Bookkeeping Basics for Entrepreneurs in the Cannabis Industry
The number of states who have legalized marijuana for medical and recreational use is rising (it reached thirty this year), representing thousands of businesses who need accounting advisory services. This presents an enormous opportunity for accounting professionals around the country, but it’s not an industry to leap into without first doing diligent research.
Regardless of the legality at the state level, the Department of Justice has made it clear that marijuana remains an illegal, Schedule 1 controlled substance under the Controlled Substances Act of 1970. This, combined with tax codes aimed at preventing money laundering, racketeering, and regulating business deductions related to controlled substances, means accounting professionals need to be well-informed in order to best serve clients and protect themselves.
Historically, many accounting professionals have avoided doing business with the cannabis industry entirely. But as the number of businesses grows, the need for bookkeepers, providers of financial management services and CPAs who have expertise in the particular issues these businesses face will too.
Lack of banking access
Because most banks and credit cards are hesitant to work with marijuana businesses, the industry runs largely on cash. This has made it harder for businesses — and states — to track finances and ensure compliance with tax law.
As the industry has matured, more banking options have become available. For example, Maps Credit Union in Oregon was one of the first CUs in this state to openly accept accounts from cannabis businesses. But limitations on how those accounts must be documented and other compliance management steps the credit union must take means they need to charge a large fee. Some states, like Washington, are actively pushing cannabis businesses into opening checking accounts to reduce the number of cash tax payments they receive. Meanwhile, cashless payment options for the industry are being pioneered by companies like CanPay, which now operates in fourteen states.
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Even as options expand for cannabis businesses, the legal risks are still raising alarm for many in the financial services sector. At this year’s Credit Union National Association (CUNA) Government Affairs Conference, panelists at a breakout session felt that the cannabis industry would become more banked in the future, but that credit unions looking to serve these members still need a laser focus on compliance. “The scrutiny will go down, but not the compliance,” predicted Rachel Pross, Maps Credit Union’s chief risk officer.
Educating yourself to serve the cannabis industry clients
If you’re interested in gaining clients in this growing market, understanding the nuances of regulatory compliance and tax law — both federally and in your state — is critical. Join local associations, such as the Oregon Retail Cannabis Association, and take advantage of their resources. Read widely, attend industry conferences, and speak with your peers who are already working in the industry.
This emerging market is a good opportunity for accounting professionals who are willing to take measures to acquire the specialized knowledge needed to serve these clients.