5 Mistakes that Could Put Your Cannabusiness Out of Business

Last year the cannabis industry made great strides in becoming a legitimate marketplace, and it happened at a progression few could predict. Medical and/or recreational marijuana was made legal in many U.S. states with Canada legalizing adult-use anywhere within its borders. This created a green rush which saw many cannabis startups come to market and flourish.

In response to market uncertainties, however, many new cannabis companies were unable to keep up with changing legislation or the flood of competition and had to close their doors. In 2019, there’s still considerable uncertainty of how cannabis operators are able to manage operations and stay abreast of industry trends, legislation, and available technologies?

Avoid the following 5 mistakes that could put your cannabusiness out of business:

Non-compliance to child-resistant packaging requirements

Childproof packaging is as much about keeping kids out of unattended marijuana packages as it is about not attracting children’s attention altogether. Each state where medicinal or adult-use cannabis is legal has its own child-resistant packaging requirements.

The key takeaway from child-resistant packaging requirements is for the cannabis packaging to be difficult to open for children under 5 while remaining simple for adults to open and close. Packages also must:

  • Be resealable
  • Make product unappealing to children
  • Have opaqueness to disguise contents
  • Present clear and detailed information label
Lack of multi-entity support when adding locations

Because growing cannabis outdoors can be difficult and unpredictable, many cultivators who begin outdoors choose to set up indoor operations as they grow. This enables them to stabilize some of the uncontrollable variables, which include pests, temperature, humidity, and weather conditions overall.

Multi-entity cannabis organizations face specific complexities surrounding centralized payables, inter-entity transactions and global consolidations. When cannabis companies add locations, they must be aware of the regulatory nuances that come with it.

Ignoring cannabis accounting guidelines

Cannabis operators must fully grasp the specific federal and state cannabis accounting guidelines as well as manage all the operational complexities created as a result. They’ll need to master cost, accrual, and absorption accounting as well as 471 and 280E tax rules.

The IRS and State don’t make it easy considering GAAP/accrual accounting is required for absorption/cost accounting to comply with 280e/471. Tax section 280E, for example, is the federal statute that prevents a cannabusiness from taking tax deductions or credits because cannabis is a Schedule I controlled substance. This means cannabis operators pay taxes on all of their revenue without being able to use business expenses as tax deductions.

Cannabis non-compliance

As the cannabis industry continues to evolve, one thing will remain constant: its emphasis on regulatory compliance to ensure public health and safety. All of the concepts above have cannabis compliance undertones.

A strong compliance program protects a cannabis company and its staff, and success or failure depends on maintaining strict adherence, even when compliance is a moving target.

Lack of technology

As a cannabusiness begins to grow, disparate technology solutions affect its ability to control the integrity of a cannabis company’s data for reporting and compliance purposes. This brings new challenges which impact a cannabis company’s ability to scale or even stay afloat.

Cannabis enterprise resource planning (ERP) software delivers a single source of accurate and up-to-date business data to cannabis companies. By integrating systems that operate from the same datasets, separate departments share business data and intelligence tools to more easily spot trends, reveal noncompliance issues, manage complex cannabis accounting all while uncovering hidden business opportunities.

Sage Intacct is the #1 cloud accounting software and financial management for customer satisfaction. It’s the financial management package that delivers automation and accounting controls to keep you audit-ready and positioned to scale. Contact us to learn how e2b and Sage Intacct can bring improved business performance to your organization.

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