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cannabis tax defense

Even though more and more states are allowing the sale of cannabis at the medical and/or recreational level, it is still a business that deals essentially in cash only. Why? Because most traditional banks refuse to deal with any cannabis businesses.  This forces cannabis businesses to seek alternative financial institutions, smaller banks and credit unions that are willing to work with cannabis businesses so that these businesses can pay their expenses and even taxes in a manner more safe and secure than delivering stacks of $20 bills.

Financial Management Challenges For The Cannabis Business

It was less than six years ago that Washington and Colorado became the first states to legalize cannabis for recreational use. While a total of nine states and Washington, D.C., have legalized recreational cannabis, and 30 states have legalized it for medical purposes, cannabis companies still operate in a legal grey area because cannabis remains illegal under Federal law. Federal law classifies cannabis as a Schedule 1 drug, meaning it has “currently no accepted medical use”. Treating cannabis no differently than heroin, the Federal government has entrusted the Treasury Department with the authority and responsibility to monitor bank activity to make sure that activities which are illegal under Federal law are not utilizing the banking channels and functions that are normally available. This makes it very difficult for any cannabis business to put together a successful financial team.

Whether you are a one-person operation operating out of your house or a small or medium sized cannabis business, it is imperative that you have organized an in-house financial team or you have delegated this aspect to a qualified third party. If you are looking to set up your financial team in house then you need to understand the differences between a Bookkeeper, Controller and Chief Financial Officer (CFO).

Bookkeeper

A bookkeeper performs basic financial record keeping and can create simple financial reports.  A bookkeeper will typically perform the following basic tasks:

  • Keep accurate records of financial transactions and can create basic financial statements (Profit & Loss Statement and Balance Sheet) using accounting software.
  • Perform basic Accounts Payable management – making sure bills get paid and then records these entries into the accounting system.
  • Perform basic Accounts Receivable management – if the business, like wholesalers, has to send invoices to customers to get paid, sends out invoices usually once a month. The system will issue a receipt at the time of sales.

Although the tasks are basic, attention to detail is of the utmost importance in the bookkeeping profession.  A few data entry errors can cost your company a significant amount of time and money.  The bookkeeper is an essential element of your team. Smaller cannabis businesses may want to consider outsourcing this function to a third party and thus save the cost and responsibility to hire a bookkeeper. Additionally, that third party can be engaged to making sure the bills get paid.

Controller

Adding a controller adds more power to your financial team to help keep costs under control and help better manage cash flow.  A controller performs the following tasks:

  • A controller will either perform all of the functions of a bookkeeper or supervise the staff that does.
  • They can create customized daily, weekly and monthly financial reports to meet the specific needs of your business.
  • They have the knowledge to choose and maintain financial software.
  • They can take over the basic cash flow management of the business and the control of expenses. 

Chief Financial Officer

The CFO oversees the overall financial management of a company.  Planning, projecting, measuring and tracking financial and operational progress as well as financial compliance fall under the CFO’s responsibility.  A CFO’s duties include:

  • Supervise accounting and operational departments and can perform all functions of a Controller.
  • Analyze and review the monthly Profit & Loss Statement, Balance Sheet and Statement Of Cash Flows with the management team.
  • Create complex financial projections to aid in strategic decision-making.
  • Direct the business in the development of an effective capital structure by securing financing at attractive terms, managing relationships and ensuring compliance to the terms.
  • Focus on effectiveness and efficiency of operations, reliability of financial reporting, and compliance with laws and regulations.
  • Be the key contact for financial relationships in the banking and legal community as well as with major vendors and clients.

I usually find that it is those medium sized to large cannabis businesses that would have an in-house financial team in place that includes a CFO. With smaller organizations, the business owner typically handles these tasks.

Today’s Financial Challenge.

Even as more states legalize cannabis, a tiny fraction of banks and alternative financial institutions are willing to work with cannabis companies. These companies are not well-known and most do not advertise their services to the world. And when cannabis businesses are forced to deal with cash, it makes it very difficult to account for the cash and substantiate expenses paid if later questioned by the IRS or and State Tax Agency. So it is best to be proactive and engage an experienced board certified tax attorney-CPA in your area who is highly skilled in the different legal and tax issues that cannabis businesses face.  Let the tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), the Inland Empire (including Ontario and Palm Springs) and other California locations protect you and maximize your net profits.

Request A Case Evaluation Or Tax Resolution Development Plan

Get a Tax Resolution Development Plan from us first before you attempt to deal with the IRS. You would meet with Board Certified Tax Attorney Jeffrey B. Kahn at the office location most convenient to you. Jeff will review your situation and go over your options and best strategy to resolve your tax problems. This is more than a mere consultation. You will get the strategy or plan to move forward to resolve your tax problems! Jeff’s office can set up a date and time that is convenient for you and take your credit card information to charge the $600.00 session fee which secures your appointment. By the end of your Tax Resolution Development Plan Session, if you desire to hire us to implement the strategy or plan, Jeff would quote you our fees and apply in full the $600.00 charge for the Tax Resolution Development Plan Session.