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. 

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.