California Cannabis CPA Accounting Services

California cannabis is one of the most exciting — and unforgiving — markets in the country. Between DCC rules, CDTFA audits, local tax ordinances, IRS 280E, and a constantly shifting legal landscape, “regular” bookkeeping isn’t enough. You need accounting that is built around California cannabis licensing, tax, and regulatory realities from day one.

Northstar Financial Advisory provides cannabis‑focused CPA‑level accounting, tax, and advisory services tailored to California operators — from single‑store dispensaries to multi‑license groups.

Why California Cannabis Businesses Need a Specialized CPA

California is different from other cannabis markets

California didn’t just legalize cannabis and walk away. It created a complex, layered framework

Adult‑use legalization under Proposition 64 and MAUCRSA

• Prop 64 (the Adult Use of Marijuana Act) and the Medicinal and Adult‑Use Cannabis Regulation and Safety Act (MAUCRSA) form the backbone of California’s cannabis laws. They established the legal framework for adult‑use and medical cannabis, along with a dual state/local licensing regime.

Heavy layering of state and local rules

To operate, you don’t just follow “state rules.” You must navigate:

• State licensing and regulations under the Department of Cannabis Control (DCC)
• State tax rules under the California Department of Tax and Fee Administration (CDTFA) and Franchise Tax Board (FTB)
• Local ordinances, zoning, and city/county cannabis taxes

Each city and county can add its own cannabis business taxes, permit rules, and reporting requirements — making California accounting highly location‑specific.

Unique risks for California operators

California cannabis businesses face a mix of tax, regulatory, and operational risks that few other industries deal with at once:

• Complex local licensing: You need both a state license and a local permit (city or county). Losing one can jeopardize the other. Missteps in recordkeeping, cash management, or tax compliance can put your license status at risk.
• High effective tax burden: California operators often juggle:
  • Federal income tax under 280E
  • California income tax (personal or corporate)
  • State cannabis excise tax
  • Sales and use tax on qualifying transactions
  • Local cannabis business taxes (often based on gross receipts)
  • The effective tax rate can be punishing if books and tax strategies aren’t designed with this in mind.

Cash‑heavy operations and banking limitations: Even with more cannabis‑friendly banks and credit unions, many operators still handle large amounts of cash. Weak internal controls, inconsistent reconciliations, and poor documentation can lead directly to tax issues, shrinkage, and regulatory problems.

What a California Cannabis CPA does that a general CPA doesn’t

A generalist accountant might be excellent in other industries — but cannabis in California is its own ecosystem. A specialized California cannabis CPA should bring:

• Deep familiarity with CDTFA, DCC, and FTB requirements: Your accountant should already understand:

• DCC compliance expectations and common pain points
• CDTFA rules for excise and sales/use tax
• FTB’s treatment of entities with cannabis income and how federal 280E flows into California returns

• Books and records structured for audits and inspections: California cannabis accounting isn’t just about closing the books. It’s about:
  • Aligning METRC, POS, bank records, and financial statements
  • Building documentation that can stand up to CDTFA, FTB, and local audits
  • Making sure every number on a tax return can be traced back to clear, organized records
  • That’s the difference between “keeping up” and being genuinely audit‑ready in California.

California Cannabis Regulatory Landscape (What Your CPA Must Understand)

State legalization & legal framework

Your CPA doesn’t need to be a lawyer — but they do need to understand the regulatory context in which your numbers live.

• Prop 64 & MAUCRSA create the combined medical/adult‑use framework
• The Department of Cannabis Control (DCC) oversees licensing, enforcement, and many operational rules, including:
  • Packaging and labeling
  • Inventory controls
  • Track‑and‑trace requirements
  • Record retention

Accounting decisions must respect these rules, especially when it comes to inventory, COGS, and licensing.

Licensing structure in California

A California cannabis CPA must understand how accounting and tax differ by license type, including:

• Retail / Dispensary (storefront and delivery)
• Cultivation (indoor, mixed‑light, outdoor)
• Manufacturing (infused products, extraction, edibles)
• Distribution
• Testing labs
• Microbusinesses (combining multiple activities under one license)

Each license type has different revenue models, cost structures, and tax touchpoints. In California, you must also layer in:

• State license + local permit
  • City/county approval is mandatory
  • Local rules often determine your local tax rate, security plan requirements, and reporting obligations

Track‑and‑trace & recordkeeping: METRC

California uses METRC as its track‑and‑trace system for plant and product movement. A California cannabis CPA must:

• Understand how METRC data flows through your operation
• Reconcile METRC movements to:
  • Inventory in your accounting system
  • POS sales reports
  • COGS and gross margin reporting
• Identify and resolve discrepancies before they become audit issues

Accurate inventory and cost tracking are essential not just for DCC compliance, but also for:

• 280E and COGS calculations
• Excise tax and sales/use tax reporting
• Valuing ending inventory on your financial statements

Banking environment in California

While California is ahead of some states in cannabis banking, challenges remain:

• Limited access to traditional banking: Many operators work with cannabis‑friendly banks or credit unions that have:
  • Enhanced due diligence
  • Special fee structures
  • Tight reporting expectations
• Cash‑intensive operations: Even banked operators often handle:
  • Large daily cash deposits
  • Cash payroll in some cases
  • Cash vendor payments
• Your CPA must design internal controls and accounting processes that:
  • Protect against theft and fraud
  • Tie cash movements to METRC and POS data
  • Produce clean, bank‑ready and audit‑ready records

California Cannabis Tax Rules (Layered on Top of 280E)

Federal baseline: IRS Section 280E

At the federal level, IRC Section 280E is still the starting point:

• Businesses trafficking in Schedule I or II controlled substances cannot deduct most ordinary and necessary business expenses.
• Only cost of goods sold (COGS) is generally allowed as a federal deduction.

For California cannabis businesses, this means:

• Rent, most payroll, marketing, admin, and many overhead costs are not deductible federally.
• Careful cost accounting and chart of accounts design are essential for maximizing allowable COGS without being aggressive beyond what the law and IRS guidance support.
• Entity structure (C‑corp vs pass‑through) affects how 280E‑inflated income hits owners.

California income tax treatment

Historically, California has largely conformed to federal tax law, including 280E, for state income tax purposes. That means:

• Your federal 280E adjustments often flow through to your California FTB returns, increasing state taxable income as well.
• Owners of pass‑through entities (LLCs taxed as partnerships, S‑corps) feel the impact on both their federal and California personal returns.

However, cannabis tax policy continues to evolve. Legislative proposals emerge regularly, and it’s critical to:

• Monitor ongoing law changes
• Model how potential changes would impact your effective tax rate and cash flow
• Ensure your entity structure still makes sense as the law shifts

A California cannabis CPA tracks these developments and helps you adjust your strategy accordingly.

California cannabis excise tax & sales/use tax

California has a complex mix of state excise tax and sales/use tax for cannabis:

• Excise tax: The state excise tax framework has evolved over time, and the mechanics can be complicated, especially for distributors and retailers:
  • Who calculates and remits excise tax
  • How the average market price or other metrics are applied
  • How excise tax is treated on invoices and receipts
• Sales and use tax: Retailers are typically responsible for:
  • Charging and collecting sales tax on qualifying cannabis and non‑cannabis items
  • Filing sales and use tax returns with the CDTFA
  • Distinguishing between taxable and exempt items on POS and in accounting

• The CDTFA expects accurate, reconciled records that tie together:

• Sales by product category
• Excise and sales tax collected
• METRC quantity data
• Bank deposits and cash reconciliations

Local cannabis taxes

On top of state taxes, many California cities and counties impose local cannabis business taxes, often based on:

• Gross receipts (e.g., a percentage of revenue), and/or
• Square footage or other metrics for cultivation

This means:

• Two operators with identical revenue but different locations can face very different effective tax rates.
• Site selection, entity structure, and expansion planning in California are tax decisions as well as business decisions.

Your CPA should model:

• The combined federal, state, and local tax burden by location
• How local taxes impact pricing, margins, and expansion decisions

Key changes & common compliance mistakes

California’s cannabis tax rules have evolved significantly, including changes like:

• The repeal of the cultivation tax (effective in 2022), easing part of the burden on growers — but shifting more focus onto excise and other taxes.

Common mistakes we see:

• Misclassifying revenue or failing to properly segregate taxable vs non‑taxable sales
• Under‑ or over‑reporting excise tax due to poor integration between accounting, POS, and invoices
• Failing to fully capture local cannabis taxes in budgeting and pricing
• Disconnected METRC, POS, and financial data, leading to discrepancies during CDTFA or DCC reviews

A California cannabis CPA’s job is to prevent these issues before they show up in an audit.

Our California‑First Cannabis CPA & Accounting Services

All of Northstar’s cannabis services are designed with California licensing, tax, and regulatory conditions at the center. We don’t “adapt” a generic model — we build from California up.

Core accounting & bookkeeping

Through our Cannabis Accounting and Cannabis Bookkeeping services, we provide:

• GAAP‑aligned cannabis bookkeeping
• A chart of accounts tailored to California cannabis entities, license types, and 280E
• Monthly closes, reconciliations, and timely financial statements (P&L, balance sheet, cash flow)
• Integration of METRC, POS, and banking data into one coherent set of books

280E & COGS optimization for California

Through our dedicated 280E Accounting services, we help you:

• Design your chart of accounts to separate COGS vs non‑deductible expenses
• Properly allocate direct and indirect costs within the limits of 280E and inventory accounting rules
• Document your COGS methodology so it’s defensible for:
  • IRS audits
  • FTB reviews
  • Lender or investor due diligence
• Coordinate federal 280E positions with your California income tax reporting

Tax compliance & filings

Our Tax Compliance and Strategy services for California cannabis businesses include:

• Federal income tax returns with 280E properly applied
• California FTB returns (corporate, partnership, S‑corp, and individual owners)
• CDTFA filings, including:
  • Cannabis excise tax returns (where applicable)
  • Sales and use tax returns
• Local cannabis tax filings, such as:
  • City and county gross receipts tax returns
  • Local cannabis business tax reports and payments

We also help you build a compliance calendar so nothing slips through the cracks.

Cash management & internal controls

California regulators and banks expect strong internal controls for cash.

We help design and implement:

• Cash handling procedures, including:
  • Daily cash counts
  • Dual‑control processes
  • Secure storage and transport protocols
• Fraud and theft prevention controls
• Reconciliations tying:
  • Cash receipts
  • POS data
  • METRC inventory
  • Bank deposits

This reduces risk and makes audits and banking relationships much smoother.

Controller / fractional CFO & advisory

For growing California operators, we provide controller and fractional CFO support tailored to the state’s tax and regulatory environment:

• Forecasting and budgeting under heavy tax loads
• Break‑even and scenario analysis:
  • Opening a new dispensary in a different city
  • Expanding into manufacturing or distribution
  • Entering or exiting particular California markets
• Capital planning that incorporates:
  • Tax cash needs
  • Licensing timelines
  • Regulatory risk

Services by License Type (California‑Specific Segmentation)

Dispensaries & Retailers in California

For storefront and delivery retailers, we focus on:

• POS integration (including METRC‑connected systems)
• Daily or periodic cash reconciliation and inventory shrink tracking
• Proper handling of:
  • Excise tax
  • Sales and use tax
  • Local cannabis business taxes
• Margin analysis by product category and vendor, with an eye on local tax load and pricing

Cultivators & Grow Operations

Indoor, mixed‑light, and outdoor cultivators need precise cost accounting:

• Allocating labor, utilities, rent, and facility costs into COGS appropriately
• Tracking costs by grow cycle, room, or strain, as needed
• Aligning financial records with:
  • DCC requirements
  • METRC plant and harvest data
  • Environmental or other compliance reporting where relevant

Manufacturers & Processors

Manufacturers and processors often face complex costing:

• Process costing for extracts, concentrates, and infused products
• Detailed inventory and WIP tracking aligned with METRC
• Understanding how different business models (wholesale, toll processing, white‑labeling) affect:
  • Excise tax implications
  • Revenue recognition
  • 280E and COGS classification

Distributors & Supply Chain

Distributors play a key tax and reporting role in California’s supply chain:

• Accurate inventory and logistics accounting across multiple facilities
• Tracking and remitting excise tax where required
• Managing multi‑license operations within California, including:
  • Intercompany agreements
  • Transfer pricing
  • Consolidated reporting for owners

Delivery‑Only & Microbusinesses

Hybrid license structures require hybrid accounting:

• Microbusinesses combining cultivation, manufacturing, distribution, and retail under one license
• Route accounting and cash logistics for delivery operations
• Local tax compliance in jurisdictions with specific rules for delivery services
• Clear segregation of activities for:
  • 280E and COGS
  • City and county tax reporting

Cash Management, Banking, and Internal Controls for California Cannabis Businesses

Cash‑heavy realities in California

Even with cannabis‑friendly institutions, many California operators:

• Receive a significant portion of revenue in cash
• Pay some vendors or staff in cash
• Handle high‑volume weekend or holiday sales that strain internal controls

This creates risk around:

• Shrinkage and theft
• Incomplete or inaccurate reporting
• Red flags for banks and regulators

Internal control systems we implement

We help you design and document practical controls, such as:

• Segregation of duties (no single person controls the entire cash cycle)
• Daily cash counts with sign‑off and variance tracking
• Surprise cash audits by management or a third party
• Secure cash storage and transport procedures

These aren’t just “nice to have” — they support your license, banking relationships, and tax compliance.

Reconciling cash, inventory, and METRC

We focus on building a consistent, defensible data trail:

• Daily/weekly reconciliations between:
  • METRC
  • POS
  • Cash logs
  • Bank deposits
• Documentation and explanation of variances
• Systems that keep you prepared for:
  • Surprise inspections by DCC or local agencies
  • CDTFA sales/use and excise tax audits
  • Bank compliance reviews

280E, Entity Structure & Strategic Tax Planning 

How we approach 280E for California clients

Entity choice and ownership structure matter a lot under 280E. For California operators, we help evaluate:

• C‑corp vs pass‑through (LLC/partnership, S‑corp where applicable)
• How 280E‑inflated income flows to:
  • Corporate returns
  • Individual owners (including California residents and non‑residents)
• Owner compensation and distributions:
  • Reasonable compensation vs guaranteed payments
  • Tax distributions for partners or members in pass‑through entities

We build tax models so you can see what 280E means in real dollars — not just theory.

Structuring operations and records

Where appropriate and compliant, we help:

• Separate cannabis and non‑cannabis lines of business (e.g., ancillary services, non‑plant‑touching operations)
• Align intercompany agreements with:
  • Commercial realities
  • California licensing restrictions
  • IRS and FTB expectations
• Prepare the documentation auditors expect, including:
  • Clear allocation methodologies
  • Supporting schedules for COGS
  • Consistent treatment across federal and California returns

Long‑term planning in a changing California market

California cannabis policy and competition continue to evolve. We support:

• Planning for potential changes in 280E or state tax law
• Evaluating new locations with:
  • Different local tax rates
  • Different competitive dynamics
• Building long‑term financial models that factor in:
  • Tax load
  • Licensing and compliance costs
  • Capital needs for growth

Compliance Calendar & Audit Readiness for California Operators

California compliance calendar

We help you build and maintain a calendar that includes:

• Federal and California income tax deadlines (entity and owner level)
• CDTFA due dates for:
  • Excise tax returns
  • Sales and use tax returns
• Local cannabis tax filing/payment cycles, which may be:
  • Monthly
  • Quarterly
  • Annual

We also integrate:

• Payroll tax deadlines
• Licensing renewal dates (state and local)
• Key internal reporting milestones

Audit readiness

Audit risk is part of being a California cannabis operator. We help you prepare for:

• IRS and FTB audits, driven largely by 280E and cannabis status
• CDTFA audits, focused on:
  • Excise tax
  • Sales and use tax
• Local city/county audits of gross receipts and cannabis business taxes
• DCC inspections and compliance checks

Our support includes:

• Organizing digital and physical records
• Creating audit‑ready workpapers that tie returns to source data
• Helping you understand what to expect and how to respond if you’re selected for an audit

Who We Serve & Where in California

Types of clients

We work with a broad range of California cannabis operators, including:

• Startups and pre‑revenue license holders
  Needing initial setup, projections, and systems
• Single‑site operators
  Looking to professionalize their accounting and improve margins
• Multi‑location groups and MSOs
  Coordinating complex entity and licensing structures across multiple cities and states

Geographic focus within California

We serve operators across the state, including:

• Los Angeles and Southern California
• San Diego
• San Francisco Bay Area & Silicon Valley
• Sacramento & the Central Valley
• Inland Empire
• Humboldt, Mendocino, and the broader Emerald Triangle
• Other emerging California cannabis markets

Multi‑state operators with a California footprint

For MSOs, California is often the most complex jurisdiction in the portfolio. We help:

• Coordinate California compliance with other state regimes
• Normalize reporting so owners and investors can see:
  • Performance by state
  • Combined tax load
• Ensure California’s unique local tax and regulatory environment is accurately reflected in group‑level decisions

How Our California Cannabis CPA Engagement Process Works

Step 1 – Intro call

We start with a short conversation to understand:

• Your license type(s) and locations
• Current pain points (cash, 280E, audits, local taxes, etc.)
• What systems you currently use (POS, METRC, accounting software, banking)

Step 2 – Diagnostic review

Next, we conduct a focused review of:

• Your books and records (QuickBooks, Xero, or other systems)
• METRC and POS setup and reports
• Prior tax filings (federal, California, CDTFA, local)
• Entity structure and ownership arrangements

This helps us identify gaps, risks, and quick wins.

Step 3 – Clean‑up & catch‑up

If needed, we:

• Bring your books current and accurate
• Reconcile:
  • Cash and bank accounts
  • METRC and inventory
  • Excise, sales tax, and local tax reporting
• Correct errors and inconsistencies that could create audit issues

Step 4 – Ongoing support

Once your foundation is solid, we provide ongoing services such as:

• Monthly or quarterly closes and financial reporting
• Proactive tax planning (federal, California, local)
• Compliance monitoring and deadline management
• Advisory calls to support operational and strategic decisions

What to bring to the first call (California‑specific checklist)

To make the most of our initial conversation, it helps to have:

• Your state and local license numbers
• Most recent CDTFA filings (excise, sales/use tax)
• Access (or sample reports) from METRC and your POS
• Recent financial statements or a trial balance
• Any notices from CDTFA, FTB, the IRS, or local agencies

Transparency & next steps

After the diagnostic review, we provide:

• A clear written proposal with:
  • Scope of services
  • Timeline
  • Pricing
• A roadmap for how we’ll get you from “where things are now” to audit‑ready, decision‑ready numbers.

FAQs

1. Why do California cannabis businesses need a specialized CPA instead of a regular accountant?

Because California cannabis isn’t “just another industry.” You’re dealing with:

• Federal 280E
• California income tax rules
• DCC licensing and METRC
• CDTFA excise and sales/use tax
• Local cannabis business taxes

A specialized cannabis CPA understands how all of these interact — and how to design your books, systems, and tax strategy around them. A generalist may only see pieces of the puzzle.

2. How does IRS Section 280E affect my California cannabis business?

280E disallows most ordinary business deductions at the federal level, leaving you with:

• COGS as your primary deduction
• Higher taxable income than your economic profit

For California, this inflated federal taxable income often flows into your California taxable income as well. The result is a higher combined tax burden unless your accounting and entity structure are designed to manage 280E’s impact.

3. Does California follow 280E for state income tax, and what does that mean for me?

Historically, California has largely conformed to federal rules, including 280E, for state income tax calculations. This means:

• Many of the 280E adjustments you make at the federal level also increase your California taxable income.
• Both your federal and state tax bills are affected.

However, cannabis tax policy is evolving. You need a CPA who tracks these developments and updates your planning as the law changes.

4. How do California excise, sales, and local cannabis taxes work for dispensaries and other license types?

In broad terms:

• Excise tax applies to cannabis products under rules administered by CDTFA (with specific mechanics depending on your role in the supply chain).
• Sales and use tax applies to taxable retail transactions.
• Local cannabis taxes (often based on gross receipts) are set by cities and counties and can vary widely.

Each license type (retail, distribution, manufacturing, cultivation) has different obligations. We help you understand who owes what, when, and ensure your systems are recording and remitting it correctly.

5. Can you help if my books, METRC, and tax filings are a mess or behind?

Yes. Many California cannabis clients come to us with:

• Incomplete or inconsistent books
• Unreconciled METRC, POS, and inventory
• Late or amended tax filings
• Notices from CDTFA, FTB, or local agencies

We prioritize stabilizing your current situation — cleaning up records, addressing urgent compliance issues, and building a foundation that can support growth.

6. Do you only work with California cannabis companies, or also in other states?

We have a strong focus on California because of its size and complexity, but we also work with:

• California operators expanding into other states
• Multi‑state operators (MSOs) with a California footprint

Our goal is to make sure California’s unique tax and regulatory environment is correctly reflected within your broader structure.

7. How do you keep California cannabis businesses audit‑ready for CDTFA, FTB, and local agencies?

We build systems and documentation with audits in mind:

• Consistent reconciliations between METRC, POS, bank, and general ledger
• Clear workpapers supporting:
  • Excise and sales tax returns
  • Local cannabis tax filings
• Organized digital files for invoices, contracts, and reports

If you’re audited, we help you respond efficiently and with confidence.

8. What accounting systems and POS platforms do you support for California dispensaries?

We commonly work with:

• Major accounting platforms (e.g., QuickBooks Online, Xero)
• Cannabis‑friendly POS systems integrated with METRC

Our focus isn’t on forcing you into a particular tool, but on making sure your stack is:

• Integrated
• Reliable
• Producing audit‑ready data

9. How do you handle heavily cash‑based operations in California?

We implement and monitor:

• Robust cash handling procedures
• Segregation of duties and daily cash counts
• Reconciliations between:
  • Cash logs
  • POS reports
  • Bank deposits
  • METRC inventory

The goal is to reduce risk, satisfy banks and regulators, and keep your financial statements accurate.

10. How do I get started working with your California cannabis CPA firm?

Start with a short consultation call. We’ll discuss:

• Your license type(s), locations, and goals
• Current systems and pain points
• Where you need the most help (books, 280E, taxes, audit risk, etc.)

From there, we’ll propose a scope and plan that fits your situation.

Schedule your California cannabis CPA consultation

Ready to Put a California Cannabis CPA on Your Side?

Navigating California cannabis regulations and tax rules without a specialized CPA is risky. Between 280E, CDTFA, FTB, local taxes, METRC, and license compliance, small mistakes can snowball into big problems.

Northstar Financial Advisory helps California cannabis operators build:

• Accurate, audit‑ready books
• Thoughtful 280E and entity strategies
• Reliable cash management and internal controls
• A clear, proactive tax and compliance roadmap

If you’re tired of guessing whether your numbers and filings will hold up under scrutiny, it’s time to get a partner who understands California cannabis from the ground up.

Next step:

Schedule your California cannabis CPA consultation and find out how we can support your dispensary, grow, manufacturing operation, distribution business, or microbusiness in California.