Have you ever been given zero direction on a project just to find out at the end that you did it wrong? That is a familiar feeling for cannabis companies nationwide who are navigating high-level business transfers, acquisitions, and mergers without having been given the fundamental tools as to what to track in the first place.
Cannabis accounting doesn’t just include the difficulties of running a conventional business. There are considerations for how to properly source and track all relevant employee personal data, stock and plant origins, security considerations, compliance records, and more.
Perhaps running a cannabis business would be a profitable enterprise if those guidelines were made evident to new business owners or investors in the cannabis space. Taxes, unfortunately, tell us another story. At least a cannabis business is able to consult with their local bank branch to find practical solutions, right? Sadly, it is not often the case.
What makes the matter of cannabis accounting worse is that many banks preclude cannabis businesses from working with them at all. The cannabis industry, more than any other, faces roadblocks, detours, and policy changes like the beaches change tides. Local city councils will point to businesses that “step outside of the lines” but are reluctant or entirely silent when it comes to answering where those lines are—both before and after the fact.
Cannabis Accounting and Policy Change
Another challenge is considering how bootstrap organizations are meant to accomplish their primary business functions like growth and marketing while also appeasing and anticipating constant policy changes. In other words, if you’re always playing catchup, it’s nearly impossible to get ahead. That is if you’re not connected and wealthy enough to weather delays in permits and licensing. Some are even well-off enough to create their own regulations through lobbying.
For cannabis businesses who want to compete and keep clean and easily auditable cannabis accounting, there are a few standard practices that can aid you if you are looking to emerge on the other side of an audit as clean as possible:
- Proper inventory management and seed-to-sale compliance.
- Thorough financial record-keeping, including cash flow and capital.
- Records of any “infrequent large transactions” that may be flagged as “money laundering.” 4. Records of security concerns such as background checks and policy breaches. 5. Complete tax records at every level of the business.
While these practices are standard for any small business, they are essential for cannabis company owners who are often under undue amounts of scrutiny despite filing identical paperwork for similar retail purposes as any other vendor. Despite this scrutiny, the amount of corruption in the cannabis business is considerably low.
In the cannabis accounting and retail business, it is not enough to simply run a clean business—you must anticipate and exemplify all of the financial and managerial considerations that could hamper your chances of selling your business or pivoting your model.
Mergers are often the only way for companies to grow beyond their state lines. Since federal regulation of cannabis still presents difficulties regarding product import, export, and production license holdings, building your business up to the point of being acquired is a worthy goal of many entrepreneurs. This “build and sell” model is much like the craft brewing industry where smaller breweries are purchased as “innovation opportunities” for major beer producers.
As the cannabis community matures, it will take collaboration between banks, governments, regulators, and grassroots support organizations to ensure an even playing field for the next great industry in American innovation. Cannabis accounting is only one of the many considerations that will foster ongoing growth and opportunities for streamlined compliance checklists.
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