Navigating Cannabusiness Tax Minefields With GHP Advisors
Note: This profile was written as part of a paid business partnership.
Immaculate Bookkeeping Mandatory For Cannabis-Related Businesses
Multitudes of new cannabis related businesses (CRBs) have entered the ring since the 2018 Farm Bill made hemp businesses legal under federal law, but even more will jump in after THC cannabis sales are legalized in Vermont. Because THC-related businesses are not legal under federal law, those new businesses will discover many gray areas when it comes to bookkeeping and tax prep.
“Judging from the results of other states who have legalized the sale of all cannabis products, THC-CRBs are 2 to 6 times more likely to be audited than a regular business,” stated Kevin Prindle, CPA for GHP Advisors in Burlington.
“We believe in the cannabis industry and we want to be in on the ground level of these business startups.”
“The hemp industry is pretty cut and dried, and its bookkeeping is treated like other similar ag products. But for a Schedule I drug like THC,” says Prindle, “there are many gray areas, restrictions, and complex issues to solve. There are few CPAs in the state willing to deal with them. We don’t feel that way. Here at GHP Advisors, we believe in the cannabis industry and we want to be in on the ground level of these business startups.”
One of those gray areas is tax deductions. Because THC is Schedule I, businesses that deal with it cannot take the normal deductions for expenses on their federal tax returns, and so will be reporting inflated profits. Only costs directly related to the production, processing and storage of the product are allowable deductions.
That may change with federal legalization, but in the meantime, there is little legal precedence for THC cannabis businesses to go by. These are uncharted waters, and CRB owners need to be meticulous in their accounting and have access to well-informed advice on current tax laws.
Prindle and his colleagues must stay up-to-date on changing tax laws and new court decisions by taking required continuing education courses online, and they have been opting for cannabis-related webinars.
“Our clients can feel comfortable knowing that we are taking every necessary step to keep them within the law, but also using the law to give them the most financial benefit.”
“Our clients can feel comfortable knowing that we are taking every necessary step to keep them within the law, but also using the law to give them the most financial benefit,” says Prindle. “We are keeping a close eye on the upcoming legislative session in Vermont, as cannabis tax & regulation will be a large area of conversation.”
Although it’s good to have expert accounting and tax advice during the planning stage, it’s crucial as the business grows in employees and sales. Some of the clients of GHP over the years have moved to other states, but they stayed with the firm.
“It’s a matter of trust,” says Prindle. “With great communication and extensive knowledge, we develop personal relationships that last for a long time. GHP Advisors have a solid reputation for dealing with very sensitive information.”
Besides taxes, GHP can help startups by creating a business plan; determining startup capital needs; evaluating borrowing power; selecting the right accounting software; preparing a cash-flow budget; establishing billing, payroll, and monitoring procedures; preparing and filing all required state and local licenses, permits, and FEIN; and identifying insurance needs.
George H. Philibert, CPA/ABV, CVA, CFF, the firm’s president and founder, has over 40 years of experience in the industry. He is certified as a valuation analyst and financial forensic analyst, and is an active volunteer in the community.
Philibert’s partner, CPA Deborah Brow, has been with the firm since its inception in 1990. Brow has taught seminars on small business startups, and also has extensive experience in business advisory services with a focus on real estate.
For more information, visit GHP’s website or give them a call at 802-863-5099.