A cannabis accounting firm can save you from fines, penalties, and make sure your business is set up to grow sustainably.
- Hiring a non-cannabis specific accounting firm can lead to accidental errors or oversights that may cause big problems in the future.
- Look for a firm that has a successful track record of obtaining a license or managing taxes for the business sector in which you operate.
- Beware of “weed greed” – firms charging high prices up front.
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The cannabis market within California continues to grow at a tremendous rate. The cannabis market is expected to hit $3.7 billion in California by the end of this year and grow to $5 billion in 2019. These numbers are a huge source of tax revenue; BDS analytics predicts that California will bring in $1.4 billion from cannabis taxes by 2021.
Despite the size of the market, applications for operating a cannabis business are extremely competitive. Hundreds of applicants often apply for only 3 – 5 licenses for each business type. If you’ve ever read through a cannabis business application’s requirements of the application process, you’ll quickly see how hard it is to run a compliant cannabis company.
Likewise, the IRS audits 10-20% of existing cannabis companies, a much higher number in comparison with other business types. City officials frequently recommend hiring a consultant or accounting firm to help with the details of the application process and the financials/taxes that will ensue.
But what exactly should you look for in a cannabis accounting or consulting firm? How do you know you’re making the right choice? When interviewing a potential accounting partner, ask these 7 question to vet the right fit for you.
Does the firm have specific experience with cannabis?
The cannabis industry is highly regulated and extremely complex. Therefore, hiring a general or inexperienced accounting firm may be a big mistake. Make sure the firm you hire has experience working with cannabis regulations and tax compliance issues. There’s too much information and detail in the laws to leave it up non-industry specific professionals. Likewise, you don’t want to an accounting firm to be learning about this industry at your expense. Hiring a non-cannabis specific firm can lead to accidental errors or oversights that may cause BIG penalties down the road. Ultimately, it’s your business and you’d are responsible for any oversight, so it’s best not to leave it up to chance.
How many cannabis clients does the firm currently have?
It’s easy for firms to tell you they can handle your cannabis business, but the proof will really be in the numbers. How many current cannabis clients are they working with or managing? If they can share with you a specific example or case study of a client who utilized their services, then you likely know they may be able to handle your case as well. Some companies will even offer testimonials from clients they helped obtain a license or complete a tax return.
Who do they work with within the cannabis industry?
If they do have cannabis clients, does their experience only lie in specific cannabis business sectors (ie: retail, manufacturing, cultivation, etc) or can they help with the entire supply chain?
There are several types of cannabis businesses, each responsible for a variation of taxes, permitting, and testing compliance. For example, if you’d like to manufacture edibles, that will be a very different licensing process than opening a retail storefront. Make sure your potential firm has not only worked with cannabis clients but has a successful track record of obtaining a license for the business sector that you want to apply for.
How long has the company been serving the cannabis industry?
The cannabis industry is new, so it’s unlikely many cannabis consulting or finance firms have been around for a long time. Since the industry is nascent, beware of anyone claiming 10+ years’ experience. Likewise, there is a big difference between operating for two years versus two months. Experience is crucial in untangling the various regulations and compliance issues in the cannabis market.
We’ve seen many clients hesitant to switch from their current local accounting partner to a cannabis-specific accounting firm due to a feeling of loyalty and familiarity. With an industry as complex as the cannabis market, this is something you may want to rethink. Cannabis specific-expertise is much more important than a local presence. Advice is now delivered virtually and globally through the use of technology, and valuable cannabis expertise can be delivered no matter where you are in the state.
What are the qualifications of the firm’s employees?
Don’t be afraid to ask about the qualifications and experience of those you’ll be working with to grow your cannabis business. Be sure they are competent tax professionals, with specific expertise in cannabis rather than former black-market operators.
How does the firm charge for services?
The firm should be very clear about how they will be charging for their services. An accounting form should outline what will be included in their fees and provide the scope of the work with deliverables and proposed timelines. Beware of firms charging high prices up front. There is a lot of “weed greed” in the industry – accounting firms looking to cash in on the new industry’s growth – so due diligence is crucial.
What are the contract termination terms?
It’s business. Things can happen. Talk to your cannabis accounting partner up-front and confirm that if you need to end the contract, it is possible within reasonable terms.
GreenGrowth CPAs have demonstrated our expertise by consistently providing free content that will help you understand the cannabis market. Contact us today and ask how we can help with your cannabis accounting