As the cannabis sector continues its expansion, cannabis accounting problems are running rampant. In an industry that’s characterized by intense regulations and costly infractions, compliance is essential. Whether it’s limited access to traditional banking services, cannabis inventory management, or something else, accounting problems left unresolved can destroy everything you’ve earned up until this point.
So what are the most common cannabis accounting problems? And how can you solve them before they break the bank?
Keep reading to learn how to handle your cannabis business’s accounting problems effectively.
Cannabis Accounting Problem #1: Limited Access to Traditional Banking Services
One of the top cannabis accounting problems cannabis business operators have trouble with is the lack of access to traditional banking services. This is because many banks are nervous about the federal ban on these operations.
This is actually a common myth: bank and credit unions can bank cannabis. However, institutions have to conduct customer due diligence that can be rather in-depth. This can include:
- Contacting state authorities to determine whether the cannabis operation is appropriately licensed and registered.
- Analyzing the license application and all related documentation from the cannabis business to obtain an appropriate state license to operate.
- Asking state licensing and enforcement authorities for information about the cannabis business and all related parties.
- Learning about the normal and expected activities for the business, including but not limited to the kinds of products it plans to sell and the customers it’s planning to serve.
- Continuing to monitor publicly available sources for adverse information pertaining to the cannabis business and all related parties.
- Continuing to monitor for suspicious activities.
- Refreshing information to maintain due diligence.
To solve this common cannabis accounting problem, you need documentation to prove the legitimacy of your business. Then, it comes down to finding a financial institution to suit your needs. Banking solutions exist; you just need to know where to look. You can contact every bank in your city for information on cannabis financial options.
The right cannabis accountant will know the credit unions, the banks, and other financial institutions to fulfil your needs. If you need traditional banking for cannabis, keep your name clean of “420” and “cannabis” to avoid the company being too obviously associated with the plant. In some cases, it might be best to have a non-cannabis entity to gain access to banking.
Cannabis Accounting Problem #2: Expired or Irrelevant Licenses
Whichever state you’re in, it will have a set of cannabis licensing regulations. And, of course, you’ll need to remain compliant, regardless of whether you operate in medical or adult-use cannabis.
You’ll need all documentation in order. This means knowing whether your state demands business licenses or business licenses and retail licenses. You could also need to obtain a cultivation or dispensary license, depending on your operation.
While this might seem obvious, many cannabis business operators are making this key cannabis compliance error. They fail to:
- Know what licenses they need
- Maintain the right licenses
- Pay all application and association fees
Thus, it’s crucial to have the appropriate documentation for your operation. Again, this is where a cannabis accountant will shine.
Your cannabis accountant will stay on top of county, state, and federal tax compliance. They’ll know all current regulations and maintain your documentation. This also involves checking and monitoring licensing needs, documentation, and application and associate fees.
Cannabis Accounting Problem #3: Failing to Report Inventory
Failing to report cannabis inventory is a big no-no. Inventory management is essential, and seed-to-sale tracking must be incorporated into every business dealing with these products.
California, for example, will issue a compliance infraction if you don’t report cannabis inventory. But other states have similar regulatory practices. These infractions can cost thousands of dollars and result in license forfeiture.
To solve this issue, you’ll need to monitor your cannabis inventory. Having a system in place makes this easier. This system will facilitate submitting compliance inventory reports regularly.
Cannabis inventory management is crucial for compliance. So if you haven’t been handling your company’s inventory management effectively, it’s best to set up some inventory management SOPs to get your business on track to avoid expensive infractions.