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Is a Cannabis Accounting Niche Right for You?

Andrew HunzickerBy Andrew Hunzicker, CPA

Legal cannabis and cannabidiol (CBD)/hemp is a growing movement across the nation, and several bills are being discussed that would make cannabis federally legal. Pennsylvania’s Medical Marijuana Program, authorized by Act 16 of 2016, establishes a program for the use of medical marijuana by patients with serious medical conditions.

Cannabis leaves composed of small business-related iconsWhether or not you personally support legalization, it may be time to think hard about whether or not to expand your practice into this potentially huge emerging market. Here are five considerations:

Cannabis/CBD/Hemp Is an Underserved Niche
Because cannabis businesses are still considered federally illegal, all Big 4 and most large accounting firms are not serving this niche. I estimate 90% of existing cannabis businesses are using accountants who do not have the knowledge or tools to follow the GAAP and cost accounting rules required.

Cannabis/CBD Accounting Professionals Make Money
The average “mom and pop” cannabis company will often generate seven figures or more in revenue and can afford to pay higher fees. You could help these clients with numerous issues, including lack of banking, cash issues, reconciling cannabis/CBD software to accounting software, consolidations, and intercompany transactions. The industry also requires GAAP inventory and cost accounting to minimize tax liability. This complexity, combined with a lack of knowledgeable CPAs and accountants serving this industry, creates a wide supply and demand gap that permits much higher fees than what are available among noncannabis clients.

Pennsylvania Is Wide Open
Since the medical cannabis market is relatively new in Pennsylvania, many growers still don’t have solid accounting procedures in place. This can lead to issues at the state level as well with the IRS. There is no sales tax on medical marijuana in Pennsylvania, but the product is taxed at the grower/cultivation level. The law requires growers/processors to pay a 5% excise tax on gross receipts from the sale of medical marijuana to the dispensary. Cost accounting is also required by the cultivators. The Pennsylvania Department of Health issues permits to approved growers/processors and dispensaries, and there are specific filing instructions and regulations.  

Fast Growing Industry
Cannabis/CBD businesses are legal in almost 40 states, and each year more states are approving legalization in some form. There are billions of dollars funding these companies annually, and the growth rate is high. Inexperienced accounting professionals who aren’t advising clients properly or are treating these businesses like traditional enterprises are costing their clients money and leaving them exposed to potential IRS and state penalties.

By Becoming an Expert Clients Will Find You
Work on behalf of the cannabis industry becomes easier over time when you have systems in place that you can use across similar companies. By adding these clients now, you can work on the details, establish efficiencies, and grow your reputation. It becomes much easier to market your services to an industry once you have been in it, devised relevant strategies, and are seen as an expert.

If you’d like to explore cannabis and CBD accounting, start by getting familiar with the nuances, rules, and complex entities. In short, start becoming an expert today. You can become involved in local nonprofit or political groups, and you will quickly begin meeting cannabis CEOs and investors.

Andrew Hunzicker, CPA, is founder of the cannabis accounting/bookkeeping and tax training program Dope CFO in Bend, Ore. He can be reached at andrew@cfobend.com.

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