February 28, 2024
#Finance #Legal

Tax and Accounting Services for the Cannabis Industry

CPA for Cannabis - Stubsondemand

Cannabis Industry

The cannabis industry has undergone a transformative journey, evolving from a stigmatized sector to a booming market. Legalization efforts across various states have created a complex landscape with diverse business opportunities. From cultivation to distribution, cannabis businesses navigate a web of regulations and compliance issues, making it imperative to have robust financial management systems in place.

Tax and Accounting Services for the Cannabis Industry

Cannabis businesses face unique accounting challenges due to the federal prohibition of marijuana. Section 280E of the Internal Revenue Code restricts businesses dealing with controlled substances, including cannabis, from deducting normal business expenses. Hence, meticulous accounting practices are essential for tracking production costs, managing inventory, and ensuring compliance with 280E.

Cannabis businesses must also implement comprehensive bookkeeping to maintain accurate financial records. This includes tracking expenses related to cultivation, processing, and distribution. A dedicated cannabis accounting solution helps in producing financial statements that can withstand regulatory scrutiny.

Tax Planning

Effective tax planning is crucial for cannabis businesses to optimize their financial position. Given the restrictions imposed by 280E, businesses need to explore legal strategies to minimize tax liabilities. This may involve strategic allocation of expenses, proper accounting for cost of goods sold (COGS), and exploring available tax credits.

Understanding the specific tax implications of the cannabis industry in Oklahoma is vital. Recent changes in state tax laws can impact businesses, and staying abreast of these developments ensures compliance and minimizes unforeseen tax burdens.

Taxation Laws in Oklahoma

Oklahoma’s approach to cannabis taxation is evolving. The Oklahoma Medical Marijuana Authority (OMMA) implemented new rules effective September 11, 2023, incorporating several changes. Notably, all Certificates of Occupancy, Final Inspection Reports, and Site Plans must accompany new or renewal license applications, aligning with existing requirements for the Oklahoma Bureau of Narcotics and Dangerous Drugs Control (OBNDD). House Bill 2095 extends the moratorium on new medical marijuana business licenses until 2026, introducing a national fingerprint-based background check for commercial licensees. Senate Bill 1704 mandates employees of commercial licensees to obtain a credential from OMMA starting January 1, 2024. House Bill 4056 mandates OMMA to establish new rules regarding standardized testing procedures by June 1, 2024. Senate Bill 813 permits OMMA to operate a quality assurance laboratory, clarifies the secret shopper program, and introduces tiered licensing requirements. Senate Bill 913 requires commercial medical marijuana growers to have a surety bond or proof of land ownership, as previously mandated in emergency rules. Finally, Senate Bill 18X makes OMMA an appropriated agency, with the Legislature setting the budget annually.

Oklahoma Medical Marijuana Authority (455)  Rules

OMMA’s current rules took effect Sept. 11, 2023.

The changes in the Sept. 11, 2023, rules are summarized below:

All Certificates of Occupancy, Final Inspection Reports and Site Plans must be submitted with any new or renewal license application or location change request. This is similar to a requirement already in place for the Oklahoma Bureau of Narcotics and Dangerous Drugs Control (OBNDD) registration process. This language is incorporated at OAC 442:10-3-1(d); OAC 442:10-4-3(e)(6); OAC 442:10-5-2(e)(2)(A)(iii); OAC 442:10-5-3(e)(9); and OAC 442:10-9-3(e)(9).

House Bill 2095 (2023) extends the moratorium on new medical marijuana business licenses to 2026 and implements a national fingerprint-based background check requirement for commercial licensees. It also allows OMMA, OBNDD, the Oklahoma State Bureau of Investigation (OSBI) and the state Attorney General to perform unannounced, on-site inspections and prohibits more than one commercial grower license from being issued for a single property unless a commercial grower has both an indoor and outdoor grow. The bill also adds penalties for medical marijuana businesses intentionally not paying taxes and prohibits commercial growers from employing undocumented immigrants. The changes required by HB 2095 are incorporated into OMMA rules at OAC 442:10-5-3(h); OAC 442:10-1-5(a); OAC 442:10-4-4; OAC 442:10-5-2(b); OAC 442:10-5-6.1(i) and OAC 442:10-5-16(u).

Senate Bill 1704 (2022) requires employees of commercial licensees to receive a credential from OMMA, authorizing them to work in the medical marijuana industry. This requirement takes effect Jan. 1, 2024. Businesses don’t yet have to take action. OMMA is working on the credentialing process and will make information available when completed. This language is incorporated at OAC 442:10-5-1.1(13) and OAC 442:10-5-16(v).

House Bill 4056 (2022) requires OMMA to incorporate new rules regarding standardized testing procedures based on recommendations previously submitted to the agency. These new rules will take effect on June 1, 2024. This language is incorporated into new sections of OMMA rules at OAC 442:10-8-6, OAC 442:10-8-6.1, OAC 442:10-8-6.2, OAC 442:10-8-6.3, and OAC 442:10-8-6.4.

Senate Bill 813 (2023) allows OMMA to operate a quality assurance laboratory and clarifies the secret shopper program and tiered licensing requirements. The changes required by SB 813 are incorporated into OMMA rules at OAC 442:10-1-4; OAC 442:10-5-2(b); OAC 442:10-5-3(e)(15); OAC 442:10-5-6(b)(6)(A); OAC 442:10-5-4(l) and OAC 442:10-8-5.

Senate Bill 913 (2023) requires commercial medical marijuana growers to have a surety bond or proof of land ownership. This is the same requirement included in the emergency rules that took effect July 3, described at omma.ok.gov/bond and in a July 6 email to licensees. This requirement is reincorporated into OMMA rules at OAC 442:10-5-1.1; OAC 442:10-5-2(e); OAC 442:10-5-3(e)(13); OAC 442:10-5-3.3; and OAC 442:10-5-16(t).

Senate Bill 18X (2023) makes OMMA an appropriated agency with the Legislature setting our budget annually. This language is incorporated at OAC 442:10-5-7(h).

Hire a CPA

The cannabis industry’s complex regulatory environment and unique tax challenges make hiring a cannabis CPA essential. A CPA with expertise in the cannabis sector brings a nuanced understanding of 280E, state-specific regulations, and tax planning strategies.

CPAs can assist businesses in implementing accounting systems that align with regulatory requirements, ensuring accurate financial reporting. Their expertise in tax planning allows businesses to navigate the intricacies of 280E, identify eligible deductions, and develop strategies to enhance overall profitability.

Why Choose Epsilon Accounting Solutions, CPA in Edmond, OK?

Epsilon Accounting Solutions, based in Edmond, Oklahoma, stands out as a trusted partner for cannabis businesses. With a deep understanding of the evolving regulatory landscape and expertise in cannabis industry accounting, Epsilon offers tailored solutions to ensure compliance and financial resilience.


Disclaimer: This article does not constitute tax advice. Please consult Ahmed Baqir, CPA at Epsilon Accounting Solutions PLLC, before making any tax-related decisions or taking any actions based on the information provided in this article. Ahmed Baqir, CPA, has the expertise and knowledge to provide personalized advice tailored to your specific financial situation and goals.

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