Cannabis Production

The cannabis supply chain is not a simple vertical supply chain that can be divided into producers and retailers.  There is a multitude of intermediaries along the way.

So yes, it all starts with farmers (producers) who are the cultivators of cannabis plants.  The farmers often deliver to manufacturers.  These manufacturers process the plants into various other products, like cannabidiol (CBD), which is low in tetrahydrocannabinol (THC).

From manufacturers, a long supply chain includes:

⇒ Dispensaries

⇒ Infrastructure

⇒ Professional Service Providers

⇒ Security

⇒ Service Providers

⇒ Transport

Problems With Patents And Trademarks

The nature of the cannabis industry is such that some products are based on unique processing, which has to be protected by patents, and a minimal scope does exist for such patent registrations already, but it is still almost impossible to register any trademarks for the industry without slipping through dubious loopholes and bargaining on specific exemptions.

As Far As Tax Are Concerned

As mentioned above, cannabis business costs and expenses cannot be deducted from gross income before tax, so the bottom line can be skinny indeed.  While this is tough to comprehend for many business owners, the way it affects the valuations of cannabis enterprises is a significant problem.

Cannabis entrepreneurs survive only if they preserve substantial reserves for tax purposes, and again, this is tough because it directly affects the survivability of the enterprise.

Investment Climate In The Cannabis Industry

As the cannabis supply chain moves from black to grey and from grey to legitimate markets, a lot of investment is going into existing and new cannabis operations.  For those that come from the grey-and black markets, it’s a totally new experience to have to report to various interested parties after years of ‘reporting’ only to themselves.  Of course, a lot of new questions arise in respect of business structuring.

Business Structure

The accounting profession has to make sure that investors are protected while the businesses are structured in a way that will not penalize the owners in respect of 280E or any other federal law enforcement issues. Some investment structures are simple – a mere holding company and the owners of the enterprise.  There are some very complicated structures out there too – there is no question of a one-size-fits-all solution.

Even when you take two producers who produce the same cultivar in the same state on the same type of property, the answer for them can be completely different based on a host of different variables. If, for example, the business belongs to the family, the S corp structure is an option. It will save self-employment tax 15%, compared to a LLC. If the business belongs to non-related partners, the LLC is the choice, though the partners will pay 15% self-employment tax in addition to income tax.

The industry is new, and there are no roadmaps.  There are guidelines for all kinds of industries, of course, but no hard and fast rules, whether you are talking about real estate or non-profits. When you are talking about the cannabis industry; however, you always have to start from scratch.

Discrepancy Between Federal and State Laws

Whenever you are confronted with the differences between state and federal law in respect of cannabis production and distribution, there exist large grey areas that are very hard to define.  The grey area and resultant confusion, and the subsequent lack of certainty that goes with it, has a genuine accounting, or call it financial ramification for the cannabis business.