How to Choose Cannabis Business Tax and Accounting Services
Published
September 18, 2024
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The cannabis industry is growing, but the financial side can be quite complex.
Taxes, regulations, and money management are tricky, and getting them wrong can be costly. That's why finding the right tax and accounting help is so important.
With all the rules and tax issues like IRC 280E, it's not easy. Help from the right financial partner can make a big difference in how well your business does.
But how do you pick the right financial partner for your cannabis business?
Whether you grow cannabis, process it, run a dispensary, or provide other services to the industry, selecting the right accounting partner is key.
This guide will help you identify what these services offer, understand the unique needs of different cannabis businesses, and ensure your chosen firm can support your business's growth. Let's simplify the process of finding the best cannabis business tax and accounting service tailored to your needs.
Why Cannabis Businesses Need Special Accounting Help
Before we get into how to choose, let's talk about why cannabis businesses need specialized accounting services.
Regulatory Landscape Keeps Evolving
Cannabis legalization in the U.S. is a patchwork of state-specific laws, which are frequently updated or amended. This constant regulatory churn is influenced by political shifts, social attitudes, and economic factors.
Changes can range from annual updates to emergency rulemaking, creating a complex and often contradictory environment for cannabis businesses.
Non-compliance with these evolving regulations can result in severe penalties, including fines, license suspension, and even criminal charges. Due to the intricate nature of these regulations, cannabis businesses require dedicated compliance teams and ongoing legal counsel.
Implications of Section 280E
Section 280E of the Internal Revenue Code presents a significant challenge for cannabis businesses.
This tax law prohibits most ordinary business deductions, such as rent, utilities, and employee salaries, from being claimed. As a result, cannabis companies often face effective tax rates ranging from 40% to 80%, significantly higher than those in other industries.
For instance, cannabis businesses are taxed on their gross income rather than net income, which can lead to substantial tax burdens.
To mitigate this, cannabis businesses often seek specialized accounting advice to optimize deductions related to the cost of goods sold (COGS) and carefully structure their operations.
Banking Troubles
Many banks refuse to work with cannabis businesses due to federal regulations, such as the Controlled Substances Act, which classifies cannabis as an illegal substance. This creates significant challenges for basic banking services like opening accounts or processing credit card transactions.
Even with some state-chartered banks and credit unions stepping in, access to basic financial services remains limited, requiring cannabis businesses to find alternative banking solutions.
Tricky Inventory Management
Cannabis businesses operate under a strict seed-to-sale tracking mandate. This requires meticulous record-keeping of every plant, product, and transaction.
Such precise inventory control is essential for compliance with state and local regulations, preventing diversion, and maintaining product quality.
To meet these challenges, specialized inventory management systems and accounting practices are indispensable. These tools help track product movement, manage expiration dates, calculate taxes accurately, and generate reports for regulatory compliance.
Without robust inventory control, cannabis businesses risk significant financial penalties, operational disruptions, and damage to their reputation.
Fast Industry Growth
The cannabis industry is growing quickly. This brings new opportunities, but also new challenges.
Increased competition, supply chain complexities, and talent shortages are common hurdles. Moreover, rapid growth can strain internal resources and infrastructure, requiring businesses to scale efficiently and effectively.
To navigate these challenges, cannabis companies must prioritize strategic planning, operational efficiency, and a focus on customer experience.
Leveraging data analytics, investing in technology, and building strong partnerships can help businesses capitalize on growth opportunities while mitigating risks.
These unique issues mean that regular accounting services are often insufficient for cannabis businesses. You need experts who understand the cannabis industry and its special financial needs.

What Cannabis Accounting Firms Offer
Now, let's look at what a good cannabis accounting firm should offer:
1. Tax Planning and Compliance
Effective tax planning is important for cannabis businesses to get through complex tax regulations and minimize their tax liabilities. A reputable cannabis accounting firm will:
Ensure Compliance: Help businesses adhere to federal, state, and local tax regulations, including the specific requirements of IRC Section 280E. This is critical because Section 280E disallows most business expense deductions, making compliance complex and costly.
Tax Strategy Development: Develop strategic tax plans to legally reduce tax burdens. This includes optimizing deductions through careful structuring of business operations, such as focusing on maximizing the cost of goods sold (COGS) deductions, which are allowed under 280E.
Audit Support: Provide comprehensive support during tax audits, ensuring all financial records are accurate and compliant with regulations. This includes preparing for IRS audits, which are becoming more frequent in the cannabis industry, and ensuring documentation is thorough to avoid penalties.
2. Financial Reports and Bookkeeping
Accurate and timely financial information is essential for informed decision-making. Cannabis accounting firms can:
Create Financial Statements: Prepare comprehensive financial reports, including balance sheets, income statements, and cash flow statements, to provide a clear financial picture.
Manage Cash Flow: Analyze cash inflows and outflows to optimize working capital and prevent cash shortages.
Track Costs: Implement robust cost accounting systems to monitor expenses, identify cost-saving opportunities, and improve profitability.
Inventory Management: Implement inventory valuation methods aligned with industry standards and regulatory requirements to accurately assess asset value.
3. Audit and Assurance Services
Building trust with investors, lenders, and regulators is essential in the cannabis industry.
Cannabis accounting firms conduct financial audits to examine financial statements and internal controls, ensuring accuracy and compliance with accounting standards.
Compliance audits assess adherence to industry regulations, licensing requirements, and traceability mandates, which are critical for maintaining operational legitimacy.
Due diligence services are also provided, particularly for mergers, acquisitions, or investments, to evaluate the financial health and compliance status of businesses.
4. Business Advisory Services
Cannabis accounting firms offer strategic business advisory services beyond traditional accounting and tax support.
These services include business valuation to determine the fair market value of a cannabis business, which is crucial for mergers, acquisitions, investments, or estate planning.
They also provide guidance on mergers and acquisitions, including financial analysis, due diligence, and valuation services.
Additionally, these firms assist in selecting and implementing accounting software, seed-to-sale tracking systems, and other financial management tools, ensuring businesses are well-equipped to handle their unique operational challenges.

Who Needs Cannabis Accounting Services?
Many types of cannabis businesses can benefit significantly from specialized accounting services due to the unique challenges and complexities of the industry:
Cannabis and Hemp Growers: These businesses must navigate the complexities of agricultural accounting, including cost tracking, inventory management, and compliance with state-specific cultivation regulations.
Processors: Processing facilities face unique challenges in tracking product transformations, managing waste, and ensuring compliance with both state and federal regulations.
Dispensaries (Medical and Recreational): Dispensaries need to manage extensive inventory tracking, sales tax compliance, and customer data, all while adhering to strict state and local laws.
Vertical Operators: Businesses involved in multiple stages of the cannabis supply chain (cultivation, processing, and retail) require comprehensive accounting services to integrate and manage financial data across all operations.
Hemp Farmers: Hemp farming, while federally legal, still involves intricate accounting due to varying state regulations and the need to separate hemp from cannabis operations.
Retail and Online Sellers: Retailers must handle complex sales tax compliance, manage customer transactions, and navigate the challenges of online sales in a highly regulated environment.
Businesses that Serve the Cannabis Industry: Ancillary businesses, such as marketing firms or equipment suppliers, also require specialized accounting services to navigate the unique tax and regulatory challenges associated with serving cannabis clients.
Navigating cannabis finance? From tax services to growth strategies, our experts are ready to guide you. Let's shape the future of your cannabis business together. Contact Canntella today.
How to Choose a Cannabis Accounting Firm

Selecting the right accounting partner is critical for the success of your cannabis business. Here's what to look for.
Industry Experience
Choose firms with deep expertise in the cannabis industry. They should understand the complex regulatory landscape, including state-specific compliance and financial reporting standards. Experienced firms are better equipped to provide tailored solutions, ensuring compliance and financial health.
Range of Services
Look for a full-service accounting firm that offers more than just tax and accounting services. Firms that provide financial planning, risk management, and business advisory services can help you optimize operations and support growth.
Technical Skills
Your accounting firm should be proficient in industry-specific software like METRC and BioTrackTHC, which are essential for compliance and operational efficiency. Their ability to integrate various systems ensures seamless data flow and accurate financial reporting.
Knowledge of Regulations
The firm must have a dedicated team to monitor and adapt to regulatory changes, helping you avoid penalties and seize opportunities in this fast-evolving industry.
Ability to Use Technology
Choose a firm that leverages advanced technologies, such as cloud-based accounting solutions and data analytics, to provide real-time insights and enhance decision-making. Their expertise in integrating POS, inventory, and accounting systems is crucial for maintaining efficiency.
Good Communication and Support
Effective communication is vital. Your accounting firm should be responsive, transparent, and able to explain complex financial matters in plain language. Regular updates, proactive advice, and a dedicated point of contact are essential for building a strong partnership.
Good Reputation
A firm's reputation is a testament to its capabilities. Seek recommendations from other cannabis businesses, read online reviews, and inquire about professional affiliations. Strong industry relationships and a commitment to ethical practices are indicators of a reliable partner.
Fair Pricing
Ensure transparent pricing and fee structures. Compare firms to understand their cost models and prioritize those that deliver the best value for your business.
How can Canntella help?
Canntella connects you with top cannabis accounting firms, ensuring you find experts who understand the industry’s unique challenges. Our network is carefully vetted to guarantee expertise, service quality, and trustworthiness, supporting your business at every stage.
Connect with us today to get started.
How Accounting Firms Help Cannabis Businesses Grow
A good cannabis accounting firm does more than just keep your books. They can help your business grow. A good accounting firm can help you with:
Grow Your Cannabis Business with the Right Accounting
One thing is clear from this blog: cannabis business tax and accounting services require more than just basic accounting. You need a specialized partner who understands the unique challenges and opportunities in this fast-changing industry.
Choosing the right accounting firm doesn't just help you follow the rules and keep accurate financial records. It positions your business for growth, reduces risks, and frees up your time to focus on running and growing your cannabis business.
Don't let financial complexities hold your business back.
Partner with Canntella today to access top cannabis accounting services and set your business on the path to financial success.
Fuel Your Cannabis Growth: Access Canntella's financial solutions and expert network today. Apply here.
FAQs
What is CA cannabis excise tax?
The California cannabis excise tax is a 15% tax imposed on the average market price of cannabis or cannabis products sold in the state. This tax is collected at the retail level and is based on the distributor's wholesale cost plus a markup determined by the California Department of Tax and Fee Administration (CDTFA). Cannabis businesses must account for and remit this tax to the state government.
Does a licensed cannabis business file income tax returns just like other businesses?
Yes, licensed cannabis businesses are required to file income tax returns, similar to other businesses. However, due to federal restrictions, they face unique challenges, such as the limitations imposed by Section 280E of the Internal Revenue Code, which disallows many common business deductions.
Does QuickBooks work with cannabis companies?
QuickBooks can be used by cannabis companies, but its application can be complex due to the industry's unique financial and compliance requirements. Many cannabis-specific accounting software solutions may better address these complexities, offering tailored features for inventory management and regulatory compliance.
Can licensed cannabis businesses deduct the cost of goods sold but not other business expenses such as rent and wages?
Yes, under Section 280E of the Internal Revenue Code, cannabis businesses can generally deduct the cost of goods sold (COGS), but they are often restricted from deducting other typical business expenses like rent and wages, which can significantly impact their tax liability.
Can cannabis be a business expense?
No, cannabis itself cannot be a business expense due to Section 280E of the Internal Revenue Code, which prohibits the deduction of expenses related to the sale of illegal substances under federal law.
What are the IRS rules for cannabis?
The IRS enforces strict rules for cannabis businesses, primarily under Section 280E of the Internal Revenue Code, which disallows most business deductions. Cannabis businesses must also adhere to specific cash transaction reporting requirements due to federal banking restrictions.
What state has the highest cannabis tax?
The state with the highest cannabis tax can vary, but California is often cited as having one of the highest overall tax burdens on cannabis products due to a combination of state, local, and excise taxes. The exact rates and the highest taxed state can change over time, so it's important to check current tax rates.