Software Management Problems in the Cannabis Industry

The cannabis industry lacks a comprehensive software solution

Cannabis friendly software solutions have posed many challenges to accounting professionals, owners, operators, and investors. In order to remain in compliance in today’s cannabis world, there are monthly, quarterly, and yearly reporting requirements at the state and federal level which include required bank reporting, consolidated financials for investors and lenders, and  others that can be laborious and hard to keep straight without centralized software systems that integrate. Coupled with complex entity structures, cannabis reporting requires specific software tailored to the cannabis industry, which means general business solutions will not work. Popular accounting systems like Quickbooks and Xero don’t have cannabis industry charts of accounts, nor do they integrate with other cannabis software, which poses a unique challenge for accounting professionals and cannabis owners alike that are looking for visibility into their finances. To add insult to injury, most legal states have separate “Seed to Sale” tracking software that is required, but is often difficult to use and doesn’t interact well with cannabis or accounting software.

The good news is that there are finally a few “traditional” accounting solutions that will actually say they are cannabis friendly (more on that later)! There are also many operational packages (mostly for point-of-sale systems, or “POS”) available, but most (including popular ones like Greenbits, MJ Freeway, and Biotrack) have only been around a few years, are filled with bugs, have had significant periods of downtime, and have many features that simply don’t work. I’ve worked with 10-15 different popular systems and have yet to find one that is reliable, effective, or efficient. Greenbits and Flowhub are two with sizable financial backing, meaning hopefully that reliability will improve sooner than other, less funded solutions. Biotrack, Metrc, and MJ Freeway are also the solution most states require for seed to sale tracking, but I have used all extensively and, even on a good day, would rate each as “poor”.

Cannabis is a perfect niche for ERP (Enterprise Resource Planning) software

Unfortunately, a reliable Cannabis ERP does not exist in 2019. Cannabis accounting is a complex world and mistakes can be costly. For instance, it involves several sub-industries (farming, chemical manufacturing, food production, labs, and retail) often in a single company. On top of that you are faced with a plethora of other issues such as multi-entity structures, consolidated accounting, cannabis and non-cannabis divisions, and complex customer resource management, just to name a few.

Currently, the only two ERPs (to our knowledge) that are being implemented are Viridian Sciences (SAP based) and D365 Cannabis (based on Microsoft Dynamics). Based on numerous reviews, I would not recommend the current version of Viridian, and based on personal and client experience I would not recommend D365 either. They both are still very new, have implementation issues, customer support is poor, and they are very expensive. At some point these, or others, will hopefully overcome their issues and provide an “all-in-one” solution. For now, however, cannabis companies are forced to piecemeal together several systems.

State required cannabis software doesn’t integrate well with either accounting or operational software

Each state has required “seed to sale” tracking software of which Metrc seems to be the most common (with Biotrack and MJ Freeway being used, as well). Metrc primarily tracks quantities and must be updated daily by cannabis companies. This software has many problems, and seems to not even be able to track simple quantities that are moved from one location to another (not to mention cost/retail pricing). For example, Farm “A” can sell/deliver a pound of weed to Dispensary “B,” but Dispensary “B” can mistakenly receive only a gram, instead of a pound. Currently, Metrc doesn’t have controls to prevent this and at the end of the month when reports are run, quantities shipped often don’t match quantities received. CEOs are left with no other choice, so they have to make do with this system.

So the solution to the cannabis software dilemma is…

Due to these issues, many cannabis accounting specialists (including myself) are cobbling together a patchwork system of software until better solutions are available, which is likely to take years.   

We all must make do with the state mandated software (such as Metrc, which we usually rely upon for reporting cannabis inventory to the state), and ensure those records match the physical inventory counts each month.  For accounting, most companies still use Quickbooks (we have created for our students our own chart of accounts for cultivation, extract, edibles, and retail). Quickbooks has just raised prices again and is CLEARLY non canna friendly; if at all possible, I would recommend finding another solution. Otherwise, you run the risk of losing your data or other consequences if they suspect that you are using their software and violating their terms of service.

XERO is another trusted software solution that accounting professionals may turn to. They haven’t publicly confirmed whether or not cannabis businesses using their platform is a violation of their terms of service, but from the conversations that we’ve had with their staff, they haven’t given us any indication that they would shut down a cannabis company if they were found using it. If you want to protect yourself when using these systems, make sure that you run regular backups of your data just in case something happens that is out of your control, so that you always have your records.

Accounting Suite is a favorite among cannabis-trained accounting professionals. Their cloud based solution actively supports cannabis companies. Some of the key selling points are that:  they are cannabis friendly, cloud based, have great customer support, are very cost effective, and can do consolidations. Their development pipeline is looking very promising as well, as they are actively working on an integration with Greenbits POS. While we don’t currently use Accounting Suite, a number of our students and colleagues highly recommend the platform. If you are working with multiple clients, they are currently offering a deep discount and revenue share opportunity for accounting professionals that are planning on actively using their system for their clients. Interested in using Accounting Suite for your business? Feel free to reach out to us for more information. We are not yet directly affiliated with Accounting Suite, but we have agreed to pass on any discount or offer to our members so that they can get the best rates for the software. We do, however, benefit from sharing referrals and recommendations with them if someone purchases.

Cannabis Friendly Point of Sales Systems

Retail operations generally use one of the cannabis POS systems, such as Flowhub, Greenbits, Blaze, and many others, but you still have to carefully reconcile quantities and pricing between Metrc, Accounting Software, and POS each month.

Cannabis Friendly Accounting Support Systems

Due to the grey area that is the cannabis industry, everyday business functions can be a challenge. Cannabis accounting experts should be able to help and guide owners/operators so that they can manage everyday aspects of their business.

Fortunately, in order to overcome the immediate accounting challenges that we encounter, we’ve made due with Excel documents for cost accounting templates, month-end reconciliations, tie-out work-papers, combined and consolidated financials, rolling cash forecasts, and 280e/471 tax work. There are other day-to-day operations software that are necessary in order to actually run the business and keep records secure and readily available.

Cannabis-Friendly Payroll Solution

Need to run payroll? Well, most companies do. Gusto makes it easy for cannabis companies to pay their employees and upload information into your accounting software of choice. Accounting professionals can become certified and partner with Gusto and offer a solution to their clients when other providers won’t offer support.

Productivity, Communications, and Storage Solution for Cannabis Companies

Slack is a great internal communications app that we use to speak to our teams in real-time. Emails can be daunting, and things can get missed. Using Slack can keeps teams on the same page.

Data storage is key. We highly recommend that accounting professionals provide a perpetual data room to their clients so that they have all of their data and reports ready in case of an audit. CEOs should always know where they can find key financials if they are needed to secure loans, property, etc. We recommend Google Drive, Dropbox, or Box.  

Project management and keeping track of recurring or ongoing tasks just helps you keep your business organized, and hold the people that are responsible for key deliverables accountable. We recommend Trello or Basecamp for basic task management. While these programs aren’t cannabis specific, they are definitely helpful when it comes to running your business.

Unsolved Cannabis Accounting Software Issues…

As you can see, cannabis is a complex industry, and is riddled with accounting issues: banking, cash, accounting, software, merchant service, compliance/legal issues, and insurance just to name a few. However, great opportunity awaits for those with the fortitude, knowledge, ability to problem solve, and desire to be part of a major new industry. We recommend that you join groups, network, and stay immersed in the cannabis business world, and learn how others are overcoming challenges with software. No one can tell when or if these issues will get fixed; however, businesses are still required to comply with reporting requirements and keep accurate records.

If you would like to learn about how you can become an accounting professional in the cannabis industry, check out our upcoming webinar on June 20th where we talk about cannabis specific software and systems. Click here to register for the webinar.

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