Accounting and bookkeeping are critical components of any high risk business, including the cannabis industry. With the unique regulatory environment of the cannabis industry, it is important for cannabis business owners to understand their financial obligations and stay up to date with the latest regulations. In this blog post, we will cover various accounting and financial topics that are relevant to the cannabis industry, including profit margins, ERC eligibility, 280E implications, and common bookkeeping mistakes.
What is a good profit margin for a dispensary?
Profit margin is a measure of how much profit a company makes relative to its revenue. In the cannabis industry, profit margins can vary widely depending on the type of business and the state in which it operates. Generally, dispensaries have higher profit margins compared to other types of cannabis businesses due to the higher price points for their products.
According to a 2021 report by New Frontier Data, the average profit margin for dispensaries in the United States is approximately 25%. However, this figure can vary depending on a variety of factors, including competition, location, and the types of products sold. In some cases, dispensaries may have profit margins as high as 40% or more.
While a high-profit margin can be a sign of a successful business, it is important for cannabis business owners to balance profitability with compliance. Operating in the cannabis industry comes with a unique set of regulatory requirements that can be complex and costly to navigate. Business owners should consider investing in high-quality accounting and compliance services to ensure that their financial operations are following state and federal regulations.
Does my Cannabis Related Business qualify for ERC?
The Employee Retention Credit (ERC) is a tax credit that was introduced as part of the CARES Act in response to the COVID-19 pandemic. The ERC is designed to provide financial relief to businesses that have experienced a significant decline in revenue due to the pandemic. Cannabis businesses have historically been excluded from federal relief programs due to the federal prohibition of cannabis, but recent changes to federal policy have made it possible for some cannabis businesses to qualify for the ERC.
Under the American Rescue Plan Act of 2021, cannabis businesses that operate in states where cannabis has been legalized for medical or recreational use are eligible for the ERC. However, there are some restrictions on eligibility. For example, businesses that receive a federal grant or loan related to COVID-19 relief may not be eligible for the ERC.
Cannabis business owners should consult with a qualified tax professional to determine their eligibility for the ERC and to ensure that they are following all relevant federal and state regulations.
How does 280E affect my CBD business?
Section 280E of the Internal Revenue Code is a federal tax provision that prohibits businesses that sell controlled substances from deducting certain business expenses from their taxable income. Because cannabis is classified as a Schedule I controlled substance under federal law, cannabis businesses are subject to this provision.
While the implications of 280E for cannabis businesses are well-known, its implications for CBD businesses are less clear. CBD is a non-intoxicating compound derived from cannabis plants that has become increasingly popular in recent years for its perceived health benefits. However, because CBD is derived from cannabis plants, it is subject to the same federal regulations as other cannabis products.
The IRS has not provided clear guidance on how 280E applies to CBD businesses. Some experts believe that CBD businesses may be subject to 280E if they sell products that contain more than 0.3% THC, which is the legal limit for hemp-derived CBD products under federal law. Other experts believe that CBD businesses that sell hemp-derived CBD products may be exempt from 280E because hemp was legalized under the 2018 Farm Bill.
Until the IRS provides clearer guidance on how 280E applies to CBD businesses, it is important for CBD business owners to consult with a qualified cannabis accounting company like Accountabis Advisors.