compared to businesses in traditional industries, especially given the extra tax reporting obligations and restrictions they face due to marijuana’s status as a federally controlled substance, it’s also a huge missed opportunity for accountancy professionals.
As marijuana businesses continue to establish themselves legitimately in the US, it’s time for accountants to help in this regard and offer their services to this emerging industry.
Here’s our top reasons why accountancy firms should embrace the opportunities afforded by marijuana legalization.
1. Cannabis sales on an upward trend
While many industries took a hit due to the COVID-19 pandemic, marijuana businesses reported a 40 percent increase in sales in 2020 compared to 2019.
There’s now much less social stigma surrounding cannabis use, demonstrated by the influx of new, hemp-derived products entering the market in recent years.
Any industry with projected high growth should be of interest to accountants, and the marijuana industry should be no exception.
2. Complex canna-business tax arrangements
The cannabis industry is here to stay but it needs help with its finances.
Due to IRS Tax IRC 280E, marijuana businesses have more compliance requirements than traditional businesses and are unable to deduct standard operating expenses from their tax bill. This puts them at a serious disadvantage.
To ensure compliance while maximizing their eligible deductions, canna-businesses need marijuana-specific accountancy expertise.
3. Payment processing challenges
As well as tax compliancy issues, marijuana businesses are often forced to operate on a cash-only basis. This is because banks are hesitant to offer their services for fear of federal reprisals.
Handling large amounts of cash puts canna-businesses at greater risk of fraud, thefts and losses.
A marijuana accountant can help these businesses establish alternative digital payment processes, or institute secure cash management practices and record keeping.
4. Low-risk opportunities
Many accountants may be hesitant to offer their services to canna-businesses as they fear being held liable for facilitating sales of a federally-illegal substance.
This perception doesn’t match up with reality though.
So long as accountants vet the marijuana business thoroughly, as they should with any business, to ensure they comply with the relevant state and federal laws, there’s no indication they’re at heightened risk of federal sanctions. This comes in spite of the fact that marijuana businesses are audited much more frequently than businesses in traditional industries.
Even then, accountancy firms can choose to split their business into two legal entities, with one focused solely on canna-businesses, as a way to mitigate any potential risk.
5. Federal cannabis reform on the horizon
Marijuana businesses face extra challenges due to cannabis’ federally illegal status, but this may not be the case for much longer.
The US House of Representatives has passed a bill to federally decriminalize cannabis multiple times, while the Senate is gearing up for deliberations on a separate measure to end federal marijuana prohibition.
Meanwhile, the Secure and Fair Enforcement (SAFE) Banking Act has also been approved by the House, and it would ensure that banks can work with state-legal marijuana businesses without the threat of federal intervention.
Federal cannabis reform is increasingly a question of “when” not “if,” so entering the industry now means you can establish yourself as an accountant with marijuana-specific expertise before the floodgates open post-legalization.
6. Indirect cannabis accountancy
It’s not just marijuana retailers and growers that need help with managing and reporting their finances.
Many canna-businesses have ancillary operations that don’t come into contact with the plant whatsoever. These include real estate, licensing, packaging, and testing.
Each of these operations requires their own accounting support, so even if an accountant remains reluctant to work with cannabis while it remains federally illegal, there are other marijuana business opportunities available that don’t come with Schedule I complications.