Cannabis Accounting Regulatory
Our Cannabis Practice Group provides accounting services for cannabis businesses in connection with cannabis accounting regulatory which require consideration of a number of unique attributes:
- A substantial portion, if not all of the entity’s business is carried on in cash. Doing business in cash makes internal accounting controls and physical security of paramount importance.
- Inventory records become critical due to the combination of over the counter purchases, and regulatory “track and trace” requirements.
- Federal income tax reporting requirements include inventory rules, and the disallowed “trafficking expenses” under IRC Sec. 280E.
- The unique complexities of cultivation taxes, gross receipts taxes and excise taxes need to be addressed.
If companies are making a profit from money that comes from the direct handling of marijuana, they occupy a grey area under 280e that hasn’t been fully illuminated yet. Because of its Schedule I status, the movement of marijuana product has to be tracked meticulously at every turn.
Many of the industry vertical software packages start with industry specific operations and features and back their way into an accounting integration as an after thought. That is why you see so many industry (not just cannabis) solutions that are poor at accounting and inventory specifically
Many marijuana businesses have to operate as cash-only, as banks are understandably reluctant to accept money from businesses engaged in activities considered illegal under federal laws. The result is that marijuana businesses are susceptible to theft and robberies, requiring expensive security measures. Banks are also required to file a Marijuana Priority Suspicious Activity Report (SAR) if they believe a business is acting illegally, or a “Marijuana Limited” SAR if they believe the business is following state guidelines for legal sales. v
Other complications for banks pertain to violations related to money-laundering laws, especially banks with multinational operations exposed to drug cartels. The DOJ prosecutes banks it believes are violating such laws, and sentences can include lengthy prison terms. The potential for investment fraud is also present in the marijuana industry