Tax Strategies in Cannabis Industry

Ask any accountant specializing in cannabis and they would tell you - “You have to boost your cost of goods sold!”. This honeymoon has come to a quick end as the IRS is continuously winning cases in tax court against cannabis companies that claim very high cost of goods sold numbers. Determining cost of goods sold in cannabis is truly an organization wide initiative. At SYNQMINE, we have a responsibility to advise to keep this number within the confines of what we believe the IRS will accept. This involves looking at Cost of Goods Sold correctly from a tax law perspective, while still maximizing the value for the client.

Cannabis Entity Structuring

The organizational structure of a cannabis company has to be very carefully planned out to execute on two goals. The first is, of course, to minimize short term tax liability for the company as a whole. There is a variety of methods surrounding 471, 263a, farm credits, R&D credits, 199a etc. that must be applied to each client depending on their specific situation. The second goal of a cannabis entity structure is long term sustainability. This goal means two things to us at SYNQMINE. No company wants to constantly have to restructure their entities - this leads to a whole mess of financial and business reporting issues, recalibrating IT systems as well as different tax issues annually. Therefore, whatever entity structure is instituted, the best approach is one that will likely last into the foreseeable future. The second component of entity structure is dealing with regulatory agencies - how likely is it that tax courts, the IRS and state governments agree with your classification of entities? In recent tax court rulings, we have seen many cannabis companies try to abuse entity structuring for their benefit to no avail. Long term sustainability means learning from others what doesn’t work as well as applying from other industries what does work. At SYNQMINE, we are proud to provide this service to your organization.

Cannabis & Non-Cannabis

The federal government has not made it easy for us - with hemp legal, cannabis and THC illegal, CBD now made legal and vaping teetering on the edge, it becomes increasingly difficult to tax plan in today’s environment. One very effective way of reducing tax liability is correctly separating your business activity between cannabis and non-cannabis divisions. The reason this is important is because Section 280e is the primary driver behind large effective tax rates - but it only applies to businesses dealing with illegal drugs. SYNQMINE client is going to have a unique situation in terms of determining cannabis and non-cannabis divisions, business activities, and expenses. One thing is for certain - this is an extremely important tax consideration and one that will likely get challenged should you ever be audited by the IRS. Let the experts guide you here - this is often done hand-in-hand with Entity Structuring though some clients come to us wondering if existing entities qualify as cannabis/non-cannabis.

Tax Compliance

Federal Tax Preparation

Dealing with the dreaded IRS is no fun. Federal tax code for businesses is complicated enough as is and gets doubly so when your organization is involved in a Schedule 1 substance. Nevertheless, filing a federal return correctly as a cannabis company is possible - it just takes a little more patience and a lot of industry knowledge. Working with our team at SYNQMINE, your CPAs will be exclusively focused on the cannabis industry, so you'll be able to utilize our extensive tax knowledge to your full advantage.

‍State & Local Tax Preparation

Marijuana sales in legal cannabis states are booming and the states/local municipalities want their taste. Filing these taxes correctly is crucial to any cannabis organization as proper state compliance is likely a key to keeping your license. There are many complexities to state and local taxes such as sales tax rates, excise tax, harvesting tax, retail versus commercial sales etc. Let the industry expert CPAs help you apply the code for your business.

Cannabis Audit

The highest level of scrutiny, the CPA firm is contracted to offer its opinion with a high level of certainty about whether the financial statements are free from material misstatement. Accounting jargon side, audits can be long, drawn out-processes filled with headaches if both client and the CPA firm aren't on the same page. SYNQMINE is in a unique position of working exclusively with the cannabis industry. When we perform procedures such as physical inspection, observation, or third-party confirmation, you contracted an expert in cannabis regulation.

Cannabis Financial Statements Review

Substantially smaller scope than an audit. A review of financial statements requires the CPA seeks to obtain limited assurance as a basis. While an audit may feel like we are turning your company inside out from day one, a review will be more focused on the flow of financial information, with a big emphasis on risky accounts (revenue, cash etc). Many times, smaller companies may engage in several reviews before eventually requesting a full-blown audit.

Examination of Financial Control

As we mentioned, it's not uncommon for investors and buyers to want some third-party assurance on business operations aside from just financial statements. SYNQMINE, is prepared to offer full assurance examination of internal controls surrounding cash management, cannabis production, state regulation processes and procedures and much more. Examinations surrounding business processes have the same level of scrutiny as an audit - the level of certainty must be high for a CPA firm to give its opinion.

Business Valuations

Valuation engagements result in a conclusion of value of the business, whether it be a single value or a range. The governing body of CPAs has a strict guideline which CPAs must follow when performing a valuation - as a result, a valuation is a very strict and highly formal service. Applying the guideline to the cannabis industry can prove to be difficult as businesses in the cannabis industry often operate differently for a variety of reasons.

eCommerce for Cannabis Industry

‍Digital has changed how customers access cannabis. You can now order top notch cannabis products from the comfort of your home. The retail online business space is medium for cannabis organizations to expand the new purchase medium previously restricted to different organizations. According to some reports, the cannabis market is expected to hit $166 billion by 2025, as more cannabis organizations embrace eCommerce platforms.

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