Amid the evolving set of demands facing cannabis retailers, financial and otherwise, few of them are as singularly important as accounting. Whether it be the intricacies of 280e taxes (the limit on tax-exemptions for alcohol and drug businesses), or else managing various regulatory and compliance concerns, cannabis accounting requires a strong knowledge of the industry from within–a knowledge that has consequences for both the profitability and legal status of the company.
In this post, we’ll look at what makes for an effective cannabis accountant, in terms of both knowledge base and background experience, and how finding one can set you up to thrive.
1. A Proven Track Record
For starters, seek out an accountant with demonstrable experience in the field. What makes for a good accountant generally speaking may not apply to the unique, industry-specific demands of cannabis accounting, especially as the rules have tended to shift and change year to year. Therefore, look for an accountant who can cite verifiable industry credentials, be it continued education related to the cannabis industry, or prior cannabis accounting experience. Factors like a strong personal relationship, for example, although not entirely negligible, may be less important in the case of choosing a cannabis accountant than a resume highlighting lengthy experience with established, profitable cannabis retailers.
2. Expertise in Cannabis Industry Regulations and Section 280E
As with the above, vet your accounting candidates on the basis of their familiarity with the in’s and out’s of cannabis tax code, including and especially 280e regulations. A deep understanding of the industry's ever-changing regulations is critical. The legal landscape surrounding cannabis is complex and varies from state to state, making it imperative to have an accountant who is well-versed in both local and federal laws governing cannabis-related businesses.
A significant challenge that cannabis companies face is the burden of Section 280E of the Internal Revenue Code. This tax provision disallows cannabis businesses from deducting ordinary business expenses, except for the cost of goods sold (COGS). This means that operating expenses such as marketing, rent, and salaries cannot be deducted, leading to significantly higher tax liabilities.
An experienced cannabis accountant will be adept at navigating the nuances of Section 280E, maximizing allowable deductions, and ensuring compliance with tax regulations. By effectively managing your company's tax liability, they can help you remain financially sound and competitive in the market.
3. Experience with Accounting Software and Technology
Particularly in the cannabis space, where the complexity of month-to-month book-keeping has made software a fixture, you’ll want an accountant well-versed in up–to–date technology. When choosing an accountant for your cannabis company, then, look for someone who is tech-savvy and familiar with accounting software tailored to the cannabis industry.
Effective cannabis accounting software services can streamline bookkeeping processes, track expenses, and generate comprehensive financial reports; an accountant up to date with such software can do the same, streamlining your finances. Of course, in an industry under strict legal scrutiny, the importance of keeping meticulous records matters for the obvious legal reasons–one final factor as you’re assessing candidates for the role.
4. A Proactive Approach to Tax Planning
While compliance has its place, effective tax planning is key, too. Given the complexities of Section 280E, you’ll want an accountant who will go beyond simply preparing your tax returns, someone who will proactively work with you throughout the year to devise tax strategies that optimize deductions and minimize tax liabilities.
Tax planning involves making timely decisions about inventory valuation methods, organizational structure, and expense categorization. By taking a proactive approach, your accountant can help your cannabis company avoid unnecessary tax burdens and invest those savings back into the business.
5. Integrity and Network Connections
As with all accountants, one who adheres to a high standard of business ethics, especially where financial decisions affecting your company are concerned, should be a priority. Integrity and ethical conduct are non-negotiable attributes for any accountant, especially in an industry that has faced historical stigmatization. Because decisions made by your accountant can affect public perception, look for an accountant with the reputation of your company in mind.
If your accountant has cannabis experience, they may have connections; and if you can spin those connections to your own benefit, all the better. As a final factor, then, weigh the network potential of your accountant, and who they might be able to connect you with as you look to build and grow your company. An accountant with an extensive network can provide your company with valuable insights and potential business opportunities. They may also serve as a trusted advisor, offering guidance on financial decisions and helping you navigate the challenges unique to the cannabis industry.
In sum, if weighing up your next cannabis accountant, follow these steps:
- check for proven experience in the field
- ensure familiarity with complex 280e regulations
- vet for high software literacy
- look for a proven planner
- prioritize high business ethics and useful connections
Facilitate Compliant and Cost-Saving Accounting with Accounting Software
As you’re weighing up your next accountant, consider your software. So much of effective cannabis accounting entails software literacy, which means that much of the important work is being done beforehand, outside the accountant’s office. Flourish is a comprehensive cannabis software service offering the full menu of perks, from 280e compliance expertise to legible accounting, so that whoever you choose has what they need, in neat and legible order, come tax season. For more on Flourish and what they offer, read on here.