Bookkeeping for Dispensaries
We’ve written before on topics that are vital to the recreational and medical cannabis industries, such as the critical analytics every cannabis dispensary needs to be on top of and insurance and risk management challenges for business owners. Today, we’re going to focus on an even more basic yet pressing concern: The problem of cannabis accounting, or bookkeeping for dispensaries.
If you’re among the many cannabis dispensary operators who’ve been left high and dry by a lack of accredited marijuana accounting specialists, we can help. Our Bridge West CPAs are experts in the cannabis field, having helped more than 600 clients since 2009. In today’s post, we’ll cover the fundamentals of cannabis accounting. This includes some of the challenges of bookkeeping for dispensaries and a breakdown of the bookkeeping services we offer and why they are important for running a successful cannabusiness.
Cannabis Accounting: A Special Regulatory Environment
For most businesspeople, keeping clean and well-ordered books is a necessity, but the stakes aren’t usually particularly high. For a cannabis dispensary, quality bookkeeping can easily mean the difference between success and getting shut down.
Sounds dramatic? Maybe, but it’s true. Whether it’s threading the needle of byzantine and contradictory-seeming regulations to understanding obscure (but hugely impactful) sections of the tax code, understanding the lay of the cannabis landscape is a must.
On top of the many corollary benefits of keeping well-ordered books, it’s important to know a very specific piece of legislation as it regards marijuana accounting. Code 280e is the section of tax law that prohibits those profiting from federally scheduled substances from deducting the normal business expenses any other enterprise is entitled to deduct. This code makes it much more challenging for a cannabis dispensary or other cannabusiness to be profitable.
Of course, that’s the point. According to IRS documents obtained by Marijuana Business Daily through a Freedom of Information Act (FOIA) filing, the IRS devotes a great deal of effort to auditing legal cannabis businesses. That’s because such audits earn the tax agency substantial revenue. In 2017, for instance, the agency collected $4.7 billion in cannabis-related taxes on slightly less than $13 billion in sales.
Don’t expect this policy to change anytime soon. Last year, the then-new Biden administration signaled its intent to continue aggressive enforcement of Code 280e, despite conciliatory talk from Vice President Kamala Harris and others.
Bridge West CPAs can help. In fact, much of our business is devoted to mitigating the effects of 280e. You can read more about our mitigation efforts here.
Bookkeeping for Dispensaries: Play it Smart, Play it Safe
While the legal restrictions of the cannabis industry require thorough documentation and legal navigation, you can rest easier knowing that doing so—while being in line with regulations—also stands an excellent chance of reducing your business’ tax burden. Yes, tracking your expenses clearly and precisely can save you a lot of money down the road.
For example, one Colorado cannabis retailer in 2018 was found liable for over $75,000 in penalties, simply because she failed to separate her cannabis-related expenses from non-cannabis ones.
To avoid this, we recommend you backup your data regularly, ensure that more than one person in your organization has knowledge of and access to financial information, and last but not least: Use the best software you can afford. Using a platform tailored specifically to the cannabis industry will help you keep accurate records and deliver the IRS the information they need easily, quickly, and painlessly.
Marijuana Accounting: Why it Pays to Hire the Best
Do you have further questions about marijuana accounting and bookkeeping? Bridge West CPAs offers outsourced accounting services, tax preparation support, and many other essential cannabis accounting services. Now well into our second decade of helping entrepreneurs navigate the cannabis industry with expert bookkeeping and advisory services, we’re confident that Bridge West CPAs can help set you on the road to success; don’t hesitate to reach out anytime.