2024 Election Results & Planning for 2025 in Cannabis

The Cannabis industry stands at a critical juncture following the 2024
presidential election. With Donald Trump returning to the White House and
significant shifts in Congressional makeup, Cannabis businesses and the
accounting professionals who serve them must navigate new political
realities that will shape regulatory frameworks in the coming year. DOPE
CFO's recent webinar provided valuable insights into what these election
results mean for the Cannabis sector and how financial professionals should
prepare their clients for 2025.
*Election Results: The New Political Reality*

The 2024 election delivered a "red wave" that will significantly impact
Cannabis policy. The results include:

- Donald Trump elected president
- 53 Republican senators in the Senate
- A slim Republican majority in the House

While this political alignment might raise concerns for some in the
Cannabis industry, a more nuanced perspective is emerging. Unlike his first
term, Trump appears less focused on opposing Cannabis and may allow more
progress in the space. His appointment of RFK Jr. to lead the Department of
Health and Human Services (HHS) is particularly noteworthy, as RFK Jr. has
expressed strong support for Cannabis reform, including potential
descheduling rather than just rescheduling.
*The Schedule III Question: Current Status and Implications*

Cannabis remains classified as a Schedule I substance under the Controlled
Substances Act, categorizing it alongside drugs like heroin and LSD as
having "no medical use" and high potential for abuse. However, significant
momentum has built toward rescheduling:

- HHS and FDA have both recommended moving Cannabis to Schedule III
- Public comment periods saw 93% support for rescheduling
- Administrative Law Judge hearings have been scheduled through early
2025

Schedule III would acknowledge Cannabis has legitimate medical uses while
still maintaining regulatory controls. This classification would place
Cannabis in the same category as medications like Tylenol with codeine and
ketamine.

The DEA will make the final decision after hearings conclude. The recent
withdrawal of the current anti-rescheduling DEA head and the nomination of
a replacement suggests potential movement on this front, though nothing is
guaranteed under the new administration.

For accounting professionals, understanding the nuances of this potential
shift is crucial. You'll need to help clients prepare for multiple
scenarios while maintaining compliant operations under current regulations.
*Tax Strategies Under 280E: Guidance for Accounting Professionals*

IRC Section 280E continues to place an enormous tax burden on Cannabis
businesses by prohibiting standard business deductions. As an accounting
professional serving this sector, you should implement several key tax
planning strategies for your clients:
*For Clients in Cultivation, Manufacturing, and Processing:*

- Implement GAAP-level cost accounting to maximize inventory costs that
can be included in Cost of Goods Sold (COGS)
- Meticulously document all direct material, direct labor, and overhead
costs
- Properly categorize all allowable indirect production costs including
repairs, maintenance, rent, utilities, quality control, and indirect labor
- Maintain recurring financial reporting to satisfy IRS requirements
- Develop comprehensive inventory valuation methodologies that maximize
allowable costs

*For Dispensary and Retail Clients:*

- Recognize the limitations on what can be included in COGS for retailers
- Consider filing protective refund claims with Form 8275 to preserve
the possibility of refunds if Schedule III reclassification occurs
- Document 280E positions thoroughly with supporting legal and
accounting opinions
- Create separation between potentially deductible and non-deductible
activities where legally supportable
- Implement rigorous expense tracking systems that clearly identify
costs by category and function

Recent IRS guidance explicitly warned against prematurely ignoring 280E
restrictions. As the trusted financial advisor to your clients, emphasize
the importance of conservative tax positions while preparing for potential
future relief. The presentation highlighted that Chief Counsel of the IRS,
Luke Ortner, specifically cautioned against aggressive 280E positions at
the AICPA Cannabis Conference in August.
*The Financial Services Evolution for Cannabis Clients*

While comprehensive banking legislation has yet to pass, the financial
services environment for Cannabis continues to develop:

- More state-chartered banks and credit unions are cautiously serving
Cannabis clients
- Banking fees remain significantly higher than standard commercial
accounts
- Cash management challenges persist across the industry
- Banking relationships require extensive documentation and compliance
monitoring

As an accounting professional, you can provide considerable value by:

- *Developing relationships with Cannabis-friendly financial
institutions*: Build a network of banks and credit unions that
explicitly serve Cannabis clients. Research state-chartered institutions in
your region that have established Cannabis banking programs, and arrange
introductory meetings to understand their specific requirements. Create a
database of these institutions with their fee structures, compliance
expectations, and account restrictions to guide clients toward appropriate
banking partners.

- *Creating robust cash handling procedures:* Develop comprehensive cash
management systems that include dual-control protocols, secure
transportation arrangements, documented chain of custody, and detailed
reconciliation processes. Implement surprise cash counts and regular
auditing procedures to ensure accuracy and deter theft. Design specialized
point-of-sale integration with accounting systems that creates audit trails
for every cash transaction. Help clients implement secure cash storage
solutions with appropriate insurance coverage and risk management protocols.

- *Assisting with bank due diligence requirements and ongoing reporting
obligations: *Prepare comprehensive business information packets that
address common banking concerns, including ownership structure
documentation, regulatory compliance history, and detailed business
operational descriptions. Create monthly reporting packages that satisfy
bank requirements for ongoing monitoring, including source of funds
attestations for large deposits. Develop systems to track and document the
source of all cash entering the business, with supporting evidence that can
withstand banking scrutiny. Establish quarterly compliance certification
processes that proactively address common bank concerns before they become
issues.

- *Preparing financial statements that meet heightened scrutiny from
financial institutions*: Implement GAAP-compliant accounting practices
with detailed supporting documentation for all significant transactions.
Ensure financial statements include comprehensive disclosures addressing
Cannabis-specific accounting policies, regulatory contingencies, and
compliance frameworks. Develop specialized charts of accounts structures
that clearly separate regulated Cannabis activities from ancillary
operations.



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*Capital Raising and Transaction Advisory Opportunities*

The capital environment for Cannabis has been challenging, but several
factors could drive increased investment activity in 2025:
*Catalysts for Growth:*

- Potential Schedule III reclassification eliminating 280E limitations
- Extension of tax cuts that were set to expire in 2025
- More favorable business regulatory environment under the new
administration
- Expanded banking access allowing institutional capital to enter the
market

For accounting professionals, this evolving capital situation presents
significant advisory opportunities:

- Valuation services incorporating Cannabis-specific considerations
- Due diligence support for acquisitions and investments
- Financial modeling that accounts for regulatory uncertainties
- Capital structure optimization under various tax scenarios
- Post-merger integration and accounting harmonization

Businesses seeking investment or considering exit strategies must
prioritize financial readiness now. Guide your clients to implement:

- Perpetual data rooms with organized corporate documents
- Audit-ready financial statements with supporting work papers
- Strong internal controls and corporate governance frameworks
- Detailed compliance documentation spanning all regulatory requirements
- Clear separation between regulated and non-regulated activities where
applicable

Companies that can demonstrate professional financial management will
command significantly higher valuations when capital markets reopen,
potentially seeing 5-10x multiples compared to unprepared competitors. As
their accounting advisor, you can drive substantial value creation through
these preparations.
*Strategic Financial Planning for 2025*

As trusted advisors to Cannabis businesses, accounting professionals must
go beyond traditional compliance work to provide strategic financial
guidance. With 2025 poised to bring significant regulatory and market
changes, now is the critical time to help clients develop comprehensive
financial strategies that balance immediate needs with long-term
positioning.
*Year-End Tax Planning Priorities*

The unique tax challenges facing Cannabis businesses make year-end planning
particularly valuable. For maximum impact, consider these approaches:

- *Implement aggressive yet defensible year-end tax planning
immediately: *With Q4 underway, there's still time to structure
transactions and recognize expenses optimally. Review inventory valuation
methodologies to ensure all appropriate costs are capitalized for
cultivators and manufacturers. For retailers, examine whether any
activities can be legitimately separated into non-plant-touching businesses
with normal tax treatment. Make sure that you are careful and understand
the rules if you plan to advise utilizing multiple entities as a means to
reduce tax liabilities. Read the Harborside and Altermeds court cases
for more details on how the courts have decided on the improper use of
multiple entity structures.

- *Document cost accounting methodologies with comprehensive support*:
The difference between deductible and non-deductible expenses often hinges
on detailed documentation. Help clients implement rigorous cost accounting
systems that clearly track direct materials, direct labor, and all eligible
indirect costs. This documentation should include allocation methodologies
for shared resources, contemporaneous time tracking for employees splitting
duties between production and non-production activities, and physical
inventory procedures that verify quantities and conditions.

- *Maintain conservative tax positions while preparing for potential
relief*: While Cannabis rescheduling could bring 280E relief, taking
premature positions creates substantial risk. Guide clients to file returns
based on current law while documenting positions that preserve their rights
to potential refunds. Consider protective refund claims using Form 8275 for
prior years, clearly indicating the contingent nature of the claim based on
potential rescheduling. Maintain thorough workpapers showing both current
tax treatments and calculations under potential future scenarios.

- *Consider entity restructuring options where appropriate*: The
beginning of a new year presents opportunities to implement more
tax-efficient structures. Evaluate whether clients would benefit from
separating operations into multiple entities that maximize deductible
expenses where legally supportable. Analyze whether certain intellectual
property, equipment, or real estate should be held in separate entities and
leased to operating companies. Ensure all intercompany agreements are
formalized with market-rate terms and proper documentation before
implementing any new structures.

- *Evaluate the potential impact of state tax changes and their
interaction with federal provisions*: With a new administration and
Congress, both federal and state tax landscapes may shift. Assess how
potential extensions of expiring tax provisions could benefit Cannabis
clients specifically. Monitor state-level Cannabis tax developments,
particularly in states with new or evolving markets where tax structures
are still being refined. Create scenario-based tax projections showing how
different combinations of federal and state changes would impact effective
tax rates and after-tax cash flows.

*Financial Infrastructure Development:*

- Build robust perpetual data rooms containing all corporate records
- Create "permanent audit trails" with supporting documentation for all
transactions
- Implement world-class accounting and financial reporting systems
- Develop multi-entity consolidation processes that maintain regulatory
compliance
- Establish segregation of duties and approval workflows despite limited
staffing

*Strategic Advisory Services:*

- Assist clients in positioning for capital raises and M&A opportunities
expected in 2025
- Develop KPI dashboards focusing on profitability and cash flow rather
than just revenue
- Create expansion plans with detailed financial projections under
multiple regulatory scenarios
- Implement rolling 13-week cash flow forecasting to navigate
operational constraints
- Provide benchmarking against industry performance metrics

*Expanding Your Cannabis Accounting Practice: Service Opportunities*

The presentation highlighted numerous service opportunities for accounting
professionals looking to expand their Cannabis practice:
*Compliance-Focused Services:*

- 280E tax planning and preparation
- State tax compliance across multiple jurisdictions
- Point-of-sale system implementation and reconciliation
- Seed-to-sale tracking system integration with accounting software
- Regulatory compliance monitoring and documentation

*Advisory Services with Premium Value:*

- Cost accounting system design and implementation
- Internal control development and testing
- CFO services for growing operations
- Capital raising preparation and support
- Investor due diligence assistance

*Technology Implementation:*

- ERP system selection and configuration
- Data security and privacy protocols
- Automated compliance reporting tools
- Cash management technology solutions
- Integration between operational and financial systems

By developing expertise in these specialized areas, accounting
professionals can command premium rates while delivering substantial value
to Cannabis clients navigating complex regulatory requirements.
*Conclusion: Strategic Positioning for 2025*

While the Cannabis industry faces continuing challenges, there are solid
reasons for measured optimism. The bipartisan nature of Cannabis support,
coupled with changing administrative priorities, suggests progress may
continue despite political shifts.

For accounting professionals serving this sector, the message is clear:
specialized expertise creates tremendous value in this complex environment.
By developing Cannabis-specific knowledge, implementing robust financial
systems, maintaining rigorous compliance protocols, and providing strategic
guidance, you can help your clients thrive amid regulatory uncertainty.

As 2025 approaches, accounting professionals who position themselves at the
intersection of compliance and strategic advisory services will find
abundant opportunities in the Cannabis industry. By staying informed about
policy developments and developing specialized service offerings, you can
become an indispensable partner to Cannabis businesses navigating the
opportunities and challenges ahead.