Opinion: How marijuana companies can protect themselves in a cash-based world

Imagine if someone was running a multimillion-dollar business using the envelope system. In this system, they would have one envelope for each of their expenses: payroll, rent and inventory. Now imagine that this person is a 20-something budtender. They might be worried about theft, fraud and federal money laundering charges related to mishandling cash.

Marijuana is still illegal on the federal level, so most banks don't want to work with marijuana businesses. This means that cannabis companies have to use cash only. Most customers have to pay in cash because it's illegal to use major credit cards to purchase marijuana products. This can cause a lot of problems, like the accounting team having trouble managing accounts payable or robbery and fraud.

You can't fix the industry's cash problems, but you can protect yourself from their consequences by understanding the challenges they face and hiring qualified professionals to help you navigate them.

Why cash only is such a problem

People who sell cannabis products face many difficulties. For example, they have to worry about how they will pay their vendors, and how to keep track of all the cash they are making. They also have to worry about being robbed, especially if they are growing or selling cannabis products illegally. In addition, meeting the requirements for large cash deposits from the IRS is complicated and can result in penalties if you are late or inaccurate.

SAFE banking is not the answer any time soon

Some people who work with cannabis (CEOs and accountants) see the Secure and Fair Enforcement (SAFE) Banking Act as a potential solution.

The SAFE Banking Act was created to provide more protection to banks that want to serve cannabis companies.

In February 2022, the SAFE Banking Act was attached to the America COMPETES Act, but the U.S. Senate removed it from the measure.

Despite this, many people in the cannabis industry believe that the SAFE Banking Act is the light switch that will turn on banking for all cannabis-related businesses (CRBs).

Some people think that the act of SAFE banking will allow any CRB to open a bank account with a large national bank. However, this sadly is not the case. Even if SAFE banking were to eventually become law, there would still be a long period of time before cannabis companies could open accounts with big banks such as Chase or Wells Fargo. This is because cannabis is not federally legal yet. Additionally, cash-related issues will continue to exist in the industry due to predominantly cash sales until cannabis is federally legalized.

It is not a good idea to wait for SAFE to pass before you start using cannabis accounting practices. It is better to use proven accounting practices that are provided by a professional.

A cannabis accountant as a solution

If you try to do your own cash controls and cannabis accounting, you will likely pay too much in taxes and could face thousands of dollars in penalties. It is important to hire a trained cannabis accountant who can establish a cash-control system, create standard operating procedures (SOPs), perform daily cash count procedures, and maintain a daily cash log. The accountant should provide a number of primary accounting services to keep your company profitable and compliant.

Robust cash-control system

In order to minimize the risk of theft or loss, cannabis companies need a complete cash-control system. This system should include the following measures:

• Daily cash counts,
• Cash logs and appointing someone reliable to review these logs,
• Procedures for missing cash,
• Vault logs.

If possible, you should work with an accountant to set up a bank account with a company that works with cannabis businesses. Since there are banking problems with cannabis companies, setting up an account can be a long and complicated process. You'll be glad to have an accountant help you so the process can be completed promptly.

Accounts-payable tracking

In a cash-based company, the accounts payable department can be a nightmare. This is because there are many things that can go wrong. For example, there can be bookkeeping errors, double payments, missed payments, and angry vendors. To prevent these things from happening, it is important to have a good accounting professional who will do due diligence in tracking invoices and all cash payments. Furthermore, the provider should also oversee that all cash paid upon delivery is signed off on by proper store personnel and that the transaction is tracked and managed. Lastly, the provider should also flag invoice changes and establish processes to guarantee both the vendor and reseller are notified and agree to the change.

This proactive step will prevent either party from feeling shorted or hunting for the remaining balance three months later. Your accountant should also ensure partial payments are not overpaid or ignored and should enact a payment terms process to keep vendors paid on time.

Cannabis-focused insurance coverage

Almost all companies need insurance, but it is especially important for cash-only businesses to have proper insurance coverage. The problem is that most insurance companies do not cover cannabis, but some do. You will want to rely on a professional who understands the cannabis regulations in your state to help you choose the best insurance company. Most importantly, you will want optimum coverage for employees transporting cash to vendors or the taxing authority and the cash-delivery vehicle.

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