Marijuana Reclassification Impacts Bank Servicing of Businesses

The National Association of Cannabis Accounting and Tax Professionals (NACAT Pros) was founded to standardize bookkeeping, accounting, and tax practices in the Cannabis industries. A COA for your cannabis operation will help you document your business and keep track of your expenses. Creating and submitting quarterly financial reports and your tax returns becomes much easier. While it might seem like cannabis bookkeeping would negatively impact your chances of better future opportunities, the cannabis industry is a legitimate one in many states. Medical marijuana accounting is similar to recreational accounting, as both have very strict guidelines in place by the government. QuickBooks is the go-to solution for any business’s accounting and bookkeeping needs.

Rescheduling Cannabis and Its Broad Ripple Effects Part 3

This number fluctuates from year to year but remains relatively stable. For marijuana business operators, the chance of an audit has been reported as high as 10 to 15 percent, according to the Cannabis Business Professionals of Oklahoma. Knowing what items are allowed to be part of COGS for dispensaries is THE major hurdle to having proper and accurate accounting. Only inventory purchases and shipping for inventory to your dispensary are allowed as COGS items for Dispensaries. The Cannabidiol and Marihuana Research Expansion Act, or CMRE Act, was unanimously passed on Mar. 24, 2022, representing one of the few occasions that the Senate advanced a marijuana-related reform bill.

Software workarounds

The page notes that although many cannabis industry businesses conduct operations with cash, these transactions must be reported like any other form of payment. It also provides information about income reporting, cash payment options for unbanked taxpayers, estimated US federal income tax payments, and the importance of robust recordkeeping (i.e., cash sourcing and tracking). This lack of banking options subjects cannabis businesses to multiple issues, including internal and external theft, misallocation of funds, payroll, and insurance paid in cash. Many businesses try to handle marijuana-related taxes on their own without success. Without internal controls and a firm understanding of excise taxes, federal rules, and other cannabis-specific tax demands, it’s challenging to remain compliant and profitable.

What is the general takeaway of the IRS adding these webpages?

Cannabis businesses, however, ARE NOT taxed like other businesses in the US. Based on IRS 280E, they are NOT allowed to deduct any costs other than the cost of their product (Cost of Goods Sold). Therefore, cannabis businesses will be taxed on Gross Profit (Net Income – Cost of Goods) of $50,000.00! That is a major difference in tax liability that results in taxes being charged on $50,000 versus $4,500. Because marijuana is still listed as a Schedule I drug, its sale is illegal at the federal level. This is the basis of the conflict for legalization, which affects accounting, which rolls into taxation, and the discrepancy between state and federal government.

What Does This Mean for Accountants?

This also helps our certified public accountants identify areas where expenses can be optimized and potential cost-saving measures can be implemented. Moreover, our specialized cannabis certified public accountants provide valuable financial insights and advisory services that guide strategic decision-making. By having a thorough understanding of the financial implications of different business moves, our certified public accountants make well-informed choices that drive growth and success in this competitive industry. https://www.bookstime.com/compare-bookkeeping-solutions From tax services to bookkeeping services, Northstar is an industry leader among other accounting firms in how we specialize in this elevated space. Generalized accounting services don’t offer the support our cannabis clients need, which is why we remain in the know about everything and anything that might impact your company – and you as a business operator. As the federal government continues its prohibition of marijuana as part of its list of controlled substances, cannabis business owners must adhere to the rules.

Rates of CAPS across the three study designs

The CSA is a federal law that classifies substances into schedules based on their potential for medical use and risk of abuse. The cannabis plant has been in the most restrictive category, Schedule 1, since the CSA was enacted medical marijuana accounting in 1970. In the 2018 Farm Bill, cannabis plants with less than .3% concentration of the major psychoactive component of marijuana, delta-9-tetrahydrocannabinol (THC), were removed from the CSA and legally defined as hemp.

• So there’s some opportunity that if you’re maybe from rural practices and you want to learn more about agriculture accounting and I think you can cross over and do some sections over on their side of the aisle as well.
• These sub-niches include farming, processing, manufacture, labs, distribution and retail, and many times all of those will fall under the same company.
• To navigate excise taxes effectively, cannabusinesses must accurately calculate the tax liability for each product sold.
• Your accountant will not be the only financial professional considered by your cannabis business.
• Consulting firms will additionally inform you on the best techniques for organizing your business to maximize tax productivity and safeguard your resources.
• 2) Ready to service your existing Cannabis and/or CBD/hemp accounting client?

At last count, 36 states plus the District of Columbia have legalized marijuana for recreational or medicinal use, or both. These states, such as California, Washington and Colorado provide tax guidance for businesses and we strongly encourage industry members to remain compliant with state taxes as well. And while there are 14 states that still ban cannabis use, we expect both unlicensed and licensed marijuana businesses to grow.

• But they still often struggle, said Tracy LeMaire, cofounder of TAC CPAs, an accounting firm that works with cannabis businesses.
• She is also an Affiliated Researcher of the Project on Psychedelics Law and Regulation (POPLAR) at the Petrie-Flom Center for Health Law Policy, Biotechnology, and Bioethics at Harvard Law School.
• Along with the overall corporate governance standards for a Cannabis business, successful businesses also need internal controls.
• However, because it’s a Schedule I controlled substance, Section 280E of the tax code applies, even if the business operates in a state that has legalized the sale of marijuana.

Services for Cannabis Businesses

Also think about how crucial it is to use the right time-tracking software that differentiates between tax-deductible vs non tax-deductible tasks? Certain money laundering and racketeering violations could result in loss of status as a federally insured depository institution, as well as civil seizure and forfeiture of assets. The fear of enforcement has consistently proven a substantial barrier to banking institutions servicing marijuana-related businesses. I have previously written that no matter what happens with rescheduling, Congress will need to clarify the division of federal and state regulatory powers over cannabis.

CANNABIS 101: ACCOUNTING AND BOOKKEEPING NEEDS

Cannabis businesses have no exemption from their employment tax obligations, and as with other small businesses, they often need to make quarterly tax payments. These business owners should always pay their taxes on time to avoid interest and penalties. But Section 280E doesn’t prohibit a participant in the marijuana industry from reducing their gross receipts by properly calculating the cost of goods sold to determine its gross income.