Member Blog: The Drawbacks of Doing Your Own Payroll

The cannabis industry is unique in that there are many issues to consider when it comes to payroll. Doing payroll in-house can prove to be a complex endeavor and can have many drawbacks along the way. For instance, it can be difficult to keep up with ever-changing laws and regulations relating to payroll taxes, safety net contributions, and labor law compliance. Additionally, in-house payroll requires comprehensive knowledge to compute withholdings and deductions from employee wages, which can prove to be challenging.

Using a third-party payroll provider can help to improve accuracy and ease the burden of managing employee payroll. Third-party payroll providers can handle all the complexities involved in payroll, such as withholdings, benefit deductions, and payroll tax filings, freeing up valuable time and resources. Furthermore, a third-party payroll provider will be securely monitoring and tracking payroll changes, ensuring compliance with the latest payroll regulations.

In general, doing payroll in-house can be a complex endeavor that requires specialized knowledge and can be a resource-consuming task, but in a heavily regulated industry like cannabis this is especially true. For these reasons, cannabis businesses who switch to a third-party payroll provider often find the benefits far outweigh any obstacles.

Business owners have their minds set on ensuring the growth and stability of their businesses, figuring out modes to cut down costs along the line. Particularly, budding businesses in a bid to satisfy this widespread phenomenon, decide on DIY payroll – choosing to oversee the bookkeeping and accounting arm of their businesses. The common misconception is that payroll outsourcing options constitute a financial burden, contrariwise, the costs incurred from consistent errors (as is always the case) sum up to impact much more extensive financial repercussions on the company.

It is noteworthy that the convincing nature of DIY payroll also bears characteristic flaws which could pose serious threats to your business enterprise. Details on the drawbacks of doing your payroll are highlighted in this article.

Extreme Dependency

Seeing that you and/or another member of your workforce is solely charged with the responsibility in addition to other work-related assignments, chances are that your company finances will take a nosedive if you or the designated other is unavailable for any reason. This isn’t the same if you outsource, as payroll software and service providers are unfazed by such challenges.

Reduced Productivity

Settling financial statements and record keeping are time-consuming processes. Therefore, taking this up yourself would suggest that precious time and labor that could be spent on other vital aspects of the business will be diverted, influencing the work rate and eventual results.

In addition, payroll requires rapt attention to detail, precision, and patience. There is increased stress and the resultant frustration that could result could negatively impact productivity.

Heightened Susceptibility to Errors

Payroll is a complex system of procedures, requiring well-trained and skillful personnel. Experienced service providers are prone to errors and sometimes make mistakes, the chances, therefore, are that if you handle it yourself, you will make grave errors.

Miscalculating Profits

Inaccurate bookkeeping can lead to miscalculation of profit. Unpaid invoices would remain unnoticed, and the establishment suffers losses.

Missing Important Deadlines

The workload makes missing deadlines a high possibility. Poor handling of documents and vital information can result in missing payment dates, ignoring tax information and forgetting payment bonuses and overtime, to mention a few. This could result in noncompliance with government rules and your business might spend a large chunk satisfying fees and fines.

Cash Flow Problems

With inaccurate bookkeeping, there is no adequate knowledge of cash inflow and outflow. This common DIY payroll challenge could lead to payroll issues in the long run and set your business up for a downturn.

Apprehension by Regulatory Agencies

With DIY payroll, you may have inaccurate books, payment issues, consistent complaints, and noncompliance with state and federal laws. This would ignite the swift actions of government agencies like the Internal Revenue Service (IRS) and your business may suffer grave repercussions.

Indeed, the complications accompanying DIY payroll may outweigh the advantages proposed, hence the need to consider helpful payroll services to ease the burden and help your business focus.

Having an effective payroll system is crucial for Human Capital Management, an important ingredient for business growth and advancement.

Member Blog: Dollars and Sense – 2022 Michigan Cannabis CFO Outlook

by Chris Rosmarin, Rehmann

The cannabis industry is one of the fastest-growing sectors in Michigan. It’s also an ever-changing industry, leading to myriad challenges for businesses operating within this space. One issue licensees face is a significant gap in vital business intelligence that’s needed to remain relevant in an extremely competitive market.

To help fill this gap, Rehmann partnered with A&K Research, Inc. of Northville, Mich. to survey cannabis operations within the state and to create the 2022 Michigan Cannabis CFO Outlook. As one of the leading professional advisory firms serving the cannabis industry in Michigan, Rehmann spearheaded this project to help cannabis licensees make empowered business decisions based on peer feedback.

The 2022 Michigan Cannabis CFO Outlook shares findings from the survey, including top challenges the cannabis industry faces in Michigan. Top-of-mind concerns: managing the financial side of the business; deciding whether it’s time to sell the business and how best to go about it; staying on top of compliance requirements; navigating federal legislation and resulting tax burdens; and understanding potential changes in lending laws that impact relationships between banking institutions and legitimate cannabis-related businesses.

In addition, this report features industry spotlights highlighting current cannabis businesses facing these issues in real-time. They share how they’re navigating this ever-evolving industry and economic landscape.

Michigan Marijuana Sales

Just how quickly is this industry growing? Michigan saw $21 million in medical cannabis sales and $188 million adult-use marijuana purchases in July 2022 – a total that is about $15 million greater than the previous monthly record set in April 2022. Most of the marijuana sales for both medical and recreational use were for flower products, followed by vape cartridges. Data also shows a continuation of a sales trend in Michigan’s marijuana market, with medical cannabis purchases decreasing and adult-use sales increasing.

Report Takeaways

Here’s a snapshot of report insights and some of our takeaways. You can download the full 2022 Michigan Cannabis CFO Outlook here.

Tax and M&A Activity

39% of companies are considering or are in the process of selling their business. This could be due to the current challenges of operating within the Michigan cannabis market or for a variety of other reasons. Many licensees are entrepreneurs who enjoyed starting and growing the business from the ground up and are ready to move on.
Half of the companies are paying an effective tax rate between 20% and 30%. One in five currently show a loss from operations. This was surprisingly much lower than we expected. It’s not uncommon to see tax rates of over 50% within the industry depending on where the business falls in the vertical chain and how aggressive you can be with your structure or costing model.

Cannabis Business Operations

Just over one-quarter (28%) of businesses have been subject to some level of federal, state, or reporting audits. The industry is still young, and as we continue to look at this data year over year, we expect this number to drastically increase. It’s important to have your finances in order to be prepared for that time to come.
Almost two-thirds (65%) use QuickBooks for their accounting system, with the remainder being dispersed between Sage, SAP, Dynamics, and Xero. Accounting for the cannabis industry can be extremely complex. Many cannabis businesses started with QuickBooks and are now outgrowing that system and ready for more powerful systems to meet their unique needs.

Perceptions of the Current Michigan Cannabis Industry

The majority (56%) expect retail pricing needing another 1-3 years to stabilize. One of the biggest concerns within the industry is pricing of cannabis. We’ve seen a significant drop in retail pricing over the past several years and there is concern that it may drop even more.
Nearly half (42%) think that between 26% and 50% of wholesalers are losing money at current retail prices. Given the struggles with pricing, growers who are selling wholesale are facing a lot of challenges at this point. As more and more operations start up within Michigan (a state without a license cap), the market continues to move toward oversaturation.

What some of the survey respondents had to say about the state of the industry:

“As a small-sized grower focusing on high-end quality, we are impacted greatly by falling retail prices. The rampant increase in licenses/grows caused a glut in the market that has yet to subside. We are focusing all our efforts on lowering costs to keep up with falling prices.”
[Grower]

“The industry is currently in a very fragile state. The testing numbers are overinflated for potency, customers are going back to the black market and the current pricing is not sustainable. In addition, new businesses for all areas are opening and believe there is enough capacity for everyone to make money.”
[Testing Facility]

“If 280E would go away, things would be much better. Limited licensing for cultivation and processing would also help.”
[Grower, Processor & Provisioning Center / Retailer]

To download your digital copy of the full report today, click here.

Chris Rosmarin manages the commercial audit practice in Grand Rapids and also leads the Firm’s cannabis practice. He provides audit and other assurance services, due diligence services and accounting advisory services to various companies both large and small.

Chris understands that clients expect and deserve a partner that is responsive, invested in the relationship and dedicated to helping them respond to their challenges. He strives to deliver on those expectations by meeting deadlines and being available and present throughout the relationship.

Rehmann is a professional advisory firm that provides accounting and assurance, business solutions and outsourcing, specialized consulting, and wealth management services. For over 80 years, Rehmann has provided forward-thinking solutions to our clients. With nearly 900 associates in Michigan, Ohio, and Florida, we are the momentum behind what’s possible. We focus on the business of business — allowing companies and individuals to focus on what makes them extraordinary. We help you look to the future with confidence, thanks to our unrivaled expertise and integrity. Through our partnerships with our clients and communities, we drive impact that empowers our world. Find us online at rehmann.com.

Member Blog: Guidance for Navigating an IRS Cannabis Audit

By Nolan Shutler, Director and State and Local Tax Practice Leader, MGO CPA

Operators and investors have long suspected that the IRS targets cannabis businesses for tax audits. And after last year’s disclosures from the agency (requested and published by MJBizDaily) we now know the reason is relatively simple: the IRS gets back 2X or more per hour of audit examination when compared to mainstream industries.

Now, with the Inflation Reduction Act’s infusion of $80 billion in funding over the next 10 years to ramp up enforcement activities, the IRS’ focus on cannabis companies is likely to intensify. Even if Federal legalization and/or descheduling of cannabis occurs, current and prior year’s returns will still be subject to IRC 280E, and the problems causing the high assessments aren’t going to go away overnight. Therefore, cannabis operators and investors are wise to level-up their tax compliance capabilities.

In this article, MGO CPA, lists out the stages of an IRS audit and provides key things to think about.

#1: Prepare for an audit BEFORE you hear from the IRS

There is a lot you can do before you get audited that will ease the process and help you arrive at a desirable conclusion. The good news is that “audit preparation” is really just implementing accounting and documentation best practices that will prove useful to the efficient administration of your business – even if you never get audited.

Retain financial documentation for at least 10 years

- Documents to save:
  - Financial statements
  - Point-of-sale transaction data
  - Invoices, receipts, and purchase orders
  - Credit card statements
  - Agreements
  - Cash logs
  - Payroll and contractor documentation
  - Rent payments, property tax bills, etc.

Establish proper accounting methods

- Your accounting and record-keeping procedures should align with Generally Accepted Accounting Principles (GAAP)

Maintain compliance with Federal tax law

- The best way to stay off the IRS’ radar is to pay your taxes on time. Not paying taxes is the BIGGEST IRS red flag that can trigger an audit.

Document Accounting Policies and Tax Positions

- When you file taxes, you’ll be doing calculations around IRC 280E, cost-of-goods sold (COGS), and determining “separate trades or business.” Be sure to document the reasoning behind all these decisions as any cannabis business will need to address these positions under audit.

#2: What to do when you get an audit notice

When you get the dreaded letter from the IRS the most important thing is not to panic! You’ll want to respond immediately and get your organization on track to meet the IRS’ requests.

Understand your situation

- There are several different types of audits of varying severity. You’ll want to dig into the details of the IRS letter to fully grasp what the IRS is asking.

Call the professionals

- It is important to reach out and get your cannabis accountant and/or legal representation involved as soon as possible. They should have previous experience working an IRS audit and will provide guidance to you and act as the primary point of contact.

Prepare documentation

- Now is when your hard work saving documentation pays off. Since it is all organized and available, it’ll be easy to meet the IRS’ demands. If you aren’t prepared, you’ll likely waste many hours digging up old receipts and other documents to justify the tax position in question.

#3: Navigating the audit

Once the audit begins in earnest, be as responsive and collaborative as possible. Establishing rapport and demonstrating “good faith” intention are essential to securing an optimal conclusion to the audit.

Let your qualified professional representation lead the way

- Let your cannabis accountant or lawyer manage most IRS communications to limit accidental exposure.

Show the IRS you are serious

- The IRS will want you to be collaborative. Anything else and you may be perceived as evasive. You want to provide as much of the requested documentation (as is practical) for the first meeting.

Don’t hide anything and bring up potential issues

- If you know a mistake has been made, it is best to be upfront about it and work collaboratively with the IRS to address it.

#4: Strategize for a fair outcome

As the audit proceeds your cannabis accountant and/or lawyer will have a good idea about the likely outcome. Stay in regular communication and be collaborative to ensure “good faith” consideration.

Choose a strategy

- As the shape of your assessment comes into view, you’ll want to actively cooperate with the IRS to achieve an optimal result.

Don’t “negotiate,” collaborate

- Landing on an assessment is not a “negotiation” but there may be some flexibility if you’ve established a strong relationship with the auditor. They are also motivated to close the audit and move on.

#5: Navigating Appeals and Tax Court

If the audit is completed and you feel the outcome is unmanageable or unfair, you may engage the appeals or tax court process.

Navigating appeals

- You have the right to appeal your auditor’s decision, but you want to make sure you have a very strong case built on a genuine dispute and/or valid legal argument.

U.S. Tax Court

- In the final say, you may choose to take your case to US Tax Court. It is important to note that the cannabis industry does not have a strong history in tax court decisions.

Final thoughts on cannabis tax audits

In the end, both you and the IRS are seeking a quick end to the audit process. By being up-front and collaborative you can save yourself a lot of wasted time (read: fees, penalties, and interest) and heartache. Being adversarial or pursuing frivolous or unsubstantiated arguments will just make your path more difficult.

As the cannabis industry evolves, and compliance functions become more sophisticated, hopefully, the IRS’ assessments and interest will wane. But in the meantime, remember that the IRS can still audit 2019 tax returns for another year (or longer, under certain circumstances). There may be significant risk tied up in an audit of those prior years (especially if you recently acquired the business). We highly recommend working with a dedicated cannabis accountant to proactively implement best practices retroactively and going-forward that will help you avoid getting audited in the first place. But in the unfortunate event of an audit, those same efforts will be helpful in securing an optimal outcome.

To see a more detailed, step-by-step approach to navigating an audit, download the MGO Cannabis IRS Audit Survival Guide.

Nolan Shutler, JD, is a director in MGO’s tax group focusing on tax controversy representation and general state and local tax (SALT) consulting. He also has experience in indirect tax, tax planning, corporate tax compliance, and real estate transactions for public, private, and closely held businesses. Nolan has the ability to leverage tax and business management acumen to understand and forge paths to optimal outcomes.

MGO has a dedicated cannabis accounting, audit, tax, and business advisory practice built to help cannabis operations survive and thrive in a competitive marketplace.

We help cannabis organizations of all sizes — from multi-state operators to pre-revenue startups — in every vertical and every market, establish optimal accounting processes, manage tax and regulatory compliance, perform audits to raise capital or engage in M&A, and everything else an operator needs to succeed.

Member Blog: Three Reasons Why Cannabis Business Owners Outsource Their Accounting

By LaKia Bourne and JoAnne Williams, Green Space Accounting

Every entrepreneur knows that staying ahead of business demands is challenging and time-consuming. Unless you have access to enough capital to hire a large team of dedicated employees, you’ll probably have to juggle a wide range of tasks. From promotional marketing to financial forecasting, it seems cannabis business owners always have their plates full.

With this being said, it’s important to understand that taking on too many tasks at once can have negative consequences. The quality of your work is likely to suffer, and you could end up making mistakes that impede your ability to drive growth. Not to mention, doing everything on your own can leave you feeling tired and burnt out.

Unlike companies in many other industries, the cannabis industry is closely regulated, meaning entrepreneurs have to conduct rigorous administrative work. Failure to stay on top of state regulations could result in reputational damage, lost revenue, and even the loss of your business.

So, what’s the solution? Whether you’re a grower, manufacturer, or dispensary owner, outsourcing your accounting burden could significantly lighten your workload. As well as ensuring your accounts are accurately maintained, enlisting the services of a reliable firm will free up time for other important jobs, such as product and vendor management, marketing and promotion, partnership-building, and much more.

Of course, you shouldn’t rely on the first accounting firm you stumble across to look after your financial affairs. As an entrepreneur in the cannabis industry, you must find an accounting firm with knowledge of the sector – and, of course, a non-judgmental approach to hemp and cannabis sales.

This article will explore three key ways working with a cannabis-oriented accounting firm could significantly improve business outcomes.

1. You’ll Maximize Profits by Knowing Your Numbers

To see long-term success in your business endeavors, it’s important to know your numbers forwards and backward. Your financial records tell the story of how your company has evolved from start to finish. If you don’t have a comprehensive understanding of your business’s story, you’re not getting the full picture.

By hiring an accountant, you can rest assured knowing that you have someone on your team to oversee all of your accounting and record-keeping initiatives. An accountant will keep track of tax costs, payroll expenses, retirement plan costs, office equipment purchases, marketing & promotional fees, and much more. This means you can avoid unnecessary expenses and ensure your business is as fiscally responsible as possible.

If you’re overspending, they’ll help you cut back and offer valuable advice about maximizing profits while fulfilling key business goals. If you’re prone to overspending or don’t feel confident with complex mathematics, hiring an accountant could represent one of your smartest business moves.

2. You’ll ensure your business remains compliant with state and federal laws

The rules and regulations surrounding cannabis sales can be confusing and hard to follow. While many states have legalized the sale of medical marijuana, the substance remains a class 1 substance under federal drug laws. Because of this, there is uncertainty surrounding whether banks should service clients working in the cannabis industry and how to handle the Internal Revenue Service’s (IRS) tax regulations surrounding “illicit substances.”

By selecting a skilled accountant with knowledge of the cannabis industry, you can avoid such confusion and avoid penalization. By hiring the services of a company like Green Space Accounting, you can ensure the following:

That setting up your bank accountant is quick and easy: An accountant will know which documents to bring when setting up a new bank account, including your marijuana license, information about your sales tracking system, legal documents about operating agreements, Employee Identification Numbers (EINs), Articles of Incorporation, and more. Failure to present such documents could slow down the process.
That you remain compliant with tax code 280E: This rule states that taxpayers cannot claim deductible expenses related to the sale of illicit substances such as cannabis. Given that cannabis remains illegal on a federal level, it can be tricky to get around this law and make the most of business-related write-offs. Fortunately, you can write off expenses related to the cost of goods sold (COGS), an exception that your accountant will help you navigate to ensure you hang on to as much profit as possible.
That you maintain a healthy relationship with your bank: Hiring an accountant will help you maintain an open and honest relationship with your bank, as they will know precise details about your incoming and outgoing expenses. Failure to provide accurate numbers or meet regularly to discuss the details of your accounts could make your business seem untrustworthy. In the long term, this could lead to legal issues or the closing of your account.

3. You’ll have time to focus on core business tasks

One of the primary reasons entrepreneurs outsource tasks is to make time for the creative aspects of growing a business. Driving business growth requires much more than smooth day-to-day operations and well-maintained accounts. It also requires the ability and motivation to set your business apart from competitors and present customers with dynamic new offerings.

Doing the creative work involved with entrepreneurialism is tricky if you’re faced with a pile of administrative tasks. By enlisting the help of a professional accounting firm, you’ll enhance the quality of your business’s accounting work while freeing up plenty of time for other tasks, such as:

Expanding your product line or service offering
Selling your products across new platforms
Investing in customer acquisition
Conducting industry research
Researching new business tools
Drawing up a growth plan
Generating new business models

The Bottom Line

Managing the financial side of your business can be daunting, complicated, and most of all: stressful. If you own a business in the cannabis space, it’s wise to consider outsourcing your accounting initiatives to an industry professional.

Whether you are a start-up, a growing business, or a multi-state operator, specialized firms like Green Space Accounting can help you with intimate knowledge of cannabis rules and regulations.

Green Space Accounting is one of the leading cannabis accounting, tax, and advisory firms in North America. Our client service philosophy has helped forge an excellent working relationship with dispensaries, grows and ancillary businesses in the space. From accounting and tax services to business consulting and financial planning, we possess the knowledge and experience needed to assist you with your current and future needs.

LaKia Bourne has 20+ years of experience as an accomplished and trusted accounting professional. As a women-owned and minority-owned accounting firm, LaKia has a passion for working with other small businesses and engaging in the local community, and her values drive her overall career goals and mission to uplift businesses and encourage financial competency through reliable accounting services.

With her exceptional credentials and years of accounting experience, JoAnne Williams is a leader in every area of accounting and business consulting. Driven by a deep commitment to client satisfaction, JoAnne has helped non-profits and businesses of all sizes across various industries. Client satisfaction is her number one goal, making her a leader in every area of accounting and business consultation.

Member Blog: 9 Standard Operating Procedures Every Dispensary Should Have

by Tommy Truong, Director of Partnerships at KayaPush

Standard Operating Procedures (SOPs) are the documents, protocols, systems, and procedures that your cannabis dispensary should have in place to manage day-to-day operations.

SOPs help dispensaries in many ways: From optimizing proper employee management systems such as dispensary payroll and onboarding to ensuring compliance with regulations are consistently met, and more.

What are the top dispensary SOPs to use?

There are hundreds of dispensary SOPs that could be created, and they should constantly be evolving as your store grows.

Overall the goal of dispensary SOPs is to increase efficiency and help you become more profitable in the long run. That being said, these are the 9 types of dispensary SOPs we recommend you start with as you build and scale your dispensary store.

1 – Opening & closing procedures and SOPs

All brick and mortar retail stores should have SOPs in place for opening and closing the store. But especially stores that require high-security measures like cannabis retail stores.

Opening and closing checklists for this special breed should include the following:

Opening checklist:

Vibe check: Turn on lights, music, temperature, put out signs, clean.
Check for any signs of a break-in or forced entry every morning.
Make sure that all products in the display and stores are accounted for.
Put away any orders.
Review inventory.
Turn on and start up all software systems.
Ensure you are in dress code (if applicable)

End of day checklist:

Check that the security cameras are working.
Lock all the doors and display cabinets.
Check and report any obvious security threats/ logbook.
Generate sales and compliance reports.
Cash-out protocols.
Closing the cash registers and POS system.
Turn off lights, music, bring in signs.
Clean and sanitize the store.
Lock all doors and perform security checks.

2 – Customer check-in procedures and SOPs

Many cannabis dispensaries violate their customer check-in procedures and end up facing fines and license suspensions by regulators. Due to this, it is crucial that you implement customer check-in SOPs to ensure compliance.

Customer check-in procedures include:

Proper budtender training on protocols beforehand.
Screen every customer entering the store to ensure they are of legal age.
Ensure customers have a valid license to purchase cannabis.
Scan the customer’s ID to make sure it is genuine and valid.
Check the customer’s age, and enter these details into your customer database or tracking system.
Check the system to ensure the customer has not already gone over their purchasing limit at a different store.
Follow proper serving protocols.

3 – Sales transaction process and SOPs

Sales transaction processes are crucial to the business because this is how the company generates its revenues. Keeping track of these is key. Do you have the following sales SOPs?

Sales transaction processes could include:

Greeter procedures (first customer contact),
Boxing and packing procedures.
Cashier procedures.
Answering customer product questions.
Recording product sales information into tracking systems.
Recording shipping information.
Processing various forms of payment.
Gathering sales tax to submit.

It would help if you integrated your SOPs with the technology you’re using, like cannabis-compliant POS systems.

4 – Delivery procedures and SOPs

Cannabis deliveries can get complicated as they tend to include strict guidelines around logistics. This is why it’s essential there are SOPs built around these logistics.

Delivery procedures could include:

Packaging and shipping guidelines with regards to the different types of products.
Procedures in place to pack and mark fragile deliveries — like glass bongs — clearly to ensure safe delivery.
Details and SOPs around third-party deliveries.
Sop’s around management tools or software.
Inputting data into the tracking software or POS system.
Proper accounting and documentation of the aforementioned.

5 – Security, accounting, and cash management protocols and SOPs

Cannabis retail stores face many challenges when storing and moving cash from the store to the bank. Since dispensaries are not legal at the federal level in the United States of America, they are limited in the services they can receive from banks. As a result of those limitations, dispensaries struggle with large amounts of cash being stored on the dispensary’s premises, so tight SOPs surrounding how to navigate these challenges are crucial.

Security and cash management protocols could include:

What employees are allowed in sensitive areas like stores and cash safes.
How long to keep security camera recordings and how to report a robbery.
How often armored trucks can pick up cash.
Who gives the cash to the trucks.
How the cash is stored while at the dispensary.
Who is keeping track of accounting and line items?
Who is keeping track of inventory management?
How are taxes being filed and accounted for, and by who?

6 – Track-and-trace & inventory management and SOPs

Track and Trace SOPs are important for every cannabis dispensary. In order to comply with the regulations, you have to adopt track and trace SOPs into your inventory management system.

These track and trace SOPs should cover:

Inventory management processes like procurement.
Transportation to store.
Product transfers.
Audits.
Track and trace software procedures that comply with local regulations.

Given how important track and trace SOPs are for compliance, you should automate this process if possible. Track-and-trace automation software can help you define the roles for each activity and integrate compliance checks.

7 – Quality assessment SOPs.

Quality assessment SOPs will make sure your product is up to the required standard by the regulators and that you are not violating any laws over what ingredients can be included in your products and how they are made. Failure to comply with these SOPs or pass a quality assessment could leave a dispensary owner at risk of losing their license.

Quality assessment SOPs could include:

Purchasing products from verified sellers.
Ensuring products are tagged within tracking systems.
Ensuring you are selling products that you can legally sell within your geographic location.
Product feedback requests.

8 – Product recalls and emergencies and SOPs

Product recall SOPs will come into play when a defective product needs to be recalled from the market. This can be stressful for the team as it will lead to customers complaining, and management concerned about losses being recorded. One of the most valuable assets to have in this situation would be SOPs that guide your team on how to act in this situation without losing their cool or professionalism.

Recall SOPs could be:

How /who contacts purchasers.
Who is on top of product updates (do you have a compliance manager?).
Product recall script.

9 – Employee Management SOPs

Previously, these SOPs have been focused on inventory and store management, however, managing your staff is another large part of any dispensary operation.

When managing your staff it is recommended that you use employee management software to alleviate the stress of manually running operations such as dispensary payroll, scheduling, onboarding, or time clock adjustments.

Using software alone can eliminate the need for some of these SOPs but if you do choose to go the manual route you should have SOPs for the following procedures.

Employee management SOPs could be:

How do you onboard employees?
Who manages their forms and licenses?
Who writes and manages the schedules?
How do employees swap shifts?
How do staff clock into shifts?
How runs payroll?
How are staff paid?
How are taxes paid?
How are employees’ performances reviewed, and by who?

Conclusion

These are the major SOPs that we believe you should have in place before opening or scaling, but don’t forget that enforcing them is just as crucial as implementing them!

The best way to run a compliant, systematic, and streamlined dispensary is to use great technology to help you succeed!

Consider using a project management tool to help you stay on top of all your tasks, a people management solution for payroll, HR, time tracking, and scheduling, and a dispensary POS solution that integrates with track and trace technology and people management solution for the best results. By using the tools paired with standard operating procedures your dispensary is sure to succeed.

Author Tommy Truong is the Director of Partnerships at KayaPush; the cannabis software helping dispensary owners manage their employee HR, scheduling, and payroll. KayaPush also integrates with leading dispensary POS systems. Tommy loves hot sauce, fried chicken, and running with his Boston terriers.

Member Blog: How To Choose A Point Of Sale System For Your Cannabis Dispensary

by Gary Cohen, Cova Software

The Canadian cannabis industry has witnessed great success since federal legalization in 2018. In the United States, 35 states authorize the use of medical cannabis, and 15 of them allow recreational marijuana consumption. Potential dispensary owners should bear in mind that the cannabis industry operates under strict laws and regulations that set this business apart from conventional retail operations. A robust point-of-sale (POS) system is one of the most important tools that a dispensary owner must invest in. However, it’s also crucial to remember that not all POS systems are created equal, and a cannabis industry-specific POS will always be a better choice than a generic POS. Following are some of the most important criteria that you should consider when selecting a cannabis POS:

Product Design and UX

A cannabis-specific POS created specifically to address the nuances and pain points of cannabis businesses is your best bet. A well-designed system helps you quickly process actual sales and facilitate better inventory management. An intuitive and easy-to-use system boosts the performance of your budtenders by making product information and customer data available to them on the fly, thus elevating the overall customer experience as well.

Compliance and Traceability

Compliance is the number one administrative burden dispensaries have to deal with because of the stringent laws and scrutiny the cannabis industry has to undergo. A well-executed cannabis-specific POS system empowers owners to stay compliant at every stage of their business. Most states in the US require tracking of inventory and sales through a state-mandated traceability system such as Metrc or BioTrack. Even among cannabis POS systems, the level of integration with the government tracking system varies, with many offering only batch reporting at the end of the day. Choose a POS that automatically sends every reported transaction in real-time to the tracking system, thus helping you minimize human errors and always stay fully compliant. Many legal cannabis markets also require digital age verification scanners for dispensaries to scan IDs at the point of entry. So ensure that your POS provider provides all these functionalities.

Reliability and Data Privacy

There have been instances of generic POS crashing when used by cannabis stores. Even popular cannabis-specific POS systems have had recurring performance issues. Learn more about each of the POS systems in consideration by reading reviews and customer stories to figure out how reliable they are. A cloud-based POS system entails storing data on remote servers operated and maintained by a third party. It poses a lower technical barrier to entry and is definitely a cost-effective solution, but you must ensure that your POS provider protects all your dispensary and customer data, as per government regulations.

Inventory Management and Reporting

A well-designed POS system offers inventory valuation and costing methods integrated into your POS to streamline your inventory management. A dispensary-specific POS will provide you the sales trends data you need to most accurately judge the weights, strains, and quantity of products you need to stock up. Many states in the U.S. expect you to have a clear paper trail on every legally grown gram of cannabis, from seed to sale, and your POS system must have efficient reporting capabilities for you to report that. Powerful analytics and a customizable mobile reporting dashboard will enable you to monitor the health of your store and submit reports in real-time from anywhere.

Hardware and Software Integration

How your dispensary POS integrates with your other services and technology is another factor. Consider all the physical hardware that is being used in various sections of your dispensary and whether the POS provider can sync them with its software. You will have to integrate your accounting, HR, workforce, and security software solutions with your POS as well to ensure smooth operations. In a fast-evolving industry, new platforms and innovative solutions can hit the market almost overnight, but you must only select a POS that seamlessly integrates just not with your hardware and software but also with online marketplaces like Leafly, Weedmaps, and Dutchie so that you can offer easy pickup and delivery services to your customers as well.

Product Development and Support

A cannabis-specific POS company that has extensive experience in the industry will remain an authority on the latest developments, and will regularly update its product to stay ahead of regulatory changes. Find out about the after-sales customer support system they have in place- many companies will help you launch quickly but will disappear when problems may arise and leave you to tackle software glitches on your own. Also, choose a dedicated system for your retail business that specializes in the cannabis sector you operate in and is not an all-in-one solution.

Scalability and Cost of Ownership

An enterprise-level POS allows you to manage stock across all stores, set up location-level pricing, perform bulk editing, and even assign granular employee security permissions. It gives you complete visibility and full corporate control of your business with centralized reporting- accessible from anywhere, on any device. A POS built for multi-location brands has a robust platform with open APIs to enable flexible, plug-and-play integrations for easy scalability. Choose a POS provider that has the cannabis industry expertise and the ability to grow with you. Even if you may have to pay a bit more upfront, you will benefit from the long-term ROI and reduce your overall cost of ownership.

This is not an exhaustive list of points to consider. Download your free copy of ‘10 things to consider when choosing a point of sale system for your cannabis dispensary’ guide by Cova Software, which will offer you comprehensive information and help you choose the right POS.

Gary Cohen is the CEO of Cova Software, the fastest growing technology brand in the cannabis industry. Cohen’s focus has been driving the company’s overall strategy, including its vision, go-to-market plan, and strategic development. Since joining the cannabis industry in 2016 and launching Cova commercially in 4q17, Cohen has led Cova to dominate the enterprise sector for dispensary Point of Sale, while forging client relationships with hundreds of single-store retailers across North America.

Cova designs and builds retail software solutions specifically for the cannabis industry. Our technology platform currently powers 20,000 retail stores and over 1000 cannabis dispensaries with virtually no downtime, even on 4/20, making us the most robust and reliable cannabis POS system available on the market. Our point of sale system and its suite of digital solutions make complex operations simple, so retailers can stay compliant, streamline their operations and deliver an amazing experience always.

Member Blog: Five Reasons to Use a High-Speed Smart Safe for Your Cannabis Business

by Bobby Combs, Kisan America Corporation

There are many challenges to running a successful cannabis business, including finding the correct product to sell, hiring and training qualified budtenders, dealing with state regulations, accepting cash payment, and depositing cash into the limited number of banks and credit unions that accept cannabis business. Although many economists and magazines believe cash is going away with the recent introduction of digital and app-style payment solutions, in the cannabis space, cash is king. Cash payment is really the only form of payment for many states except for the rare occasions an app can be used. The questions that have been asked for years are what does the cannabis industry do with the cash payments they receive, how is the cash counted and secured, and how can it be deposited into the business bank account?

Cannabis businesses are always looking for ways to effectively count cash and make deposits in their retail locations while simultaneously trying to lower labor cost, increase accountability and productivity, and reduce risk. Traditional deposit preparation methods have not drastically evolved in the last 50+ years. A budtender will pull their till from the drawer and count down to the starting till amount, leaving the remaining funds as the deposit. In addition, it is also common practice for businesses to incorporate dual authentication practices, essentially double counting, or counting in the presence of a witness to ensure the count is correct. While dual authentication can give the impression of good quality control and insurance, unfortunately, it raises the cost of counting the deposit inside the store by tying up at least two employees’ time and attention on trivial cash counting responsibilities. Granted the store manager is a salaried employee, but the downside is the store manager is managing for time to count cash instead of the daily sales, however, there is a much better, faster, and more accurate way to make deposits in the cannabis industry.

A high-speed smart safe is faster than counting by hand and a more secure way to deliver cash deposits to the select banks. The reason is, at the end of the night, the procedure of making a deposit at the bank location is a dangerous one and is why many organizations will have utilized the same type of dual authentication to drive to the bank to make the deposit in the night drop box. Again, there is an illusion of safety with having two people make a deposit in the night drop. Here are five of the many reasons to use a high-speed smart safe in a cannabis business:

Accountability:

The smart safe provides individual user accountability, by capturing critical transactional data: who is making a deposit, the date and time stamp of the transaction, and the total value of the deposit. Individual user accountability allows customers to abandon the need to deploy dual authentication practices, allowing managers to reallocate their time and attention towards revenue-building responsibilities: supervising employees, training employees, inventory, customer service, etc.

Remote Visibility:

An online dashboard provides detailed transaction statements, trend/behavior tracking potential, and simplified reconciliation reporting. Reports can be accessed online from any device, downloaded/exported, and shared across your network, which improves the efficiency of accounting and loss prevention departments. The online dashboard will have different reports ranging from daily deposit, transactional history for the day, and a monthly deposit report for easy reconciliation.

Deposit Accuracy:

Incorporated bill validators will count and authenticate each note before securing funds into their final depository, thus creating a closed-loop system-cash is deposited, not dispensed.

Security of Funds:

By incorporating drop policies that align with the placement of the cash management device, customers can achieve an efficient and secure deposit process, but also reduce unnecessary cash exposure that may accumulate within a till drawer or within the back office. Smart safes are designed to only allow the Cash In Transit Company to pick up all deposited cash thus reducing the risk of theft.

Provisional Credit:

Provisional Credit is an online credit to the business bank account prior to the removal and secondary validation of funds offsite. In conjunction with your banking relationship, a smart safe has the ability to transmit a daily electronic file to the bank where said bank will give credit on the day’s deposit.

With the proper smart safe in place, it will allow cannabis business owners to manage the cash deposits more efficiently and reduce risk inside the location, and to reduce lower/short deposits. The smart safe gives each owner the ability to log in to the online dashboard from any device connected to the internet and see all the transactions from all smart safes across all their cannabis locations. Just imagine having the ability to see all deposits and transaction history in one convenient place to allow for better transparency and reconciliation. With the CARES Act being introduced and voted on, if passed, it would afford for more banking partners and offer more options for the smart safe to send provisional credit to your bank.

Bobby Combs is National Account Executive at Kisan America Corporation. He has over 6 years of experience in the cash automation industry and utilizing previous experience to formulate best practices and redesign cash handling procedures to maximize efficiency and reduce risk and labor. Kisan provides cash management solutions through smart banknote deposit and sorting systems.

Member Spotlight: RoseRyan

In this month’s member spotlight we caught up with Maureen Ryan of RoseRyan, a finance and accounting consulting firm based in Silicon Valley that officially launched its cannabis solution this April. Finance is the language of business, and her firm, since 1993, has helped hundreds of companies get their financial house in order, efficiently and effectively, so they can go further, faster. Passionate about women in business and excited for the racial equity that she sees in the cannabis field, Maureen believes her firm’s best practices and proven approach are a match for many emerging growth companies in our field. To learn more about finance fundamentals, tune into our conversation with her colleagues that we hosted on the NCIA podcast on June 12.

Cannabis Industry Sector:
Finance & Accounting for emerging growth companies and large enterprises

NCIA Sponsoring Member Since:
August 2016

Tell me a bit about your background and why you launched your company?

My career at RoseRyan has mostly centered around the finance needs of fast-moving tech companies. That changed a couple of years ago after working with a cannabis biotech company and loving it. Around the same time, our consulting firm saw signs that recreational cannabis was headed for legalization in California, and it was then that we realized many cannabis companies of all sizes were going to need the kind of professional finance and accounting support that we offer.

Our focus on the high tech and life sciences markets here in Silicon Valley has put us in tune with the needs of companies that move rapidly and that need to work with government agencies to get their products market ready — much like the cannabis industry. We’ve responded with a specialized solution that will take cannabis companies further, faster.

What unique value does your company offer to the cannabis industry?

From working with fast-moving Silicon Valley companies for 25 years now, we’ve been able to apply our expertise and best practices to the cannabis market quickly and easily.

In addition, we know what investors want. Whether they are private equity or venture capital players, investors want a rational strategic plan, timely, reliable and accurate financials and a solid budgeting framework, just to name a few. Given the current cannabis environment with Canada, these expectations have become even more critical for companies to meet.

From working with over 275 life sciences companies through the years, we also know how to relate to government agencies, like the FDA. And from working with over 325 tech companies to date, we have experiences with helping companies scale fast, in a variety of business situations.

In a nutshell, we help cannabis companies get their financial house in order. Finance is the language of business, so companies absolutely need to get it right. No matter where they are in the business lifecycle — when starting up, growing at high velocity, tackling a tricky transaction or maturing as an ongoing enterprise—cannabis companies need to have their finance function tightly managed for ultimate success.

Our Cannabis Solution offers four levels of finance: 1) a rapid diagnostic review, 2) an outsourced CFO and accounting team to strategize and set up all the essential financial systems and processes, 3) partner referrals to build up or build out a trusted ecosystem, and 4) financial prep for potential merger and acquisition transactions.

Is cannabis that much different when it comes to finance and accounting?

Frankly, no. Let’s face it, when companies are starting out, their books are typically a mess, whether you’re talking about cannabis companies or companies in any other industry. Business leaders are typically not focused on their finance operations — they have so many other parts of the business to attend to, and we get that.

Many of the same business situations that happen to tech and life sciences companies are happening to those in the cannabis market. They’re dealing in the early stage with worries about survival and running on fumes, before they’re able to fundraise and determine their top investments for growth. When the business reaches velocity or even hypergrowth, they have careful decisions to make. Opportunities for a major transformation can spring up, like an IPO or a merger or acquisition. Every industry has their nuances, but many of the business situations that CFOs and accounting teams face are similar in nature.

Cannabis companies have a unique responsibility to shape this growing industry to be socially responsible and advocate for it to be treated fairly. How does your company help work toward that goal for the greater good of the cannabis industry?

We recognize that women and people of color are heavily involved in this industry, which we love. As a woman-owned business, we support and promote the further advancement of diversity. We also find that working with cannabis companies to professionalize their financial operations helps the entire industry, as it creates a stronger, leveled up playing field for their business interactions. A strong finance function is essential for cannabis companies to raise funds. It’s imperative for their valuation, should an IPO, merger or acquisition transaction arise in the future. Accurate financials and tight operations are a direct reflection on the experience of the management team and, to a larger extent, the industry as a whole.

What kind of challenges do you face in the industry and what solutions would you like to see?

If a cannabis company lacks best practices in their essential finance operations, they’re going to run into trouble when dealing with hypergrowth situations. It happens with founders in every field—they’re passionate about their businesses yet many struggle to keep the business running at today’s standards. This is a challenge for any cannabis company that has blinders on and only seeks advice from other cannabis companies or experts who focus on just one industry.

What’s needed is a crystal clear understanding of the critical aspects of a company’s finances, or strategic decisions will be off-base because they don’t have accurate data on hand. Cannabis companies also risk a slowdown if they’re missing a key partner at a critical time, such as valuation, tax, marketing or legal expertise.

We’d love to see cannabis companies absorb the best practices and talent from other explosive-growth industries that’s tailored to meet their exact needs. No need to pave a new trail when one exists already.

Why did you join NCIA? What’s the best part about being a member?

We joined NCIA to be part of the industry-leading association that is dedicated to the industry’s success. NCIA brings key players together, inspires community, shares best practices and keeps us up to date on the industry trends and news. We also like that NCIA is an active investor in cannabis companies. By being part of NCIA, we can stay informed and play a vital role in this burgeoning industry.

What’s it take to be successful in your business? In addition to the June podcast with NCIA on finance fundamentals with RoseRyan, you can check out the firm’s webinar for California-based businesses here: http://bit.ly/thepotthickens

Member Blog: How to Build a Financial Backbone for Your Cannabis Company

By Maureen Ryan and Chris Vane, RoseRyan

As cannabis laws liberalize across the nation, entrepreneurs and emerging companies are racing to make their mark and stake their claim in the market. The road to legitimacy goes beyond votes, however—it requires companies wanting to play a significant role in this market to grow, attract investors, and constantly prove their credibility and worth.

A focus on the finance and accounting side of the business will make a difference in setting apart companies as the competition continues to heat up. Here are five key ways to elevate as a qualified, proficient operation.

View financial discipline as a necessity. Financial statements are the language of business. Accurate and timely financial reports don’t tell you how to run the business but show you how well it’s doing. Which product lines are turning a profit? What do the trends tell you? How does cash flow look over the next couple of months—and year? Are you properly accounting for all costs to accurately track margins?

The questions are many, and only with a solid accounting foundation to provide management with the answers you need—and reliable financial statements to tell the story—can you confidently move forward with decision-making.

Bolster your internal controls. Here’s a scary thought: 75% of companies experience fraud, and in most cases, the biggest fraud threat comes from within. In this industry, the threats are even higher as long as issues at the federal level keep companies mostly cash-based operations.

To ensure checks and balances exist, a working set of internal controls is critical. For instance, do you have adequate segregation of duties, or does one person have a hand in everything? Do you perform regular cycle counts in inventory? Your internal controls can ensure that you’re keeping tabs on critical items—a must for meeting the evolving tracking and tracing requirements set by the cities, counties, and states where you do business. The controls can be simple, designed for the size of your company, but be sure they can scale as you grow.

Be ready for investors. Even if you’re nowhere near a funding round or an exit seems a lifetime away, it’s always smart thinking to factor in what investors want. They’ll want to know your history and to see whether the business is well run. Reliable financial statements are one way to get their attention. You’ll also need to show them key performance metrics, specific to your business, that you’ve tracked over time.

They’ll be most interested in signs of financial discipline that you’ve ideally ingrained in the business. This discipline reflects favorably on management in any industry and drives home management’s capabilities to investors.

Be nimble. Successful companies look to today (day-to-day operations), tomorrow (what’s needed in the next 12-18 months) and the future (3-5 years). Their strategic planning efforts make room for pivoting for the unexpected. By making sure their financial plans are in sync with other operational plans, companies can pull off fast moves smoothly with full awareness of how one change impacts another part of the business and the company as a whole. Being nimble allows you to pivot, as necessary, when market forces out of your control (new regulation or a sudden surge in orders) require you to consider alternative moves.

Calibrate for rapid growth. Plot out the critical resources you’ll need as you progress through the phases of your business. This means striking the right balance with the people you hire and outsource, the processes you adopt, and systems you put in place.

It’s especially important to master this skill when the company is in rapid growth mode and looking to ramp up. It may be time for a big upgrade, for instance, if your current systems can’t track inventory. Dealing with an overstretched team? Expanding too quickly could alleviate the issue, but if revenue doesn’t pan out as expected, you could end up in a bind.

Get Ahead of the 8 Ball

As finance and accounting consultants who help businesses navigate the ever-changing environment in California, we know that both landmines and opportunities await businesses in the legal cannabis market. Cannabis companies are preparing for the real possibility of hyper-growth and increased competition but need to tread carefully to avoid burning out before that day comes.

What’s going to set your company apart from every new competitor that muscles its way in? Financial discipline—companies need to step up their game to put themselves on the same playing field where others already are and to stay competitive as newcomers enter the market. If done correctly, your financial infrastructure will help to guide your decisions, tell your story to those who evaluate your growth capital needs, and scale with you. Prioritize it if you want a prominent spot on the playing field.

Maureen Ryan, vice president, heads up business development at finance and accounting consulting firm RoseRyan. From the early startup to the large enterprise, she has seen the emotional rollercoaster of finance challenges at cannabis businesses, tech companies and other fast-paced organizations. She can be reached at mryan@roseryan.com.

Chris Vane is a director at RoseRyan, where he leads the development of the firm’s cleantech and high tech practices. He helps fast-moving companies calm the chaos with precision finance at any stage. He can be reached at cvane@roseryan.com.