Legal cannabis in Canada is booming. In fact, Statistics Canada reported cannabis sales reaching an all-time monthly high nationally, at just over $270 million in October of 2020. Given the rapid financial growth of the Canadian cannabis industry since it was legalized nationwide in October 2018, retail businesses selling cannabis need to manage their finances expertly. With this in mind, those hoping to enter cannabis retail must ensure accounting best practices are in place.
With the national cannabis industry continuing to grow, any retail business selling cannabis products should always prioritize their long-term financial sustainability, and how to build a financial model allowing it to be viable. Here are five tips worth keeping in mind when taking care of accounting processes in a cannabis retail business.
1. Build a Plan For the Accounting Processes of Your Cannabis Retail Business
When a cannabis retail company is still very new and developing, they may not have an established, robust accounting system established to tackle different financial tasks. Furthermore, these companies may not even have an accounting professional on staff dedicated to handling these processes. As much as legal cannabis may still be a fairly novel industry in Canada, it nonetheless remains important to draft up a plan for how the company is going to manage its finances.
Hiring a professional who has expertise and prior experience in accounting, bookkeeping, and preparing financial statements can make such a plan more detailed and effective. Companies can also benefit from the use of accounting software, such as QuickBooks. Regardless, an accounting strategy should be developed as early as possible, to prevent future issues with taxes and auditing.
2. Make Sure an Efficient Inventory Management Solution Is in Place
Anyone studying cannabis operations with the aim of obtaining their cannabis dispensary licence is likely to learn about inventory management during their studies. A well-developed inventory management solution helps companies maintain their stock, keep more of their finances, and make their clients happier. Having a strategy that efficiently and accurately provides details on inventory can provide benefits for companies such as:
- Helping the business plan their inventory needs based on sales trends
- Understanding exactly which products are needed to avoid shortages
- Minimizing waste from overstocking inventory
- Avoiding losing money from excess inventory
- Preventing client dissatisfaction from insufficient stock
- Improving their ability to control operational costs
A cannabis retail business can complete their inventory tracking processes manually, or via software that can monitor inventory and produce records and reports.
3. Funding: Why It Goes a Long Way, and How to Secure It For Your Business
Given how new an industry legal cannabis is in Canada, a cannabis retail business may need external funding in order to successfully launch. Therefore, many cannabis businesses will need to find stakeholders and investors who can help funnel money into the company. More specifically, it’s important to work alongside a professional who can give the financial advice to help the business thrive.
Without the necessary finances, no cannabis retail business can get off the ground, let alone succeed. Sufficient funding must be secured, and financial statements should be prepared beforehand by the business to investors in order to assure them that the money they have placed into the company will be handled prudently.
4. Always Be Wary of Possible Regulatory Changes, and Remain Compliant
With the cannabis industry in Canada still being relatively new, regulations are likely to change over time. For example, edibles were not legalized in Canada until October 2019. Given that the federal government heavily controls cannabis distribution and production, producing financial reports that accurately provide evidence of the business’s compliance to nationwide regulations is important in order to avoid legal and financial repercussions.
Regardless of how Canadian cannabis regulations evolve in the coming years, any retail business must remain compliant at all times. Failure to do so can result in heavy fines or an abrupt closure of the business. Therefore, staying abreast of any modifications to laws will help cannabis retail businesses to maintain compliance, and better understand how to navigate the various regulations.
5. Don’t Let Bookkeeping Tasks Build Up Without the Help of a Professional
For any business, it is wise to seek the assistance of an accountant or firm as soon as operations have begun. Otherwise, bookkeeping tasks may quickly accumulate, forcing the business to play catch-up over a long period of time. With the expertise of an accounting professional from the start, a cannabis retail business can more easily:
- monitor their expenses
- understand their current financial state
- have financial statements prepared, when necessary
- prioritize and organize expenses accordingly
Although it is common for businesses to lose more money than they make during the earlier stages of operations, cannabis retail businesses should seek assistance from professionals with accounting expertise at their earliest opportunity to keep a close watch on finances.
Want to become a cannabis retailer?
Contact the Academy of Applied Pharmaceutical Sciences to find out more!