There it is. The envelope with the Canada Revenue Agency logo sitting in your mail. Your heart immediately starts hammering in your chest. An audit.
That word is enough to stress out any business owner, but when you’re in the Canadian cannabis industry, the pressure feels dialed up to eleven. You’ve already jumped through a thousand hoops with licensing and regulations just to get your doors open, whether you’re in the Cariboo-Chilcotin or up on the North Coast. A financial fire drill is the absolute last thing you need.
But what if you could take that fear and toss it right out the window?
You can. It’s all about knowing exactly where the CRA likes to point its powerful magnifying glass. Once you know what they’re looking for, you can build a financial fortress around your shop. Let’s dive into the three areas they scrutinize the most.
1. Inventory & Cost of Goods Sold (COGS)
This is the big one. For a cannabis retailer, your inventory is the lifeblood of your business, and trust me, the CRA knows it. They aren’t just glancing at your purchase orders and sales slips; they’re looking for a perfectly seamless story from start to finish.
Think about it: every single gram of product has a documented journey. It goes from your supplier, to your vault, and finally into a customer’s bag. The federal seed-to-sale tracking system creates a digital breadcrumb trail, and you can bet the CRA expects your financial records to match that trail perfectly. Any discrepancy, no matter how small, is a massive red flag.
- What are they really looking for? Do your reported costs actually make sense when compared to your sales? Is there a crystal-clear, written-down process for what happens to waste, damaged goods, or even the free samples you give away? A sudden drop in your inventory without a sale to back it up is a question you’ll definitely have to answer.
- So, how do you stay clean? You need to be obsessive. Your internal tracking system has to be flawless. Regular, physical inventory counts are completely non-negotiable, and you must reconcile them against your point-of-sale (POS) system and your accounting software. Every. Single. Time.
2. Sales, Sales Tax, and Excise Duties
Money coming in. Sounds simple, doesn’t it? Well, the government wants its cut, and in the world of cannabis, that cut gets complicated fast. You’re juggling GST, PST, and that lovely federal excise tax. It’s a lot for anyone to handle.
The CRA’s main goal here is simple: they want to make sure every single dollar you earn is reported and all the right taxes are sent their way. How do they do it? By cross-referencing everything. Your POS reports, your bank deposits, your GST/HST filings, and your provincial tax filings all have to tell the exact same story. A mismatch is like a formal invitation for them to start digging deeper.
It’s like trying to build IKEA furniture when one page of the instructions says a screw is 5cm long and another says it’s 6cm. You know something is wrong. That’s how the CRA views conflicting sales data, and they will pull on that one little thread until your whole operation unravels. Don’t even give them a thread to pull.
3. Business Expenses & Deductions
This is where so many businesses—not just cannabis shops—get themselves into hot water. Of course you want to claim every legitimate expense to lower your tax bill. Who wouldn’t? But the CRA needs to be 100% certain that those expenses are legitimate, reasonable, and directly connected to earning income for your business.
Writing off your vehicle? You’d better have a detailed mileage log that clearly separates business trips from personal errands. Claiming huge marketing expenses? Get ready to show the invoices, the campaign results, and prove it was all for your shop. The name of the game is documentation.
- The Golden Rule: If you can’t prove it, you can’t claim it. It’s that simple.
- Common Pitfalls: Vague labels on expenses, missing receipts, and mixing your personal and business accounts are the fastest ways to get your claims denied and your business flagged. Can you really prove that fancy dinner was a business meeting and not just a Tuesday night out with friends? The burden of proof is always on you.
Stay Prepared, Stay Protected
Running a cannabis shop in regions like the Northwest Interior or the Northeast is a unique adventure. The last thing you want is for sloppy bookkeeping to torpedo all of your hard work. Getting a handle on these three areas—inventory, sales, and expenses—isn’t just about avoiding a dreaded audit. It’s about building a stronger, healthier, and more profitable business for the long run.
Feeling a little overwhelmed? That’s okay. This is complex stuff. But you don’t have to figure it all out on your own. Getting a professional set of eyes on your books isn’t just for compliance; it’s for your own peace of mind. If you want to make sure your cannabis business is built on a rock-solid financial foundation, the best thing you can do is talk to an accountant who gets your industry. Reach out to us today to see how we can help protect your business.