The cannabis industry is one of the fastest-growing industries in the U.S.; make sure yours is compliant.
The Accounting Treatment of Hemp
It is unfortunate that many consumers equate hemp with an illegal substance. The reality is that although the plants are similar, hemp is agriculturally defined as containing 3% or less of tetrahydrocannabinol (THC), the psychoactive component of cannabis. This means hemp is a distinctly different product from cannabis.
This post explores the differences between cannabis and hemp and how a professional cannabis accounting firm can help your business distinguish between the two.
Because hemp is not cannabis, it only needs to follow traditional agricultural accounting methods and standards.
Your business can’t afford to be led by inaccuracies and assumptions. Call Dope today and we can make sure your hemp business is on the right track.
The Legality of Hemp Businesses
Many states and localities have worked to establish the legal differentiation between hemp and cannabis. Hemp didn’t get significant differentiation until the 2018 Farm Bill removed hemp from Schedule 1 controlled substance status. This made hemp—and any products made from it—a legal industrial product pending the release of USDA-approved plans from individual states.
The Accounting Difference Between Hemp and Marijuana
The similarities between marijuana and hemp accounting parallel the accounting and financial record-keeping of any business. All businesses require standard bookkeeping procedures, financial reporting, and adherence to generally accepted accounting principles. They require tax planning and filing tax returns and generally are treated like any business.
Traditional cannabis accounting, however, requires additional focus on compliance, record keeping, financial compliance, and tax limitations. Marijuana business operations require conformance to Internal Revenue Code §280E. This limits businesses that produce or sell marijuana from deducting ordinary and business expenses for federal income tax purposes. Marijuana businesses are also limited by the costs they can attribute to inventory. Marijuana businesses are excluded from any federal farming or agriculture tax incentives or grants.
Because hemp is not cannabis, it only needs to follow traditional agricultural accounting methods and standards. There is a small caveat that hemp businesses must keep accurate records that prove their products have less than 3% THC and are therefore hemp. Hemp farmers may also be operating under state or local agricultural regulations that they must meet.
Dope Consulting Will Make Sure Your Business Stays Compliant
If your business works with hemp products, a professional accountant is an indispensable asset. As a business owner, you need to make sure all your financial matters are being handled in a correct and professional manner. This is especially true if your business is even remotely associated with cannabis or hemp. When laws surround a substance that is illegal in many respects, all elements of related businesses have to be managed with care to prevent any surprises.
Our firm focuses on providing compliant accounting practices for both hemp and marijuana businesses. We have helped hundreds of businesses navigate the complex and sometimes contradictory laws and regulations in the hemp and cannabis industries.