The cannabis industry is booming. And it is not expected to slow down any time soon. Experts predict the cannabis industry in the United States will reach a market value of about $30 billion by 2025. That is just four years from now.
As cannabis slowly starts to become legal in more states across the country, many people are thinking about opening a dispensary in their area. The idea they can get into a rising market early makes it an appealing option.
But even the savviest entrepreneur may be surprised to discover the unique challenges dispensaries face, including accounting ones. These challenges can begin at the start of your dispensary and continue all through your dispensary’s life.
Below, we’ll look at the unique accounting challenges dispensaries face and how you can overcome them should you decide you want to open a cannabis dispensary.
What Is Accounting?
Accounting is an essential part of every business (even households). Though most people equate accounting to just filing taxes, it involves so much more than that. It includes monitoring, recording, analyzing, and reporting all financial transactions for your business.
For today’s purposes and the specific requirements cannabis dispensaries face, accounting also includes monitoring sales and inventory levels and any financial processes dispensaries may meet.
Though accounting is more than just taxes, that is also an essential part of it. Filing and paying taxes, and even paying employees and taking taxes out of their checks are required.
Accounting Challenges Dispensaries Face
Now that you understand the meaning of accounting, you should look into the unique challenges dispensaries face when managing money and inventory.
One of the first cash flow challenges a dispensary may face is getting the money to open up the shop. Because cannabis is not yet legal on a federal level, many banks won’t be willing to lend the start-up money many business owners may need. This money would need to cover getting the property, purchasing products, and all the equipment you’ll need to run your new business. Since the cannabis industry as a whole has higher start-up costs than other businesses, this can be a huge barrier.
Not only will it be challenging to get the start-up capital needed, but it will also be a challenge in getting a bank account in general. You’ll need a business account to store your money and pay bills out of. But again, due to the federally illegal status of cannabis, getting a business account for your accountant to monitor and use can be difficult, if not impossible, for many people.
Since banking, in general, is an accounting challenge for dispensaries, it makes sense that payment processing is too. Because many banks won’t work with cannabis companies, that can make the ability to accept card payments complicated. And without the ability to accept payments outside of cash, business owners can miss out on revenue. This could even limit their customer base. Combined, these can harm a business’s bottom line in the long run.
Cannabis businesses are also at increased risk of being audited. That means recording transactions and keeping your books up to date are critical to your business’s success. Not only do you want to follow the rules so you don’t get audited, but you’ll need someone on your side to help you should it happen.
Speaking of being audited, the tax laws around cannabis are unique. Federal taxation is a hotly debated topic (can they tax something that is federally illegal?). But states may impose taxes on cannabis products should they be legal there, and your dispensary will need to ensure taxes are paid on your products.
You’ll also need to know employment tax rules for budtenders and other employees of your dispensary. In addition to managing your payroll (which you’ll need a system to help you do, and finding one can be another challenge), you’ll need to ensure taxes are collected and sent to the state as required.
Cannabis dispensaries have to follow the laws in the states they operate in and sell to. Since each state can set its laws, this can make ensuring items are taxed correctly more difficult than ever. It can be almost a full-time job to keep track of them all.
In addition to every state having its laws around cannabis and even taxation of cannabis products, these laws and regulations can change quickly and without warning. Even as they change, you will need to keep your dispensary in compliance with them. This includes not just on the accounting front but when it comes to what you can sell and even how your products are packaged.
Many states require dispensaries to monitor inventory and submit sales reports. Doing this by hand can be impossible, and finding software capable of doing this can also be challenging. Not only do you need to submit the required information by the required deadlines, but your information also needs to be accurate.
Finally, finding vendors to work with you, such as an accounting firm, can also be challenging. Though the thoughts around cannabis are evolving, it is still a bit of a taboo area. This stigma can mean some professionals won’t be willing to work with your dispensary, even if it is just helping with the financials.
Overcoming Dispensary Accounting Challenges
That is a lot of challenges, and it can seem overwhelming. Is there a solution? Is it worth it to get into this business?
Though the list of accounting challenges may be daunting, there are solutions out there to help you solve the accounting problems your dispensary can and will face.
First, you’ll need to get the money to launch your new business. While many federal and national banks may not be willing to give loans or open accounts for cannabis dispensaries, sometimes, local ones or credit unions will. Check into all your options, and don’t forget to try your local banks as you explore ways to fund your business and as you look to open a business banking account.
You can also look for private investors to help fund the opening of your dispensary. Just be sure you are open about the type of business you plan to open, and remember you may need more backers than you think to cover all the start-up costs.
Next, you’ll want to find a software system. Finding the right software and point of sale system can go a long way in solving your dispensary’s accounting issues. The trick is to find one that focuses on working with cannabis sellers.
There are many different cannabis software programs out there, and they all offer various features. Depending on your needs, you may use a few other programs, or you may be able to find one program that can handle everything.
Many software programs can:
- Manage inventory. Enter in your shipments when you receive them, and the software will update the total number you have in stock as items are sold. Not only will this help with reporting, but it can do a lot to help you manage your stock and find trends in products that are selling and those that aren’t.
- Help you stay compliant. When you use software designed for cannabis companies, they can help you stay compliant with tracing requirements. These systems monitor what your business is selling. They can also compile this information in reports that can then be submitted to the required authorities.
- Allow you to accept card payments. Using a point-of-sale program suitable for the cannabis market can allow you to accept card payments from customers, even if your bank won’t support that for you. This can also make it possible for you to take orders online. It will enable you to reach an even broader range of potential clients.
There are many other options cannabis POS companies can offer dispensaries. You’ll want to shop around until you find the one that meets your business needs and that works best for you.
Finally, you’ll want to hire professionals. Though not all accounting firms or accountants will be willing to work with a dispensary, there are some that will. Like there are companies that design software for cannabis businesses, there are also accountants that specialize in that market.
Finding an accountant that has experience in and is knowledgeable about cannabis can benefit your new dispensary in many ways beyond just managing your money.
They can:
- Help you navigate the tax laws in your area.
- Keep an eye out on tax and regulation changes as they occur in your state and impact you.
- Ensure you are staying compliant when it comes to employment taxes and taxes on products.
- Help prepare reports that you need to submit.
- Work to prevent you from getting audited. Or should you get audited, help you prepare for and go through the process.
It’s not uncommon for cannabis dispensaries to hire designers and artists with experience in the cannabis world. Thus, it makes sense that you may want to look for an accountant that specializes in that area as well.
Finding the Right POS System
Earlier, we discussed how finding the right software system can benefit your new dispensary. But finding the perfect one can be a bit of a challenge. Here are some tips to help you as you search for and choose the right system for your new dispensary (and solve some accounting problems in the meantime):
- Make a list of the challenges you have and what you want your system to be able to do. Don’t plan to make this list an hour before you start searching. Instead, keep a running list in the weeks before you start and add to it as you think of things.
- Start your research. This can be the most challenging part of the process. You’ll need to start searching for cannabis POS companies and then look and see what services they offer. See if you can find one that checks off all your needs. Or, if they don’t, look to see if their system integrates with others you use.
- Ask for demos and to test the software out. Once you’ve narrowed your options to the top two or three, request a demo. This will allow you to see how their interface works and get a feel for the system itself. Then you should ask if you can test it out. Don’t just test it yourself, be sure to have your employees try it out too. This will enable you to know if it is easy for them to use as well.
- Look into the support they offer. You don’t want your system to go down as you try to submit a report, pay your employees, or process a payment, but it does happen. Check to see if the company has support available to you at all times or only during the week, thus missing out on providing you with support during what is potentially your busiest times.
- Read the reviews. You should also read reviews from other dispensaries that have utilized their system. Were they happy with it? What were the pros and cons they noticed? Were they pleased with the level of service they received?
In Conclusion
Cannabis dispensaries face many unique challenges, especially when it comes to accounting. Changing laws, the difficulty of finding bank backing, and even finding a way to accept payments and submit taxes can be a challenge
Though the challenges are many, there are solutions available. You can check with local banks instead of larger, national ones and even find investors to help you start your dispensary.
Finding the right POS and company can also go a long way in helping your business. This can solve many of the accounting challenges your dispensary business will face. Look for one that has the features you need to keep up with taxes and other requirements successfully.
Finally, you should get an accountant that is familiar with the cannabis market. They can help guide you through changes and ensure you stay compliant.