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Hemp Accounting vs. Marijuana Accounting

There’s an important distinction in the cannabis industry between hemp businesses and marijuana businesses. Both of these products come from cannabis plants, yet running a marijuana business is only legal in certain states whereas hemp is legal across the country. As such, there are differences in how these businesses operate, including when it comes to […]

Hemp Accounting vs Marijuana Accounting

There’s an important distinction in the cannabis industry between hemp businesses and marijuana businesses. Both of these products come from cannabis plants, yet running a marijuana business is only legal in certain states whereas hemp is legal across the country. As such, there are differences in how these businesses operate, including when it comes to hemp accounting vs. marijuana accounting.

No matter what kind of cannabis business you run, it’s essential to take accounting seriously so you don’t run into any serious financial problems. However, marijuana and hemp businesses have different rules and perks when it comes to taxes that you should know about- especially if you’re new to the industry. Here’s a breakdown of hemp accounting vs. marijuana accounting.

What’s The Difference Between Hemp and Marijuana?

There’s often a lot of confusion when it comes to the difference between hemp and marijuana, especially as both are byproducts of cannabis. Hemp refers to a type of cannabis sativa plant that produces flowers that are low in THC yet high in CBD. These plants are often used for extracting CBD for infusion into products such as CBD Oils, Edibles, Topicals, and more. Hemp is also used for building materials, clothing, jewelry, and various other products.

Marijuana comes from various strains of cannabis indica and cannabis sativa plants, but it differs from hemp significantly. Most importantly, marijuana contains high levels of THC- the psychoactive chemical that’s responsible for inducing psychoactive effects when consumed, otherwise known as getting you “high”.

Both of these products are consumed for therapeutic purposes, but marijuana is only available in certain states and often only available to certified medical patients. Hemp-derived CBD products are much more widely available, thanks to the 2018 Farm Bill which made hemp products legal across the country.

Hemp Businesses vs Marijuana Businesses

Hemp Businesses vs Marijuana Businesses

Due to the important legal differences between hemp and marijuana, running a hemp business is significantly different from running a marijuana business. One of the key differences is that, while you’ll have to get a special license to operate a marijuana business, you don’t need to go through the same hurdle to start a hemp business.

Many entrepreneurs start hemp-based CBD businesses as it allows them to cater to the cannabis market without needing to go through the costly and time-consuming licensing process involved with starting a marijuana business. What’s more, the federal illegality makes it harder for marijuana businesses to get funding, find a suitable retail location, and get their business up-and-running in the first place. In comparison, opening a hemp business is much easier and smoother, although you’ll still face some of the same obstacles.

There are also many differences in the way these businesses handle various operations. For instance, marketing marijuana is often tougher than marketing hemp products- especially as you can reach a wider market with legal hemp products. There are also many differences when it comes to hemp accounting vs. marijuana accounting, so you’ll want to find an accountant who knows how to deal with the industry.

What You Should Know About Hemp Accounting

Accounting for hemp businesses is generally much easier than accounting for marijuana businesses, provided that the businesses follow the regulations set by the US government. Unlike marijuana, hemp is federally legal and, as such, hemp businesses often operate much like other retail businesses when it comes to taxes.

Hemp businesses can declare various expenses and inventory costs under IRC IRC §263A. This includes administrative and service costs along with general inventory costs. In contrast, these expenses are not eligible for inclusion when it comes to marijuana business taxes.

Unlike marijuana businesses, hemp businesses can also qualify for various tax incentives and grants. For instance, hemp farmers in Michigan are eligible for a tax credit on their property taxes. Hemp farmers in general also have more flexibility when it comes to how to handle their accounting and the costs they can include.

Although accounting for hemp businesses is generally easier than marijuana accounting, it’s still important to enlist the help of an experienced business accountant to ensure that everything is handled smoothly.

What You Should Know About Marijuana Accounting

Marijuana accounting is generally much trickier than hemp accounting, especially as marijuana businesses aren’t subject to the same benefits and perks and there are various rules and restrictions you must adhere to. Due to the federally illegal status of marijuana, there are strict tax limitations for marijuana businesses.

While certain hemp businesses can qualify for tax credits and incentives, marijuana businesses don’t get the same perks. Marijuana business accounting must adhere to IRC §280E, which means that marijuana businesses can’t deduct ordinary and necessary business expenses from their federal income tax. They must also follow IRC §471, which limits the costs they can attribute to inventory.

Marijuana products are also subject to numerous taxes. On top of the regular state sales tax, there’s also an excise tax on all marijuana products. This varies in each state, but products will generally be heavily taxed. 

Since compliance and bookkeeping are especially important for marijuana businesses, it’s best to use an experienced marijuana business accountant to ensure you don’t make any mistakes when it comes to dealing with taxes.

What You Should Know About Marijuana Accounting

How To Handle Your Hemp/Marijuana Business Accounting

Whether you’re running a hemp business or a marijuana business, it’s best to have a qualified accountant help you with all accounting issues. Keeping track of your finances and ensuring you file your taxes correctly can be difficult, especially for marijuana businesses.

Marijuana businesses are subject to various rules and, as such, it’s especially important not to make any errors when it comes to your accounting. No matter how big or small your business is, you should seek the help of a knowledgeable marijuana business accountant.

Although accounting for hemp businesses isn’t quite as tumultuous, it’s still best to seek the help of an accountant who’s experienced with the industry. They can help ensure that you don’t miss out on any tax incentives as well as helping you avoid common accounting pitfalls.

Conclusion

Hemp accounting and marijuana accounting are significantly different due to the legal differences between hemp and marijuana products. However, whether you choose to run a hemp or marijuana business, you should make sure you have professional help when it comes to accounting.

Accounting isn’t the only important operation to deal with when it comes to running a marijuana or hemp business. Effective and compliant cannabis business marketing is also essential if you want your business to be successful. You can find custom-branded cannabis products and guides on cannabis marketing at CannabisPromotions.