The cannabis industry is here to stay. As Canada’s lawmakers prepare to unveil their strategies for the legalization of the marijuana market on October 17, business owners that have already set up shop in the cannabis industry are figuring out the best way to operate their companies. This is giving rise to a new opportunity for accountants and bookkeepers seeking a niche audience: managing the numbers for a cannabis-based firm.
If you’re running a business in this space, what should you be considering when looking for someone to help you with your bookkeeping? Will Canada’s new marijuana laws change the way that you do your accounting? What can you do to minimize the disruption when cannabis goes from the fringe and to a regulated product?
Evaluating Your Books
Many cannabis owner-operators face the same challenges as any other small business owner, such as needing more hours in their day to finding ways to standing out from other competitors.
These so-called “ganjapreneurs” have an even rougher time of things. Along with making sure that their customers and staff are happy, they need to keep a close eye on the inventory, expenses and revenue. A cannabis retail store can have its prices bob up and down depending on availability of product, demand in the marketplace, and even from a shortage (or overabundance) of suppliers. Keeping track of all those numbers, in addition to the day-to-day ops tasks, can threaten to overwhelm even the best project manager.
Part-time CFO to the Rescue
They’re already overwhelmed and likely a little stressed about what the specific laws will be. Having a clear handle on the store’s month-to-month transactions, recognizing sales trends that offer opportunities to increase store revenue, being able to spot downward trends and take course corrections early on, these are all within the domain of a chief financial officer for the company.
The problem is, a small business owner running a cannabis dispensary can’t squeeze more hours from their schedule. An accounting company that has well-rounded knowledge of general bookkeeping as well as specialized knowledge for the cannabis industry can be worth five times as much as the cost of services.
And there’s the rub: the first adopters will stand to reap the rewards. In other words, the bookkeepers and accountants that develop (or that have already established) client relationships with cannabis industry companies now have knowledge of the space and its’ particular challenges.
It could make a lot of sense for a Canadian cannabis firm to dodge the question of having a part-time bookkeeper entirely, and instead view the role for a part-time chief financial officer (CFO). A CFO would not only pay attention to the company’s books, they can also provide deeper analytical insight and help the business owner plan ahead for growth and seasonal adjustments, should they occur. This latter possibility would probably happen for cannabis companies like dispensaries selling concentrates, edibles, flowers and related products.
By giving insight into the pulse of the store’s business, the cannabis owner can use the CFO service to plot out their monthly, quarterly and annual financial strategy. And the more adept the service provider is with the world of cannabis commerce, the greater the value for the client.
Cannabis Laws Will Vary Province to Province
Once the federal government announced their strategy for the legalization of marijuana in October 2018, the provinces now need to build upon this foundation for regulation. Already provinces like Saskatchewan are announcing restrictions and fines to individuals as well as retail stores that don’t adhere to the provincial laws.
One of the possible approaches that some provinces may adopt is identifying a cost-per-gram method for all the different blends and strains of marijuana. This is similar to what the mining industry’s accountants use to keep things tidy in the fluctuating world of precious metals.
Al Rosen, who is a forensic accountant at Accountability Research Corporation, said as recently as three months ago that the potential for making major errors in a cannabis’ company’s books was significant. Rosen made note some companies exaggerate gross margin figures because the rules afforded by the International Accounting Standards Board (IASB) are too fuzzy. Rosen is also an advocate for the cost-per-gram valuation approach.
Surviving an Audit
The scrutiny of a financial audit will likely be a given for any marijuana dispensary. With so much of an average marijuana business dealing in cash, the auditor will be paying close attention to your account records, transactions and inventory – another reason to have your books in top shape before it happens.
If or when the auditor finally comes to look closely at your cannabis business, your books will need to be precise, in order, and ready to pass with flying colors.
Developing a standard operating procedure for your cash in-cash out records is another good plan for any cannabis retailer to have. A bookkeeping or accounting firm that offers such planning can be invaluable when the auditing time comes.
Use Cannabis Friendly Technology
Cannabis consumption is going to be a fact of life in our 21st century. Why not take advantage of the advancements with software and adopt it into your business’ approach to the cannabis marketplace?
Tech savvy CPAs can make things a lot smoother for operations. Having integration with your P2P cash register, your inventory, and your accounting software system (like QuickBooks Desktop or Online) can reduce the hours spent on paperwork, reconciliation and save you untold moments of future frustration.
“A lot of these cannabis stores that have opened, they’re using iPads to process transactions and to mail receipts for purchases,” explains Patrick Sauriol, our LedgersOnline marketing director and an individual with past experience dealing with technology companies. “These guys are already using the technology to make it a better customer experience. They can use a document management app like LedgerDocs on their smartphone and forward receipts directly to their bookkeeper. Nothing gets lost in the shuffle then.”
The Best Time to Get Started is Now
Instead of waiting for the new federal and provincial laws to come into effect on October 17, the time to start looking at how to introduce a cannabis smart bookkeeping approach is now.
If you would like to have a free consult for a virtual CFO, part-time bookkeeper or accounting professional, contact our team. We’d be happy to offer insight into how your company can find financial success in the new Canadian cannabis industry.