![]() ![]() ![]() Once we have accepted client pursuant to an executed Engagement Letter with a Cannabis Rider, we dig into the expense side of the entity. Once we have completed our review steps above, we can provide the client with an Engagement Letter and accept a client. Our focus is both on tying the total gross receipts in the quarterly filings to the General Ledger and on ascertaining that the taxes are properly calculated on individual delivery receipts, and on the quarterly filings. Compare the General Ledger totals for gross receipts with CDTFA quarterly filings for Sales Tax, and local jurisdiction Gross Receipts Tax.Where the entity lacks bank accounts, we use the cash control ledger to verify cash in a similar fashion, keeping in mind the unique issues that cash poses. Review bank statements for the entire year and one additional month on “both sides” with a view towards confirming that the deposits and other credits to the bank account tie to the General Ledger.Our next steps involved a review of gross receipts where we: We have queried multiple operators regarding the verification and archival of information relating to CET paid in connection with purchases. These deficiencies also create a mechanism whereby underground operators can utilize arrangements with legitimate licenses to purchase cannabis and cannabis products on which CET purportedly has already been collected by the Distributor].Ī California Dispensary has no direct reporting responsibility for CET at this time. These deficiencies in record-keeping make the process of auditing Distributors far more problematic. The record-keeping systems generally utilized in the industry do not provide a Dispensary with a summary of total CET paid to each Distributor. ![]() The point that may not be obvious is that a Dispensary pays Cannabis Excise Tax on the cannabis and cannabis products it purchases from Distributors. We learned first-hand about some of these activities, especially prior to the deployment of METRC on a widespread basis. In an instance in which an operating entity has limited access to banking, extensive investigation is necessary to ascertain that cash is properly accounted for both in gross receipts and in the assets of the business.Ĭalifornia’s underground cannabis market is well known to all involved in the industry.These procedures will vary substantially if the LLC’s access to commercial banking is limited. Review of internal accounting controls over the general ledger, and gross receipts.Review of the Standard Operating Procedures for sales, marketing, merchandise control, delivery practices, and personnel.Once the due diligence was completed, we reviewed the policies and procedures for the operation of the business, including: Review of City of Oakland Business License and Cannabis License.Review of the Bureau of Cannabis Control Cannabis – Delivery Dispensary form.Review of an executed copy of Form 8832 “Check the Box” Entity Classification Election.Review of an executed copy of the Operating Agreement for the LLC.Review of the Information Statements filed with the California Secretary of State.Review of the LLC Articles of Organization filed with the California Secretary of State.Our initial due diligence on the business entity, which we requested the client upload to a single Dropbox folder so we have everything in one place, included: We undertook an extensive due diligence process prior to offering our client an Engagement Letter in order to become familiar with the dirt in which these bushes grow.Ī CPA should NEVER begin work for any client, especially a client operating in the cannabis industry, without conducting due diligence and having an Engagement Letter signed. We recently had the opportunity to assist a new client who is qualified as a “cannabis equity business” with the City of Oakland, California. ![]()
0 Comments
Leave a Reply.AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |