Marijuana is legal in your state, but still illegal on the federal level. This has created an unusual culture where the potential profits are high, but the risk is also very high.

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The IRS is a Federal Agency, and to them, cannabis entities are operating an illegal business. They have set the tax code to specifically stack the deck against your company. Every other type of business can deduct ordinary and necessary business expenses, however, cannabis companies cannot!  The only allowable REDUCTION of income is Cost of Goods Sold (COGS).  

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With no firm guidance from the regulatory boards, most established CPAs and accounting firms are not interested in servicing the market. While many of the ones that are getting in are not fully versed in the nuances and enormous requirements that faces these businesses.  This is potentially creating a world of trouble with the IRS and the law for their cannabis clients.

 

THE RIGHT ACCOUNTANT FOR THIS INDUSTRY MUST: 

 

1. Have a strong understanding of the various entity types within the industry and their specific needs and how to best set them up to maximize deductions and keep them compliant

2. Be fully versed in cost and accrual accounting (a requirement to effectively maximize cost of goods sold)

3. Have the right tools to do proper bookkeeping and reporting to both the IRS and the state

4. Have an understanding of how to prepare correct monthly reports so you are always
   AUDIT, LENDER, and INVESTOR ready

5. Have a thorough understanding of IRS code 280E, 471, and applicable court cases!

6. Provide guidance on how to not be a victim of the Tax Courts

 

In the landmark case of Alterman vs. Commissioner, a dispensary was denied otherwise acceptable deductions because the books were not in compliance and they did not have proper internal controls. They had to pay tax on all the deductions that were thrown out, plus penalties, plus interest. This dispensary is now defunct and the owners bankrupt. This is a testament to the extreme value in proper accounting and regulatory compliance.

 

Without proper accounting and entity design, you are allowing the IRS to take advantage of you, your business, and your wallet.

 

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