Please wait...

Why cannabis companies should work with an accounting advisor

Date: 21 Nov 2018

The cannabis industry is rapidly growing and is here to stay. This market is projected to reach an economic impact of $70 billion in the U.S. by 2021.
Entrepreneurs are taking the leap into the cannabis industry to try to capitalize on this rapidly growing market. And while this is an exciting time for cannabis startups, this rapid growth also brings challenges.

Working with an accounting advisor can be a significant asset for cannabis startups. In this article, we’ll cover key reasons why cannabis companies should work with an accounting advisor.

1. Arranging financing

As a startup, securing financing is imperative. While financing is a challenge for any business, cannabis companies face social taboos and increased scrutiny of their business models, which can make it even more challenging to source funding. An accounting advisor can help identify the right investment banker, advise on funding, and review documentation to ensure their client is protected.

2. Record keeping can be challenging

Many cannabis companies operate across several sub-verticals including farming, food production and retail. With intercompany transactions and cost and consolidation accounting coming into play record keeping can become difficult to manage. An accounting advisor can provide guidance and experience to bring the company’s books up to par.

3. Reduce tax liabilities

26 U.S. Code Section 280E states that a business engaging in the trafficking of a Schedule I or Schedule II controlled substance is barred from taking tax deductions or credits. Cannabis unfortunately falls into this controlled substance category.

This means that cannabis startups cannot deduct businesses expenses to reduce their taxable income and must pay taxes on their full revenue. This in turn leaves less money in the businesses to continue to grow and prosper.

Fortunately, there are ways to structure a cannabis business that can help reduce the amount of tax that will be paid. With complicated tax laws in this industry, this takes the work of accounting and legal advisors to help structure the business, and keep immaculate record keep to be able to file without penalties.

There is no room for error in the cannabis industry; this industry is tightly regulated, and from a tax and accounting perspective, the rules that guide it are complex. For startups, the fate of their business rests on the company being fully compliant with these rules and regulations. Those who do not will face penalization or could be shut down. An accounting advisor with knowledge of, and experience in the cannabis industry can be a tremendous asset to help your company succeed.

At Harshwal we have experience in accounting for cannabis companies and can help you properly structure your business and set up accounting systems that work in your favour. If you’re looking to explore adding an accounting advisor to your team contact us today.

Latest Blogs

The software is used by professionals engaged in the process of accounting. The introduction and use of the softwareapplication have made significant revolutions in the accounting world. It has made the process of financial transactions efficient and fast...
Part of what Harshwal & Company has always been about is applying the most advanced technology solutions available to the challenges essential to accounting and the client’s individual business, corporate, governmental, or tribal challenges...
It often put the business models and customers in a dilemmatic situation whether their information is in safe hands or it is in on the edge of threshold to get stolen or at the risk of getting attacked digitally...
To meet the challenges of post-pandemic era, companies should emphasize on crafting a talent strategy that develops team players’ critical digital and cognitive competences, their adaptability and resilience and their social and emotional skills...
Accounting in wider perspectives is referred to as the maintenance and recording of every financial transaction a business enterprise undertakes during its course of performance...
Tax is a crucial and inevitable part of business, and all the business owners, either big or small, need to pay the stipulated amount as per the local tax governing authority or IRS. We all are aware of the complexities of the tax world and know handling tax filing complexitiesis not everyone’s cup of tea...

How Did We Do?

Share Your Thoughts With Others Give us a review!
Harshwal & Company, LLP Reviews

download our app

Harshwal & Company, LLP has Mobile App to provide you with business insights, send RFP for Accounting, Auditing and IT services, register for training, send resume, keep up to date with news articles and events.