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Marijuana Dispensary Accounting Procedures

Operating a marijuana dispensary is for the most part legal now in nine states but that doesn’t mean it is easy to do so legally. Local laws and regulations are super confusing and it is hard to find any clarity since it is still technically illegal at the federal level. Obviously businesses in this industry are closely watched so they must be 100% compliant and ready for audits at all times. There is a laundry list of accounting issues, federal tax limitations and other concerns that can lead to getting a marijuana dispensary shut down if not handled correctly.

One of the main factors behind legalizing recreational marijuana use was the ability of the government to earn tax money from it. Many entrepreneurs operating or looking to operate a dispensary have a background in the once unregulated marijuana black market. Now the marijuana market is one of the most regulated in the country. Dispensaries must strictly follow their state tax laws when it comes to cannabis or face grave consequences.

State Taxes on Marijuana

  • Alaska – Operating a dispensary here is relatively easy compared to other states since there is no sales tax. The only tax requirement for the sale of marijuana is the farmer is responsible to pay $50 for every ounce of cannabis they sell to the dispensary. Of course this tax raises up the price of marijuana for the user.marijuana tax
  • California – Growers are responsible for a product tax of $9.25 per ounce for marijuana buds and $2.75 for the leaves. Dispensaries are responsible for collecting a 15% excise tax in addition to the 7.25% state sales tax from customers for every purchase.
  • Colorado – Dispensaries need to collect a 15% sales tax for all marijuana sales to the public. Marijuana growers are required to pay a 15% excise tax for all of their sales to dispensaries.
  • Maine – Marijuana consumers pay 10% retail sales tax to the dispensaries. Cultivators are required to pay 21.5% excise tax for all sales to dispensaries and processors.
  • Massachusetts – Dispensaries will include a 6.25% sales tax and a 10.75% excise tax for all marijuana sold to a customer that does not possess a medical use of marijuana card.
  • Nevada – Cultivators are imposed an excise tax of 15% for all marijuana sales to retailers and processors. Dispensaries are imposed an excise tax of 10% for all marijuana sales to consumers.
  • Oregon – While there is no sales tax in Oregon they have imposed a special sales tax of 17% for the selling of recreational marijuana.
  • Washington – Recreational marijuana is taxed at a whopping 37% rate during the transaction from dispensaries to consumers.

Collecting and paying the correct amount of state tax will definitely help keep the dispensary open. Maximizing profitability on the other hand will come down to a different kind of tax. Filing annual federal taxes with the correct deductions can save a dispensary a lot of money and avoid implications in relation to tax fraud.

Tax Deductions for Marijuana Dispensaries

Cost of Goods Sold (COGS) is where dispensaries will get their deductions on taxes and it is used for calculating the costs associated with producing their products. Marijuana can not receive the same deductions for advertising and marketing as other legal businesses are entitled to with COGS. Employee salaries, materials and production costs for actually delivering the product can all be accounted for as deductions.

marijuana deductionsDispensaries can also include the facility they are operating out of as a deduction. The specific space used for packaging, storing and handling the marijuana to prepare it for selling is what qualifies for the deduction. Any employee that has these processes in their job description can also be used a deduction for the employer. Main thing for dispensaries is to save all transaction receipts in order to maximize deductions. Things in the past that couldn’t be deducted might be included in the future.

Since recreational marijuana is one of the fastest growing industries there is a good chance dispensaries are operating without proper oversight of accounting. Marijuana dispensaries need to have their accounting processes on point to avoid fines and possible shutdowns. Make sure to constantly check for updated rules as laws and regulations are constantly changing in this ever growing industry.