News & Insights
Getting Ahead on the MRA’s Annual Financial Statement Reporting Requirement
November 24th, 2021
You are busy running your business, and it is easy to prioritize day-to-day responsibilities over annual compliance reporting. But what seems like slight procrastination may have major consequences. Whether your cannabis business has a medical or an adult-use license, reporting under the Annual Financial Statement (AFS) requirement through Marijuana Regulatory Agency (MRA) is not to be taken lightly. The MRA has been understanding and lenient as everyone learns the new reporting processes. However, as licensees move through their second and/or third round of AFS reporting, the grace the MRA has shown will fade.
While medical and adult-use licenses adhere to different sets of requirements as established by law:
- Medical licenses – Pursuant to Section 701 of the Medical Marihuana Facilities Licensing Act
- Adult-Use licenses – Pursuant to Rule 20 of the Marihuana Licenses rules – R. 420.20
There are many similarities and differences with the AFS forms established by the MRA to meet State of Michigan reporting requirements. Therefore, utilizing the correct AFS report is a key step to successful reporting.
Many licensees are receiving lengthy Notice of Deficiency (NOD) letters from the MRA, which add to the cost of running a successful business. Here is a list of some of the more common deficiencies the MRA has communicated (not in any specific order):
- Cash handling procedures described to secure cash and cash transactions are not adequate.
- Lease agreements or activity does not agree to the general ledger or documents submitted to the MRA.
- Revenue transactions per METRC do not agree to a licensee’s POS system and/or general ledger.
- Total revenue per METRC does not agree with the licensee’s POS system and/or the general ledger.
- Lack of supportive documentation (invoices, etc.) for disbursements.
- Including medical transactions/activity on an adult-use AFS report.
- Including adult-use transactions/activity on a medical AFS report.
- Payroll activity not appropriately reported or reconciled to Form 941 reports.
- Ownership information provided does not agree with records submitted to the MRA.
- Lack of reporting outsourced vendor activity for management functions.
- Sales and excise tax reporting not appropriately reported or reconciled to the licensee’s POS system and/or the general ledger.
As licensees look ahead and prepare for the next AFS report to submit, here are a few items to consider easing the process along:
- Start the AFS process with your independent CPA (Certified Public Accountant) as soon as possible. Do not delay, as late filings may result in significant fines.
- Every month, licensees should:
- Reconcile, identify, and clear differences pertaining to METRC activity vs. the POS system vs. the general ledger.
- Track that all agreements and ownership changes are communicated to the MRA.
- Reconcile payroll activity to Form 941 reports.
- Reconcile sales and excise tax forms to the POS system and general ledger.
- Separate medical activity from adult-use activity as much as possible if a common general ledger is utilized.
The team at Maner Costerisan is deeply invested in Michigan’s cannabis industry, and we understand the complex challenges cannabis business owners face daily. We are committed to helping our clients stay compliant while building a sound financial strategy that supports their growth. We are proud members of the Michigan Cannabis Industry Association and supporters of the Marijuana Regulatory Association’s social equity program. We know cannabis, and we can help.