The cannabis and industrial hemp/low THC industry are highly regulated by federal and state laws. While hemp is no longer a “Schedule Controlled Substance”, the emerging industry faces ongoing scrutiny. Dozens of states and D.C. have legalized the use of medical cannabis; however, federal law still considers it an illegal activity.
The divergence between federal and state laws has caused considerable uncertainty for all Cannabis-related businesses. Fundamental tax issues such as “Cost of Goods Sold” (COGS) deductions, one of the most significant methods of reducing a business’ taxable income, must be considered in according to the varying state laws. It is important to seek advice from professionals knowledgeable in this industry to ensure proper compliance, tax minimization and risk management.
The industry is seeing explosive growth and change. It is estimated that total sales of CBD products in the U.S. exceeded $624 million through retail channels and $16 million in CBD’s sold through pharmacies. A new market, CBD sales are in addition to the $1.2 billion in low-TCH/CBD products sold in dispensaries along with $8.6 billion in flower and other THC-containing products.
As growers, retailers, manufacturers, investors or ancillary business owners, you should pay close attention to compliance with federal and state laws and the implications for your balance sheet.
Daszkal Bolton’s multi-disciplinary team of tax, audit and advisory professionals will help you monitor the rapidly changing industry to ensure compliance, strengthen financial safeguards to protect your business and optimize your tax position to enhance profits.
Bookkeeping of transactions: The cannabis & hemp industry operates mostly with liquid cash primarily due to limited access to traditional banking services. Detailed record keeping is essential to this nascent industry and strong vendor relationships will help you lower the burden of managing and securing cash in house. The Daszkal Bolton team knows these issues and helps you seamlessly manage your finances. We will provide you with financial data, analysis and professional knowhow to manage cash flow, monitor expenses, and think strategically.
Business owners must:
To complicate things further, the IRS has differing allowances for industry segments. For example, marijuana resellers have limited COGS whereas producers have more liberal COGS allowances. While Hemp is not a Scheduled Controlled Substance and not subject to 280E, federal tax law requires that all documents be retained to be compliant.
The Daszkal Bolton team works with business leaders in the cannabis industry to identify allowable expenses to help you comply with federal law and maximize your income.
Applying and maintaining a state license has strict requirements for any level of assurance on financial statements. It is critical for your company to regularly review and optimize internal accounting processes and procedures especially those unique to the industry such as cash processing and management to provide the level of assurance necessary to acquire the license.
By Elizabeth Figueroa and Michelle Shulman In March 2020, the U.S. Treasury Department’s Inspector General for Tax Administration (TIGTA) published its long-awaited report on the growth of the marijuana industry in the United States. This
To learn more about cannabis advisory and accounting services at Daszkal Bolton, simply complete our contact form, or call (561) 367-1040.
