Medical Marijuana CPA Columbus Ohio
Keep your accounting compliant with evolving regulations in the emerging Cannabis industry
Cannabis CPA Services
Managing a medical marijuana business is demanding due to the unique challenges posed by the evolving legal landscape, strict regulatory requirements, and complex industry dynamics. Navigating constantly changing laws, ensuring compliance with stringent regulations, and maintaining rigorous record-keeping can be time-consuming and resource-intensive.
We believe that you do not need another burden in the form of tax complexities and compliance.
- We will handle the entire process of accounting, from setting up Quickbooks to maintaining your chart of accounts, and managing your expenses and taxes.
- We will proactively advise you on how to adapt to new laws and regulations as they change the landscape of cannabis accounting.
- By utilizing our comprehensive accounting techniques, you will be equipped with valuable data that can facilitate making informed business decisions. This will enable you to navigate strategic choices with ease, such as determining how many products to stock and focusing marketing efforts on a specific product or service.
- Our extensive understanding of accounting principles specific to the cannabis industry will enable us to provide you with a precise analysis of your profits, margins, and other vital metrics.
Managing your Cannabis Company finances with Hogan CPA, a QuickBooks ProAdvisor
One effective solution for overcoming the unique financial challenges of a medical cannabis business is to leverage the power of QuickBooks, one of the most popular accounting software platforms. QuickBooks offers a range of features that can greatly streamline the process of tracking finances and managing the complexities associated with the industry. Quickbooks can help you answer critical questions such as
- How much are your profits after Cost of Goods Sold (COGS)?
- Which of your locations/dispensaries are the most profitable?
- How much are you spending on compliance costs?
Navigating the financial aspects of a medical cannabis enterprise necessitates a distinct skill set and specialized proficiency to precisely monitor, gauge, and present the company’s financial standing. The distinctive attributes inherent to the cannabis sector elevate its complexity beyond that of conventional businesses. Within this framework, several accounting complexities arise including:
Banking Challenges
As the cannabis industry expands, securing banking services and accessing financing has historically posed challenges for marijuana businesses. Many banks deny canna-businesses altogether. However, with the growing trend of legalization across the country and initiatives like the SAFE Act, there is newfound optimism for cannabis businesses in addressing these issues.
Cash Transactions
Currently, only cash payments, “cashless-ATMs,” or PIN Debit solutions are available to the cannabis industry – depending on your bank and what they allow. This makes it difficult to track revenue and expenses accurately, primarily having manual receipts as proof of payments and limited digital payment traces. Handling cash also introduces a higher risk of theft, errors, and potential discrepancies. We can help minimize errors and ensure you’re maintaining accurate bookkeeping.
Section 280E Tax Code
Because cannabis is classified as a Schedule I controlled substance federally, businesses operating in the cannabis industry, including those in Ohio, are generally subject to the restrictions imposed by Section 280E. This means that cannabis businesses are limited on deducting expenses related to their business operations, with the exception of costs directly associated with the cost of goods sold (COGS). Common deductible expenses in other industries like employee salaries, utility costs, rent, facility repairs, and marketing are not deductible under 280E, drastically increasing a company’s taxable income .
However, tax laws and regulations can change in the future, and states may advocate for federal reforms that could impact how cannabis businesses are taxed. Partnering with an accounting firm can help inform and protect your business from sudden changes on both the state and federal level.
Complex Cost Allocation
Properly allocating costs among cultivation, processing, and distribution stages can be intricate due to the diverse product offerings and the need to adhere to regulatory requirements. Accurate cost allocation is crucial for determining profitability.
Regulations and Compliance
Strict regulations require meticulous record-keeping and reporting to demonstrate compliance with licensing requirements and state regulations. Failing to maintain accurate records can lead to legal and financial consequences.
Audit Risk
Cannabis businesses often undergo thorough audits due to the perceived high risk associated with the industry. Ensuring accurate financial statements and compliance records is essential to navigate audits successfully.
A medical marijuana CPA possesses the necessary skills to navigate the intricacies and obstacles in the cannabis industry. Without enlisting an expert, maneuvering through regulations and avoiding tax complexities can prove to be a daunting task.
Medical Cannabis Taxes, Banking, and Finance
Taxes for Cannabis Businesses:
Depending on your type of business (dispensary, cultivator, manufacturer) and the state in which you operate, the type of tax you’ll be paying can be different based on state regulations. There are 3 common types of taxes for cannabis businesses:
- Percentage of Price – this is essentially a “sales tax” you regularly experience paying for other goods
- Weight-based tax – this is typically for cultivators selling their products in larger volumes
- Potency tax – this is for manufacturers of THC products. Depending on the THC-strength of your product, you may be required to pay more or less taxes
Additionally, depending on the entity you select for your business, taxes will be paid a certain way. LLC or S-corp entity taxes pass through to the owner(s) of the business while C-corp’s are recognized as their own taxable entity. It’s common for most businesses to start as an LLC and transition to an S-corp when the revenues grow. That said, because of section 280E and deductions, it’s more complicated than that for cannabusinesses. We help business owners decide the right type of election to minimize taxes.
Separation of Assets:
One of the most important factors for all businesses, and even more important for Cannabis businesses, is to separate your business and personal assets. Because of even stricter regulations, accidentally using business funds to pay for personal expenses can be a slippery slope of regulatory fines or legal claims. Separating business assets from personal assets ensures that accounting practices are followed, compliance requirements are met, and you are protecting your personal finances as best as possible.
Banking Challenges:
As the cannabis industry expands, securing banking services and accessing financing has historically posed challenges for marijuana businesses. Many banks deny canna-businesses altogether. However, with the growing trend of legalization across the country and initiatives like the SAFE Act, there is newfound optimism for cannabis businesses in addressing these issues.
Cash Transactions:
Currently, only cash payments, “cashless-ATMs,” or PIN Debit solutions are available to the cannabis industry – depending on your bank and what they allow. This makes it difficult to track revenue and expenses accurately, only having manual receipts as proof of payments and no digital payment trace. Handling cash also introduces a higher risk of theft, errors, and potential discrepancies. We can help minimize errors and ensure you’re your maintaining accurate bookkeeping.
Financing and Business partnerships:
Traditional lending and financing options are limited due to federal illegality, causing cannabis businesses to struggle to secure capital. Alternate methods of financing are industry-specific lenders or private investors, like family, friends, or others. A formal legal entity and a sound business plan with accurate financials will be instrumental in securing funds from both types of investors.
Accurate financials can also be helpful when securing supply chain partnerships, licensing agreements, or endorsements with various companies or local celebrities. Transparency and showing consistent sales growth over many years will give confidence to industry partners that you will fulfill your end of the bargain when they decide to partner with your cannabis business.
Medical Cannabis Taxes, Entities, and Legalities
Having a sound entity strategy is important for any business, but it is especially important if you are in the cannabis industry.
Limited Liability:
The cannabis industry faces unique legal and regulatory risks due to federal and state disparities. Operating in this environment exposes businesses to potential legal challenges. Limited liability protection safeguards personal assets of owners from potential legal claims or regulatory actions.
Separation of Assets:
Cannabis businesses deal with strict regulations and compliance requirements that can lead to legal disputes. Separating business assets from personal assets ensures that regulatory fines or legal claims are contained within the business entity, protecting personal finances.
Taxes for Cannabis businesses and entities:
Depending on your type of business (dispensary, cultivator, manufacturer) and the type of entity you select for your business, taxes may be significantly different. You may be required to pay a “sales tax” typically called “percentage of price,” weight-based tax, or one based on the potency and THC levels of your products.
Additionally, depending on your entity, taxes for an LLC or S-corp can be passed through to the owner(s) of the business or be regulated to C-corp corporate taxes. We help business owners decide the right type of election to minimize taxes.
Credibility and Professionalism:
The cannabis industry is emerging from decades of stigma and legality challenges. Demonstrating professionalism through a legal entity helps counter this stigma and instills confidence in investors, partners, and customers who seek reliability and legitimacy.
Access to Financing:
Traditional financing options are limited due to federal illegality, causing cannabis businesses to struggle to secure capital. Having a formal legal entity structure can make the business more appealing to alternative funding sources, such as private investors or industry-specific lenders.
Easier Ownership Transfer:
Selling or transferring ownership in the cannabis industry requires compliance with strict regulatory guidelines and approvals. A formal legal entity structure ensures that ownership changes adhere to regulatory requirements, minimizing disruption.
Risk Mitigation:
The cannabis industry operates in an uncertain regulatory environment, exposing businesses to legal and compliance risks. A legal entity provides a structured framework to navigate these risks, safeguarding the business from potential lawsuits and regulatory changes.
Access to Banking and Services:
Banking limitations are a significant challenge in the cannabis industry, making it difficult to access financial services. Forming a legal entity increases the likelihood of gaining access to banking services, which can greatly improve financial operations.
Employee Recruitment:
Attracting skilled employees to the cannabis industry requires overcoming its historical stigma and legal complexities. Operating as a recognized legal entity enhances the industry’s credibility, making it more appealing to potential employees seeking stability.
Brand Protection:
Intellectual property protection is crucial in the cannabis industry to establish and maintain brand identity. A legal entity provides a formal structure for registering trademarks, copyrights, and protecting intellectual property rights.
Legal Compliance:
Cannabis businesses must navigate complex and frequently changing regulations. Operating as a legal entity ensures that the business adheres to the relevant regulations, reducing the risk of compliance violations and associated penalties.
Easier Business Transactions:
Cannabis businesses engage in a wide range of transactions, including supply chain partnerships and licensing agreements. A legal entity provides standardized processes for these transactions, enhancing transparency and reducing transactional complexities.
Legalities and Entities for Medical Marijuana businesses
Limited Liability, Risk Mitigation, and Compliance:
The cannabis industry faces unique legal and regulatory risks due to federal and state disparities. Operating in this environment, it’s critical the business adheres all relevant regulations and compliance as violations and associated penalties can be steep. A legal entity provides a structured framework to navigate potential legal challenges and safeguards owners personal assets from business assets. Regular review of all state and federal marijuana-related laws, including tax laws and accounting practices, can help mitigate business risk and regulatory actions.
Credibility and Brand Protection:
The medical marijuana industry is emerging from decades of stigma and legality challenges. One of the biggest changes is customers buying from new brands instead of people. Establishing your brand and intellectual property is critical to the success of your company. A legal entity provides a formal structure for registering trademarks, copyrights, and protecting your intellectual property rights. Operating in this professional manner helps counter this stigma and instills confidence in customers, investors, and partners who seek reliability and legitimacy.
Partnerships and Ownership Transfer:
With cannabusinesses having a high start-up cost, many businesses may be started with partners or partners may want to join the business after it’s formed. A formal legal entity structure ensures each partner has a legal right to a certain percentage of ownership in the business. In similar fashion, if a business is to be sold, those with ownership rights have the option to sell to a third party or a buy-out by the other partners. Ownership transfer in the cannabis industry requires compliance with strict regulatory guidelines and approvals, and a formal business entity will legitimize any ownership stake in the company.
Employee Recruitment:
Attracting skilled employees to the cannabis industry requires overcoming historical changes. Finding the right employees that can help streamline and automate growth operations, cultivation, or the manufacturing process may be difficult. These highly skilled individuals are used to robust benefit packages in other industries that may not be available in the medical marijuana industry. High levels of professionalism and credibility will make your business more appealing to potential employees seeking stability.
Medical Cannabis Business Accounting Services with Hogan CPA
Tax Deductions
Owner-operators have a plethora of responsibilities to manage, including staffing, training, managing finances, and ensuring timely payment of their taxes. No matter the business model of your restaurant, we can help you plan and save taxes. Here are a few of the tax deductions that you may be eligible to claim:
- Cost of Goods Sold (COGS)
- Wages and Benefits
- Rent and Lease Payments
- Utilities and Overhead Expenses
- Equipment and Supplies
- Repairs and Maintenance
- Depreciation
- Marketing and Advertising
- Business-related Travel like purchasing inventory or meeting suppliers
- Entertainment expenses like hiring live musicians
- Employee Training and Education
Equipment & Depreciation
Restaurants have some of the most diverse combinations of equipment which all depreciate at different rates. From commercial stovetops and ventilation to parking lots or the building itself (if you own it) – depreciating these assets at their correct rates can be a difficult task when you have thousands of transactions per month. Depreciation allows for critical tax savings that can allow you to recoup monies during tax season and bring cash back into the business.
The American Jobs Creation Act of 2004 refined the system for depreciating these expenses specific to restaurants. Most assets fall into 3 categories:
- Building and Building components: roofs, flooring, drywall, foundations, etc – depreciation over 39 years
- Land improvements: parking lots, light poles, concrete patios (non-structural), etc – depreciation over 15 years
- Office Furniture, Fixtures, and Equipment: desks, filing cabinets – depreciation over 7 years
- Distributive Trades and Services – Food storage equipment, kitchen HVAC, POS systems, furniture unique to restaurants (tables, chairs, booths), etc – depreciation over 5 years
- Information Systems – computers – depreciation over 5 years
There are more intricacies when it comes to trades like electrical or plumbing as one must determine if it’s part of the building (39 year depreciation) vs hook-ups like water lines to a dishwasher (5 year depreciation).
Entity Guidance
Additionally, you can save on taxes with the strategy for forming a business entity while also protecting yourself from liability. You can choose from the following entities:
- Limited Liability Company (LLC): LLC’s have personal liability protection, flexibility in management and ownership. They can be treated as disregarded entities (taxed like a sole proprietorship or partnership) or choose to be taxed as an S corporation or C corporation, offering flexibility in tax planning.
- S Corporation: S-corps function similarly but require more payroll deductions and require reasonable compensation for owner-employees and restrictions on the number and type of shareholders.
- Partnership: If you’re starting your restaurant business with a partner, partnership pass-through taxation to multiple owners so profits and losses flow through to individual partners who report them on their personal tax returns. Partnerships may also be subject to specific tax rules that govern the allocation the income and loss among partners.
- Sole Proprietorship: Sole proprietorships are not separate legal entities, and the owner reports business income and expenses on their personal tax return. Self-employment taxes may apply. Considering the high-degree of liability that comes with a owning a restaurant, both financially and legally, we highly do NOT recommend restaurants be a sole proprietorship.
Most restaurant owners opt for the Limited Liability Company (LLC) due to its personal liability protection, flexibility in management and ownership, pass-through taxation, and simplicity of operation. This can safeguard their personal assets, customize the management structure, allocate profits and losses, and benefit from the tax advantages of pass-through taxation. Additionally, the administrative requirements and ongoing compliance obligations of an LLC are typically less burdensome compared to other entities.
Medical Cannabis Business Accounting Services with Hogan CPA
At Hogan CPA Financial Services, we’re here to help you reclaim your precious time by managing all your accounting, tax planning, and tax management requirements. By entrusting these responsibilities to us, you can focus on your core strength growing your cannabusiness. This shift will grant you extra time for marketing efforts and enjoying quality moments with your family and loved ones.
Stay Compliant
With laws changing for the cannabis industry, we help businesses abide by proper accounting practices and tax regulations to ensure they stay in business, pass audits, and avoid regulatory issues.
Tax Planning and Submissions
We help marijuana business owners properly plan for taxes by estimating the appropriate amount taxes and deducting allowable expenses (state dependent). If and when the 280E tax codes change, we'll be able to provide more robust strategies we legally use for other business types.
How we help Medical Marijuana Businesses
Let us help you strategize for taxes and free up your time by taking repetitive tasks like bookkeeping off your plate.
What our medical marijuana CPA clients are saying
Tax Accountant CPA for Medical Marijuana
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See our Frequently Asked Questions below for commonly asked questions about our restaurant CPA services.
Medical Marijuana FAQs
Operating a vertically integrated cannabis business presents distinct tax implications due to its involvement in multiple stages of the supply chain. Key considerations include managing costs under Section 280E, accurately valuing complex cannabis inventory, adhering to transfer pricing rules for intercompany transactions, structuring separate legal entities effectively, and navigating varying state-specific tax regulations. Comprehensive accounting practices, robust record-keeping, and accurate financial reporting are essential to support deductions, meet reporting requirements, and ensure compliance.
Furthermore, effective cash flow management becomes vital to handle the cash-intensive nature of the cannabis industry while covering taxes, operational expenses, and sustaining liquidity. Engaging specialized tax professionals familiar with both tax laws and the cannabis industry can help businesses optimize strategies, ensure regulatory compliance, and maximize financial viability.
Managing inventory accounting for a medical cannabis dispensary requires a meticulous approach due to the industry’s complexities. Firstly, adopt a suitable inventory valuation method like FIFO or LIFO to align with product characteristics and price fluctuations. Utilize inventory tracking systems integrated with point-of-sale platforms to accurately monitor product movement from cultivation to sale. Consistent record-keeping is essential, documenting detailed information such as batch numbers, purchase costs, sale prices, and transaction dates. Regularly reconcile physical inventory with recorded quantities to address discrepancies promptly. Implement internal controls to prevent theft, designate responsible personnel, and conduct periodic audits. Comply with regulations specific to the medical cannabis sector, such as seed-to-sale tracking, labeling, and packaging requirements. Calculating Cost of Goods Sold (COGS) accurately, considering Section 280E limitations, ensures proper allocation of costs. Finally, leverage specialized cannabis inventory management software to streamline tracking, compliance, and reporting processes.
To further enhance your inventory accounting, forecast demand based on historical data and market trends, optimizing stock levels and managing cash flow. Consider periodic internal audits to assess accuracy and identify discrepancies. Engage with experienced professionals who understand both inventory management and the intricacies of the medical cannabis industry. Their expertise will help you implement efficient systems, maintain compliance, and make informed decisions for your dispensary’s financial success.
Cash transactions in the cannabis industry pose significant risks stemming from the complex regulatory landscape, federal illegality, and the nature of the products being traded. Firstly, the inherent cash-intensive nature of the industry is a major risk. Federal restrictions often limit cannabis businesses’ access to traditional banking services, forcing them to rely heavily on cash for transactions. This accumulation of cash on-site makes dispensaries and other businesses vulnerable to theft, robbery, and security breaches. The heightened risk of criminal activities puts employees and customers in potential danger and requires significant investments in security measures.
Secondly, the lack of access to banking services complicates financial operations. Cash transactions are more challenging to track and reconcile accurately, increasing the likelihood of errors, discrepancies, and misreporting. Accurate financial reporting is crucial for tax compliance and regulatory adherence, making the absence of electronic transaction records a significant concern. Additionally, the opaque nature of cash transactions raises suspicions of money laundering and makes it harder to ensure transparent financial operations, potentially leading to regulatory scrutiny and legal issues. These risks underscore the urgency for the cannabis industry to find alternative payment solutions and advocate for improved banking access to mitigate the security, operational, and compliance challenges associated with cash transactions.