Tax compliance and financial regulations are non-negotiables in the cannabis industry. Unfortunately, simply keeping up with these requirements isn’t a magic formula for growth.
If you’re managing to maintain the status quo but struggling to imagine expansion, it might be a sign you need specialized financial expertise that your bookkeeper simply cannot provide.
But how do you know when it’s time to engage a cannabis CPA?
Your bookkeeper is probably doing an excellent job of taking care of day-to-day financials like payroll, reconciliations, filing sales and excise tax returns, and recordkeeping as required by various compliance frameworks.
Bookkeepers vs Cannabis CPAs
Cannabis Bookkeepers
Cannabis bookkeepers require a thorough understanding of state and federal regulations, which informs a more detailed approach aligned with specific rules and tax codes. The impact of IRC 280E is significant as it prevents cannabis businesses from deducting “normal” business expenses from their federal returns. However, in states that have decoupled from the rule, these deductions can be taken at the state level, requiring an extra layer of oversight to ensure all opportunities are being leveraged to reduce taxable income.
The most significant challenge, arguably, is that the industry is evolving so fast that it’s hard to keep up with current legislation. So, while a cannabis bookkeeper is well-versed on recordkeeping, compliance needs, and related financial tasks, they must also be knowledgeable about the rule of law to ensure their employers are compliant.
Cannabis CPAs
Cannabis CPAs also have this knowledge, but their focus is more strategic. Today, we’ll talk about a few scenarios that might indicate you’re ready to upgrade to a CPA.
What’s the Difference Between a Cannabis Bookkeeper and a Cannabis CPA?
Let’s dive a little deeper to understand what bookkeepers and CPAs do.
- Cannabis bookkeepers process and record daily transactions. These typically include sales, receipts, invoices, receivables, and expenses. Some bookkeepers may also be qualified to do your payroll, but it’s not always a given.
- Cannabis CPAs offer more services than a bookkeeper and have more extensive expertise in financial management. They are qualified to create budgets, forecasts, and financial reports. They can legally provide tax services and have the specialized insight to advise you on strategies to mitigate your tax burden.
What Your Cannabis CPA Can Provide
While cannabis bookkeeping and the accounting services offered by a cannabis CPA are both complex and labor-intensive, there is no substitute for the expertise a CPA can provide.
Here are just a few of the ways a cannabis CPA can help:
- Monitor and organize your finances. The nuts and bolts of a CPA’s job are to oversee the big financial picture to ensure your financial documentation is compliant, accurate, and complete.
- Financial services tailored to your business goals. Whether it’s compiling your state or federal tax returns, getting your books ready for investors, or ensuring documentation is prepared for an audit, your CPA will proceed with the law on one side and your needs on the other. They can provide the reports and projections you require, validate them for accuracy, and ensure you always have the industry-specific financial advice you need when you need it most.
- Modernization. Cannabis CPAs are well-versed with state-mandated seed-to-sale systems as well as cannabis-specific accounting platforms and other software that drives efficiency through automation, reducing costs, improving accuracy, and compliance.
- Improved compliance. Tax compliance is one of the biggest stressors for cannabis operators in every niche. Cannabis taxes are incredibly complex, and because of 280E, there is increased urgency to ensure every opportunity is leveraged to maximize deductions and reduce taxable income. Because the issues vary based on the type of cannabis operation—distributor, manufacturer, cultivator, or dispensary—niche expertise is strongly recommended, and this is something a bookkeeper cannot provide. Cannabis CPAs are well-qualified to prepare compliance documents, not just for the IRS and state regulators, but also for investors, mergers and acquisitions, and prospective buyers.
- Due diligence. Should you be considering taking on venture capital or merging with another company, a CPA can engage the expertise and conduct the due diligence you require to ensure sound decisions. We cannot express more strongly how critical the support of a cannabis CPA is in negotiations, especially when transactions are valued at $1 million or more.
- Qualified financial expertise. There is no substitute for the experience, insight, and industry-specific knowledge a cannabis CPA can provide. From choosing the right business structure to budgeting, creating new business models, analyzing exit strategies, and drilling down on operational KPIs, a CPA can help illustrate the big picture and bring it all into focus.
Signs it’s Time to Engage a Cannabis CPA
Switching to a CPA from a bookkeeper isn’t always preceded by financial troubles. However, if you’re experiencing challenges to your cash flow, profitability, or are facing an audit, a CPA can help.
One of the most significant advantages of having a dedicated CPA is that they will take a lot of time and stress off your plate. You’ll be able to focus your energy on what you do best, work on building your business, and worry less about upcoming tax deadlines or whether your finances are clean and will withstand regulatory scrutiny.
Plus, there will undoubtedly come a time in your journey that you’ll imagine something bigger for your organization. Whether that’s planning your exit, switching to an employee-owned model (ESOP), expanding your operation, or licensing a new vertical, a cannabis CPA is your best ally.
