It’s important for any business to carefully manage its financial records, but it’s even more vital for cannabis dispensaries. Bookkeeping for dispensaries can be more complex than in many other industries because they deal almost exclusively in cash. Cannabis dispensaries also have very strict guidelines about what they can deduct on their taxes.
Bookkeeping for dispensaries is an extremely important aspect of your business. Here’s how to keep your dispensary compliant with tax regulations and manage your money properly.
How to Conduct Bookkeeping For Dispensaries?
Each dispensary owner manages the financial aspects of their company differently. In many cases, it’s a great idea to hire an accounting professional that specializes in cannabis to handle bookkeeping for your dispensary.
You may also use accounting software to manage your dispensary’s cash flow. Quickbooks is a popular solution. However, it does have its limitations, including only working for one location.
If you want to manage the bookkeeping duties yourself, you’ll need to keep extensive records and track your money carefully. Dispensaries that deal exclusively with cash need to make sure that they’re carefully counting the money so there aren’t any discrepancies.
You’ll need to learn about the federal, state, and local laws in your area regarding cannabis bookkeeping. Remaining compliant with these regulations should be your top priority to avoid fines.
Many cannabis dispensary owners don’t like handling these complex financial parts of their business. In that case, you might have more success in outsourcing the responsibilities and hiring a cannabis accountant.
What’s the Best Way to Track Inventory & Expenses?
Most states with legal cannabis require that dispensaries thoroughly track their inventory and expenses. Dispensary owners often need to use seed-to-sale software systems, which track plants from the growing stage until they’re sold. If you’re required to use this software, you should always keep it up to date.
You’ll need additional bookkeeping services to track inventory costs, even if you use seed-to-sale software. The information you enter into the seed-to-sale system is separate from your company, and it doesn’t let you use the software to determine the analytics of your business. Knowing your inventory information and sales numbers is important when making financial decisions about your dispensary’s future, and it’s also vital when trying to sway investors.
Many dispensary owners use Enterprise Resource Planning (ERP) software to manage their entire operation, including tracking their inventory and expenses. ERP software is more complex than Quickbooks because it’s more than just accounting software; it manages many aspects of your business as well, including management, customer relationships, commerce, and human resources.
If you’re not confident in your ability to use ERP or accounting software, you can work with a bookkeeping professional to simplify the process and add extra security. Outsourcing this work will free up your time to manage other aspects of your cannabis dispensary.
What Can Dispensaries Deduct?
Most businesses are allowed to deduct a wide range of expenses from their gross income. However, cannabis dispensaries can’t deduct most business expenses due to IRS Tax Code 280e.
280e states that cannabis businesses cannot deduct any expenses from the production, distribution, or sale of marijuana on their taxes. This is because cannabis is a Schedule I substance. Dispensaries are only able to deduct their Cost of Goods Sold, which mostly includes the price of the products they sell.
Cannabis dispensaries can deduct:
- The invoice price for cannabis, minus trade and other discounts
- Electric bills for inventory areas only
- Cost of travel to purchase cannabis
- Costs of shipping inventory to you
Here are some things that cannabis dispensaries cannot deduct on their taxes:
- Rent
- Staff salaries
- Contract labor
- Storage
- Display cases
- Utilities
- Insurance
- Interest
- Professional fees
- Licenses and fees
Because of their lack of deductions, cannabis businesses are taxed at much higher rates than companies in other industries. In some cases, tax rates can be up to 70%.
Since you’re only able to deduct some expenses, it’s important that you take full advantage of the opportunity to reduce your income. An expert in bookkeeping for cannabis can ensure that you get all of the legal deductions you’re entitled to.
Do You Need a Bookkeeper or Quickbooks?
Quickbooks is the most popular accounting software in the cannabis industry. Many professionals use it successfully to manage bookkeeping for their dispensaries.
One of the best things about Quickbooks is that it can integrate with your Point-of-Sale system. This allows you to use it to manage your inventory, track sales, check out customers efficiently, and learn about customer behavior.
Unfortunately, Quickbooks doesn’t work across multiple dispensary locations. It’s also possible for the company to ban a dispensary and delete your account because you’re using it to manage the finances of a federally-illegal product.
Overall, we recommend hiring a professional bookkeeper to lead your dispensary’s finances. An accountant who specializes in the cannabis industry can keep track of your inventory and expenses with ease, hopefully saving you money at tax time.
Who Provides the Best Bookkeeping for Dispensaries?
When choosing someone to handle bookkeeping for your dispensary, look for accountants who specialize in the cannabis field. The marijuana industry can be complex, and not all bookkeeping professionals know how to handle its challenges.
Green Space Accounting doesn’t want you to navigate the intricacies of the financial aspects of the cannabis industry alone. Their friendly, reliable team of accountants will work with you to find the best solutions for growing your business. They only serve cannabis clients, so all of their accountants are experts in the industry.
Green Space Accounting can help you manage all aspects of your cannabis bookkeeping, including:
- Accounting
- Compliance
- Cash flow management
- License application support
- Payroll solutions
Interested in working with an expert in bookkeeping for dispensaries? Book a consultation today!
Whether you choose to use QuickBooks, another accounting software, or a cannabis accountant, finding the right way to manage your money is vital to running your dispensary. If you can keep up with regulations and deduct the right expenses, you’ll be setting your dispensary up for success!
