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Marijuana Accounting and Legal Compliance

Since marijuana is still illegal at the federal level and subject to continually evolving regulations at the state level, cannabis producers, distributors, and retailers need to develop compliance programs and procedures as early as possible in the life of their business to protect themselves from legal challenges.

An effective cannabusiness compliance program will ensure that the company’s owners, managers and employees do the following:

Identify and prioritize applicable laws and regulations

Federal, state, and local laws and regulations relating to cannabusiness operations should be identified, researched and regularly monitored. Those that pose the greatest risk of criminal sanctions or license revocation should be prioritized, and procedures should be implemented to ensure compliance.

Develop and document standard operating procedures

Standard operating procedures and manuals provide documented proof of the company’s efforts to comply with cannabis laws and regulations. A company’s compliance program should also include personnel training on marijuana laws to ensure that all employees know how cannabis laws and regulations affect their everyday duties.

File tax returns and pay taxes on time

Not filing tax returns puts your company at risk of audit by federal, state and/or local taxing agencies. Noncompliance will likely result in an assessment of back taxes, penalties, interest, and the loss of business licenses and permits.

Produce audited financial statements

The preparation of financial statements by an independent auditor on at least an annual basis will not only identify areas of possible non-compliance and fraud/abuse, but will also serve to document information reported in your tax filings if and when you are audited by the government. As noted in our post on cannabusiness planning, financial statements are key in securing outside investors.

San Francisco Cannabis Law Attorneys

The compliance program of your marijuana-related business should be custom-tailored to your company’s specific needs and risks. A good faith effort to be in compliance will be looked upon favorably by state and local regulators, who will be more likely to help you remedy minor violations and reduce your fines and penalties in light of your efforts. Contact the Cannabis Practice Group at Moskowitz, LLP to learn more about how we can help.

The Cannabusiness Plan

A business plan is a key component of every commercial venture – it not only serves as the outline for the development of your business, but is also a crucial tool for securing outside investors.

Elements of a business plan

Here are the basic provisions that should be included in your cannabusiness plan:

  • Executive Summary. Your executive summary is generally a 1-2 page snapshot of your company. It should include a brief description of your products, objectives, viability in the market, competition, growth potential and funding requirements.
  • Objectives. Your cannabusiness plan should iterate the company’s overall vision, mission and short-term objectives.
  • The Team. This is the place to showcase the background and expertise of your business team, and how they will help your business venture to succeed.
  • Competitors. It is important to feature the strengths and weaknesses of your competitors’ activities and strategies and how your company differs. An analysis of possible strategic partnerships with other marijuana-related businesses is a plus.
  • Marketing Plan. Your marketing plan should include an analysis of your target market and clearly demonstrate how you plan to acquire customers. It should outline what activities you will employ in order to accomplish your business objectives, and in what time frame.
  • Branding. Your brand is the strategic communication of the values and characteristics of your venture. Good branding will make your company more valuable over time.
  • Financial Plan. If you are seeking outside investors, you will need to present a well-researched financial analysis of your current and future expenses and projections. Any bank, independent investor or venture capital firm will want to know what you will do with their money – the more detailed your financial plan, the more reliable your businesses will appear.

The Operations Manual

Your cannabusiness plan should be accompanied by an operations manual. An operations manual may contain any or all of the following: (1) a list of all the company’s employees, vendors, and other contacts; (2) checklists that provide details and instructions on the day-to-day operations of the business; (3) guidelines for employees; and (4) business policies (e.g., payments, refunds, etc.).

San Francisco Cannabis Practice Group

The business and tax law firm of Moskowitz, LLP is committed to the success of the California cannabis industry and is available to assist marijuana entrepreneurs with their business development and taxation needs. Contact our San Francisco office today for a consultation.