You start a cannabis business that morphs into a company that is becoming very successful. In all probability, you are doing your own accounting. With software such as Quickbooks and Xero, you think this should be easy. However, it isn’t, and mistakes can cost dearly, and not just financially or legal issues as well. In 2019, there is no comprehensive software solution for the cannabis industry to purchase or subscribe, but accounting is mandatory. For now, there are ways around it as new accounting software for the cannabis industry is being developed and right now that market is wide open.
There are mandatory monthly, quarterly, and yearly reporting requirements at the state and federal levels as well as any city or county reporting requirements. Even though cannabis is illegal federally, this doesn’t mean that national reports are not required to document banks, investors and lenders.
Since this reporting is complex, specific software needs to be tailored to the cannabis industry. Modern accounting systems like Quickbooks and Xero do not offer the cannabis industry chart of accounts or the ability to integrate with other cannabis software.
Most states also require “Seed to Sale” tracking software. Metrc seems to be the most commonly used which primarily tracks quantities with a need to be updated daily. According to DopeCFO.com, Metrc is filled with glitches especially tracking quantities that are delivered from one location to another as well as cost/retail pricing. For example, Farm ABC sells and/or delivers a pound of cannabis to Dispensary DFG. However, the dispensary only receives one gram instead of one pound. At the moment, Metrc doesn’t have controls to prevent these kinds of mistakes. When reports are run using Metrc, often quantities shipped don’t match amounts received.
There are some operational packages available for Point of Sale, but, according to DopeCFO.com, popular POS software such as MJ Freeway, Greenbits, and Biotrackare still have bugs to be worked out with significant downtime, and have many features that don’t function.
The cannabis industry is a very complicated world involving several sub-industries such as farming, chemical manufacturing, food production, and retail, often in a single company. Other issues include multi-entity structures, consolidated accounting, cannabis, and non-cannabis divisions, and complex customer resource management.
However, for now, cannabis companies are forced to piecemeal together several systems and work with cannabis accounting specialists.
The state-mandated software Metrc is still the best to record quantities, and ensure the sales/delivery match to physical inventory counts. For other accounting needs, most use Quickbooks or Xero creating a chart of accounts for cultivation, extract, edibles, and retail. Retail operations use one of the cannabis POS systems, but with its issues, so you have to carefully reconcile quantities and pricing between Metrc, QB, and POS each month. Excel is recommended for cost accounting templates, month-end reconciliation, and tie-out work-papers, combined and consolidated financials, rolling cash forecasts, and 280e/471 tax work.
Other apps, storage, and productivity software to be used include bill.com, trello, Slack, Google Drive, Dropbox, Zoom, and CRMs such as Hubspot.
The cannabis industry is involved with issues such as banking, cash, accounting, software, merchant service, compliance/legal issues, and insurance. There are problems with accounting software, but the outcome of productivity and revenue of the industry far exceeds any glitches. The owners, operators, management team, and cannabis accounting specialists will come together to problem solve, get desired results and grow this new industry.