With the passage of HB556 and SB516, adult recreational marijuana usage will be legal in Maryland starting July 1. As a result, there will be 745 new cannabis business licenses for growers, processors, dispensaries, incubators, and on-site consumption lounges being distributed over the next year.1
With the cannabis industry being projected to grow from $25 billion in 2021 to $40 billion in 2026,2 many businesses will experience increased levels of pressure coming from regulators, shareholders, stakeholders, and customers alike.
With the massive opportunity and potential in this fast-growing industry, business owners in the space will benefit greatly from having a partner on their side to help with all their tax, audit, accounting, risk, and compliance needs.
Like many business owners, you may not be aware of all the behind-the-scenes variables that could affect your cannabis business’s success. Here are a few things a trusted advisor can help you with.
For instance,
Because marijuana and marijuana products are still illegal under federal law, cannabis businesses face unique tax challenges due to laws such as Section 280E of the U.S. Internal Revenue Code, which disallows standard business deductions for enterprises dealing with Schedule I and II substances.
By taking a proactive approach to tax planning, a cannabis business can save a considerable amount of money. We can help you implement strategic tax planning tools, such as a cost segregation study, to reduce tax by accelerating depreciation deductions and deferring federal and state income taxes. A trusted and experienced tax advisor can help your business make good decisions outside of tax season to achieve the best outcome during tax season.
Because of the unique and complex nature of cannabis laws, businesses in this industry are at a higher risk of state and other compliance audits. With 37 states having legalized cannabis for at least medical use, and more being added every year, it’s important to understand the state-specific tax laws and regulations facing your business.
For example, sales and use tax on cannabis products may vary by state or even local jurisdiction, and can also vary depending on the product and how it is sold. By proactively working with a state and local tax expert, you could save your business up to hundreds of thousands of dollars in the event of an audit.
Even when an audit is not required by a government authority, regular voluntary audits of your finances, reporting, IT, and operations are an effective tool to help ensure the financial health of your business, as well as detect and prevent fraud and mismanagement.
It’s important that all businesses maintain accurate and comprehensive financial records, prepare financial reports, and ensure the company complies with accounting standards.
Having a trusted accounting advisor on your side can give you peace of mind, freeing up time to focus on running your business. Alternatively, depending on your business’s size and maturity, you may want to hire an experienced professional full-time in the short-term – we can find the perfect fit for your organization to help with interim staffing needs.
Some risk factors are obvious and apparent - like fraud, mismanagement of funds, and the physical security of your product – while other risk factors are more discreet – like IT, cybersecurity, and SOX (Sarbanes-Oxley) compliance for public companies.
It will be helpful for your long-term business strategy to uncover all the potential risk factors unique to your cannabis business, especially as your business blossoms and grows, so you are not caught off guard by unknown risks. A good place to start is to work with an advisor on a Risk Assessment, such as IT Risk, Government, Cybersecurity, or SOX Readiness.
As with many emerging and rapidly growing industries, consolidation in the cannabis industry is prevalent as competition increases and consumer needs mature. While the mergers & acquisitions activity across the U.S. has died down from its peak in 2022, opportunities in newly legalized markets, such as Maryland, continue to rise. 3
We help companies prepare for sale to ensure best foot forward when selling. When buying, we are the backstop for companies to ensure buy-side evaluations are accurate and a good fit. Whether your plan is to scale up your business to sell or you are ready to grow by acquisition, we provide the necessary due diligence so you can feel confident in your decision.
Could you answer all of the above questions without google? If not, it may be time to seek out an experienced, trusted advisor to partner with. At Clearview Group, we would love to help your cannabis business succeed; we bring the services and expertise normally associated with national firms, but with the hands-on, personalized feel of a local firm.
See what a relationship with Clearview can do for your business. To learn more about our services for the cannabis industry, contact Geoff Lindsay.
1https://www.jdsupra.com/legalnews/cannabis-license-types-and-timelines-in-5369014/
2https://www.forbes.com/sites/andrewdeangelo/2022/10/04/the-hockey-stick-turns-into-bell-curve-a-new-report-from-bdsa-sheds-light-on-cannabis-industry-growth/?sh=ba2e53166f29
3https://flowhub.com/learn/cannabis-mergers-and-acquisitions
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