Cannabis is Going Mainstream — Is Your Accounting Firm Ready?
In December of 2020, the Marijuana Opportunity, Reinvestment, and Expungement Act (MORE Act) passed the House of Representatives — this could lead to massive change for the cannabis industry in upcoming years.
The Cannabis industry is now prepped to grow into an 84 billion dollar industryby 2028.
Science continues to prove that cannabis is a medicine that really works, and as the cannabis industry keeps on growing, you see the proof — Cannabis is going mainstream.Photo: Isaac M. O’Bannon, CPA Practice Advisor
Change is coming.
In fact, the industry has already created over 321,000 full-time jobs across the United States. Pharmaceutical companies, like Jazz Pharmaceuticals, are investing in cannabis for new drug and treatment development.
As the federal reform on cannabis proceeds, and national and international markets continue to grow, the reality is that you should be taking steps NOW to prepare your accounting practice for cannabis clients.
What Do Accounting Professionals Need to Know About The Different Types of Cannabusinesses?
Depending on the type of cannabusiness you serve, there may be different regulations.
These are the three main categories of businesses (you might serve a combination of them):
- Marijuana Cultivators, Farming, and Processing
- Marijuana, Cannabis, and CBD Retailers and Distributors
- Marijuana, Cannabis, and CBD Product Manufacturers and Labs
Within these broad categories are more specific types of businesses that must each follow their own rules and regulations.
If you’re working with a marijuana cultivator, for example, you’ll need to be aware of all the regulations your client is subject to — from seed-to-sale tracking to lab testing the soil. You can see why, then, it’s so important to decide which parts of the industry you want to serve, and be prepared for their unique needs.
Keep in mind that each business may apply for multiple licenses, meaning that you may have a grower who also manufactures and retails cannabinoid products. In such a case, it’s wise to be prepared to serve a variety of cannabusinesses.
Additionally, even if you specialize in one particular type of cannabusiness, you should at least be peripherally aware of the others’ needs.
Learning About Regulations and Compliance
It is becoming more obvious that the matter of lifting the Schedule I classification is a matter of when, not if. Here’s what you need to know about the different types of cannabusinesses and their needs so that you can begin preparing to serve them.
Every state has its own seed-to-sale regulations and requirements for cannabusinesses that direct the tracking of cannabis plants from seed source, through planting, and all the way to harvesting and processing.
They also address manufacturing, testing, and packaging — and up to the wholesale purchase by dispensaries.
No matter what form the cannabis is sold in, every marijuana product must be readily traceable using specific software with extensive tracking and reporting capabilities.
Photo: Isaac M. O’Bannon, CPA Practice AdvisorSimilarly, each state has guidelines on how cannabis businesses track and manage sales. These help state and local governments in the areas of:
- Enforcing regulations
- Collecting taxes
- Verifying the quality of the product, and
- Preventing illegal practices from occurring.
Accounting professionals, including CPAs and bookkeepers, must understand everything within the ever-changing cannabis market, including:
- Accounting and GAAP regulations
- Tax policy and code
- Cash management and traceability
- Banking scarcity
Currently, many cannabis transactions are cash-based transactions, which, on the outset is simple enough. However, if you plan to take on cannabis clients — either now or post-Schedule I — you’ll want to have a system in place for staying up-to-date on changing industry regulations and overall best cannabis business practices.
It’s important that you understand how to handle every penny your cannabis clients make so that you can ensure they stay compliant and minimize audit risks. In the event they do get audited, you’ll be in the best position to help them through it.
Now is the Time To Grow Your Cannabusiness Client List
As the cannabis industry becomes more mainstream, now is the perfect time for you to start adding these businesses to your client roster. So, how do you do it? It starts with networking. And with more visibility in the industry, networking with cannaclients is getting easier.
First, find out where cannabusinesses spend their time. If they’re on social media, look around to see which platforms they use and make a plan to start reaching out to prospects that way.
Use word of mouth to your advantage. Start thinking about reaching out to existing clients to see if they have cannabis contacts, or find local in-person or online events you can attend.
Ultimately, cannabis clients aren’t that different from your mainstream clients, and the way the world sees and uses cannabis is going to change drastically in the next few years as the industry catapults to the next level. So the question remains— are you ready to take on cannabis clients, help them enhance their businesses, and change lives?
Monique Swansen, founder and CEO of Automated Accounting Services and Accounting for Green outside of Boston helps visionary cannapreneurs automate and outsource their financial needs. She also consults with accounting businesses looking to move into the cannabis space. Learn more at accountingforgreen.com. IG @afgcannabis Twitter @AFGcannabis