Running a cannabis business is not for the faint of heart. With the constantly evolving regulations, shifting market dynamics, and the unique challenges that come with being a cash-only business, it’s no surprise that many cannabis entrepreneurs struggle to keep up.
One of the biggest challenges faced by cannabis businesses is securing banking services. Because marijuana is still illegal at the federal level, most banks are hesitant to work with cannabis companies, even in states where it is legal. This means that cannabis businesses are forced to operate on a cash-only basis, which comes with a host of problems.
First and foremost, transactionally cash-based businesses are a prime target for theft and other criminal activity. Without the protections that come with traditional banking services, cannabis businesses must take extra precautions to ensure the safety of their employees and assets.
Additionally, transactionally cash-based businesses are at a significant disadvantage when it comes to recordkeeping. Unlike traditional businesses, which can rely on bank statements and other financial records to track their transactions, cannabis businesses must manually track every dollar that comes in and goes out of their businesses. This means that they must maintain accurate records of every sale, purchase, and expense, and that they must be able to produce these records in the event of an audit.
Speaking of audits, cannabis businesses are statistically more likely to be audited by the IRS than other businesses. This is due in part to the fact that many cannabis businesses operate a heavily cash-based business, not to mention their businesses are federally illegal, which makes them a prime target for tax fraud and other illegal activities. To protect against these risks, cannabis businesses must maintain meticulous records of their finances, and they must be prepared to defend those records in the event of an audit.
So, what can cannabis businesses do to protect themselves? First and foremost, they should work with experienced cannabis accounting firms who understand the unique challenges of the industry. These cannabis accountants can help cannabis businesses set up effective recordkeeping systems, implement strong cash controls, and minimize their tax liabilities.
Additionally, cannabis businesses should explore their banking options and work to establish relationships with banks that are willing to work with the industry. While this can be a time-consuming and expensive process, it is essential for the long-term viability of the business.
In summary, cannabis businesses face a unique set of challenges, from securing banking services to maintaining accurate records in a heavily cash-based environment. However, with the right tools, resources, and support, cannabis entrepreneurs can overcome these challenges and build successful, thriving businesses.
To learn more about how The Canna CPAs can help you overcome these challenges, call us at 833-CPA-CANA or 833-272-2262.
Sandy Suchoff, CPA is the Founder and principal of Lefstein-Suchoff, CPA & Associates, LLC D/B/A The Canna CPAs. Suchoff has been featured and interviewed on MSNBC, FOX News, and Tune In Business Talk Radio as a tax advisor, as well as ONR Oklahoma PBS TV, Chasing News on FOX & WOR, KRQE 13, Cannabis Radio, Purple Haze Radio, and Cannabis Tech & Today as an advisor on cannabis tax and accounting.