The Cannabis Industry Accounting and Appraisal Guide

Description

Introduction

The cannabis industry is undoubtedly the fastest-growing industry in the United States and has created one of the greatest business opportunities of the 21st century. In 2016, sales of legal cannabis reached nearly $6.7 billion. Colorado alone hit the $1.3 billion mark. Arcview Market Research projects sales of legal cannabis products in North America will increase by at a compound annual growth rate of 25%—reaching $20.2 billion—by 2021. , Brenden Kennedy, co-founder of Privateer Holdings, estimates the international market will reach $100 billion in ten years.

Tom Adams of Arcview states:
The only consumer industry categories I’ve seen reach $5 billion in annual spending and then post anything like 25% compound annual growth in the next five years are cable television (19%) in the 1990’s and the broadband internet (29%) in the 2000’s.

It all began with California—the 7th largest economy in the world—when its citizens adopted Proposition 215 in 1996 which permitted the medical use of cannabis in the state. As of mid-2017, 29 states have legalized medical use, and eight states legalized recreational use, bringing the total to 31 states that allow legal use of cannabis. In fact, 95 percent of the U.S. population lives in a state with legal access to some form of cannabis, which includes the thirteen states where cannabinoid (CBD) oil is legal.

With so many states legalizing various aspects of cannabis, it isn’t surprising that an October 2016 Gallup poll shows that 60% of Americans support legalized marijuana. The survey also indicates in the United States 57 percent of adults believe marijuana use should be legal, whereas 37 percent believe it should be illegal. A decade ago, 32 percent of adults favored legalization and 60 percent opposed legalization.

The cannabis industry is booming, not only for the growers, producers, and sellers of cannabis but also for ancillary businesses such as software, lighting, packaging, security, growing products, accessories, and banking. Every type of cannabis business has unique characteristics that accountants and business appraisers should consider. For example, there is a growing amount of scrutiny related to the edibles segment concerning the consistency of portion potency, labeling, and related issues. There is also an increasing focus on the use of pesticides and fertilizers, resulting in the need for independent testing labs in support of the regulatory agencies that oversee license holders.

The cannabis industry is constantly evolving. There are varying and often conflicting rules at the federal, state, city, and county levels. Every state requires a license, but obtaining those licenses can be a very different process, depending on where you are, and the costs can be quite different. The complexities regarding this industry require the use of knowledgeable professionals, who are adequately trained and familiar with industry trends and protocols. As Certified Public Accountants who work regularly with a wide range of business and clients, nothing has come close to the intellectual challenges encountered when addressing issues and concerns in this niche.

The cannabis industry may be outside of the comfort zone for accountants, lawyers, valuation experts, consultants and potential investors, yet it can also open doors to a new client group that up until several years ago didn’t exist. The purpose of the Cannabis Industry Accounting and Appraisal Guide is to provide useful information about the unique financial aspects and intricacies related to businesses operating in the licensed and regulated cannabis industry.

The guide also presents everything a cannabis business owner needs to know about choosing a business structure; basic accounting; setting up an accounting system, taxes, how to avoid an audit, the basics of valuation, and how to build value into your business for the future.

We will supplement this guide on a regular basis on our website providing subscribers with value-added benefits, including updates on the latest developments in cannabis accounting and tax compliance, practical tools and guidance to be used for bookkeeping and accounting. In the medium to long-term, we hope to provide access to proprietary market data on industry transactions unavailable elsewhere. (www.cannavaluation.com)

In the meantime, enjoy and learn from The Cannabis Industry Accounting and Appraisal Guide and about this exciting, relatively new, and rapidly evolving industry.

Ships July 2018