Australia’s medicinal cannabis market has grown from zero to nearly one million prescriptions per year in less than a decade. The hemp industry is expanding rapidly across South Australia, Victoria, and Queensland. Both sectors are heavily regulated, technically complex to account for, and almost completely ignored by mainstream accounting firms.
This guide covers everything cannabis and hemp business owners need to know about tax, accounting, compliance, and structuring in Australia.
1 Why cannabis businesses need a specialist accountant
Cannabis is not a normal industry from an accounting perspective. It operates under federal legislation (the Narcotic Drugs Act 1967) that creates compliance obligations no other Australian business faces. Your plants are biological assets under AASB 141. Your products may be GST-free under Section 38-50 of the GST Act, or they may not, depending on the supply chain position. You may be eligible for refundable R&D tax offsets worth hundreds of thousands of dollars. And your bank may close your account tomorrow with no warning.
A generalist accountant can lodge your tax return. But they will almost certainly miss the AASB 141 fair value measurement requirements, fail to identify R&D tax incentive eligibility, incorrectly apply GST, and have no idea how to handle seed-to-sale inventory reconciliation against your ODC reporting obligations.
The result is overpaid tax, non-compliant financial statements, missed incentives, and in the worst case, the loss of your licence.
2 The Australian regulatory framework
Understanding the regulatory structure is essential because it drives most of the accounting complexity. Three federal bodies oversee different aspects of the medicinal cannabis industry:
The Office of Drug Control (ODC) administers licences under the Narcotic Drugs Act 1967. Any business that cultivates, produces, or manufactures cannabis in Australia needs an ODC licence and corresponding permits. Application fees start at $50,000, with annual licence charges of $27,830. The assessment process takes approximately 195 working days from payment, with permit applications adding another 60 working days minimum.
The Therapeutic Goods Administration (TGA) regulates access to medicinal cannabis as a therapeutic good. Most products are accessed as unapproved goods through the Special Access Scheme (SAS Category B) or the Authorised Prescriber pathway. Only two products hold full ARTG registration. The TGA schedules most medicinal cannabis as Schedule 8 (controlled drugs), with CBD-dominant products classified as Schedule 4.
The ATO administers all standard tax obligations: income tax, GST, PAYG. There are currently no cannabis-specific ATO rulings, which means advisory positions must often be constructed from first principles.
State-level regulation
Federal ODC licensing applies regardless of state. However, state governments regulate industrial hemp separately. South Australia operates under the Industrial Hemp Act 2017 (administered by PIRSA), requiring specific cultivation licences. Other states have their own hemp licensing frameworks. Medicinal cannabis dispensing and prescribing is also subject to state health regulations.
3 Tax treatment: Australia’s advantage over the United States
If you have researched cannabis accounting online, most of what you have found is American, and much of it does not apply in Australia. The single biggest difference is this:
Australian cannabis companies that qualify as base rate entities (aggregated turnover under $50 million) pay the 25% company tax rate. All ordinary and necessary business expenses are deductible: rent, wages, equipment, utilities, compliance costs, ODC licence fees, and TGA application fees.
There is currently no excise duty on medicinal cannabis in Australia. The Parliamentary Budget Office has modelled excise scenarios (15 to 25%) for hypothetical recreational legalisation, but this remains speculative.
Capital expenditure follows normal depreciation rules, with the small business instant asset write-off available for eligible entities. Pre-revenue startup costs incurred before the business commences trading may need to be capitalised under Section 40-880, amortised over five years, a critical planning consideration given that the ODC licensing process can take 18 months or longer.
4 GST and medicinal cannabis
GST treatment of medicinal cannabis is nuanced and commercially important. The rules depend on where in the supply chain the transaction occurs:
| Transaction type | GST treatment | Basis |
|---|---|---|
| Prescription supply to patient (SAS/AP) | GST-free | Section 38-50, GST Act |
| B2B supply (cultivator to manufacturer) | 10% GST | Standard taxable supply |
| B2B supply (manufacturer to distributor) | 10% GST | Standard taxable supply |
| Distributor to pharmacy | 10% GST | Standard taxable supply |
| Import of medicinal cannabis | 10% GST at border | Division 13, GST Act |
Section 38-50 of the GST Act provides that drugs and medicinal preparations supplied on prescription under Schedule 4 or Schedule 8 of the Poisons Standard are GST-free. Subsection 38-50(6) explicitly covers drugs supplied under the Special Access Scheme.
Caution: Some cannabis businesses have applied GST-free treatment to B2B wholesale transactions. This is almost certainly incorrect. GST-free treatment under Section 38-50 applies to the supply of a drug on prescription to a patient, not to intermediate wholesale transactions between businesses.
5 AASB 141 biological asset accounting
This is the area where cannabis accounting diverges most sharply from every other industry. AASB 141 Agriculture requires that biological assets, including cannabis plants during their growth cycle, be measured at fair value less costs to sell at each reporting date. Changes in fair value are recognised in profit or loss. This is not optional.
Why this is hard in practice
The standard was designed for multi-year agricultural assets like cattle and timber. Cannabis has a 3 to 4 month growth cycle, making fair value adjustments disproportionately complex relative to the asset’s life. More fundamentally, there is no active commodity market for cannabis, meaning no exchange-traded benchmark price exists. Fair value is therefore a Level 3 measurement under IFRS 13, requiring significant management judgment.
This creates several practical problems:
- Income distortion. Fair value changes during the growth cycle hit profit and loss. A company can report net income in a quarter where it grew cannabis but had minimal actual sales.
- Capitalisation versus expensing. The treatment of growing costs (nutrients, labour, electricity, water) during biological transformation remains unresolved. No specific AASB guidance exists.
- Harvest transition. At harvest, the product transitions from AASB 141 to AASB 102 (Inventories) at the lower of cost or net realisable value. Errors in biological asset valuation cascade through to inventory valuation and COGS.
Getting this right affects your reported profit, your tax liability, your ability to raise capital, your audit outcomes, and your compliance with ODC financial reporting requirements.
6 R&D Tax Incentive for cannabis companies
The R&D Tax Incentive is one of the highest-value opportunities for Australian cannabis businesses, and one of the most commonly missed. Cannabis is explicitly not excluded from eligibility (unlike tobacco, which was excluded from 1 July 2025).
Key numbers: Companies with aggregated turnover under $20 million receive a refundable tax offset at the company tax rate plus 18.5%, effectively up to 43.5%. Minimum eligible spend is $20,000 per year. For a cannabis company spending $200,000 on qualifying R&D activities, the refundable offset is approximately $87,000.
Eligible activities include:
- Cultivation innovation: developing new growing techniques, optimising light spectrums, testing hydroponic versus soil-based systems
- Strain development: breeding programs, genetic stability testing, cannabinoid profile optimisation
- Extraction and processing: refining extraction methods (CO2, ethanol, hydrocarbon), developing new formulations
- Clinical trials and product development: testing delivery mechanisms, dosage optimisation, stability testing
- Quality and compliance: developing new testing methodologies, contamination detection research
The critical requirement is that activities must involve generating new knowledge where the outcome cannot be known in advance. Routine quality testing and standard cultivation practices do not qualify. Documentation of the hypothesis, experiment design, and outcomes is essential.
7 Business structures for cannabis and hemp
Structure selection for cannabis businesses involves considerations that do not apply in most other industries:
| Structure | Suitability | Key consideration |
|---|---|---|
| Pty Ltd company | Recommended | Limited liability, 25% tax rate, R&D Incentive eligible, ODC licence compatible |
| Trust | Limited | Cannot directly hold ODC licence. Loses R&D access. All beneficiaries may need fit-and-proper assessment |
| Partnership | Generally unsuitable | Unlimited liability, cannot hold ODC licence, no R&D eligibility |
| Joint venture | Situational | Useful for multi-party operations. Unincorporated JVs allow each party to claim R&D independently |
Foreign investment: Foreign ownership of cannabis businesses requires FIRB approval. The Narcotic Drugs Act imposes additional scrutiny on foreign directors and shareholders. These requirements should be addressed before incorporation.
8 Hemp farming tax considerations
Industrial hemp and medicinal cannabis are regulated separately, and the tax treatment differs in important ways. Hemp farming operates under state industrial hemp legislation, not the Narcotic Drugs Act. State cultivation licence fees are typically a few hundred dollars rather than $50,000+.
Hemp farming is treated as primary production under the Tax Act. This opens up several concessions that medicinal cannabis businesses generally cannot access:
- Farm Management Deposits (FMDs): Defer taxable income by depositing up to $800,000 in high-income years and drawing down in lower-income years.
- Primary producer averaging: Average taxable income over up to five years, reducing the impact of fluctuating annual returns.
- Accelerated depreciation: Water facilities (three years) and fencing for hemp cultivation at standard effective life rates.
- Land clearing and preparation: Potentially deductible under Section 40-630 (landcare operations).
- Instant asset write-off: Small business hemp operators can immediately deduct assets under $20,000, including harvesting equipment, irrigation, drying machinery, and storage.
AASB 141 applies to hemp too. Hemp crops are biological assets during the growing phase. The same fair value measurement complexities apply, though hemp’s commodity characteristics make market-based valuation somewhat more accessible.
Risk: crop destruction. If state testing determines a hemp crop exceeds the prescribed THC threshold (1% in SA), the crop must be destroyed. The loss is deductible, but the cash flow impact can be severe. Factor this into projections and consider crop insurance.
9 Record-keeping and ODC compliance
Record-keeping for cannabis businesses is more demanding than almost any other legal Australian industry.
- Seed-to-sale tracking: Every cannabis plant must be tracked from seed through cultivation, harvest, processing, and sale. This includes planting dates, growth records, harvest weights, processing yields, waste destruction records, and final product quantities.
- Destruction records: All cannabis waste must be documented and witnessed by two authorised persons. Records must include date, quantity, method, and witness names.
- Security records: Access logs, CCTV retention, alarm system records, and visitor registers must be maintained for ODC inspection.
- Financial records for ODC: Annual returns submitted to ODC include financial information that must reconcile with ATO filings and audited financial statements. Discrepancies create compliance risk across both agencies.
Your accounting system needs to track inventory at the batch level with full traceability. Standard Xero or MYOB configurations do not provide this out of the box. We configure inventory tracking systems that satisfy both ODC and ATO requirements.
10 Our cannabis and hemp accounting services
We work with medicinal cannabis licence holders, hemp farmers, cannabis retailers, processors, and investors across Australia.
Tax Returns & BAS
Income tax, GST (including Section 38-50 for prescription supplies), and PAYG prepared by industry specialists.
AASB 141 Reporting
Fair value measurement of cannabis and hemp crops, harvest transition to AASB 102, and compliant financial statements.
R&D Tax Incentive
Identifying eligible activities, AusIndustry registration, offset calculations, documentation, and ATO defence.
Business Structuring
Entity setup for cultivation, manufacturing, retail, and investment. Director liability and FIRB compliance.
ODC Compliance
Financial components of ODC annual returns, production data reconciliation, and inspection preparation.
Hemp Farming Advisory
Primary producer concessions, FMD strategy, state licensing, crop insurance, and AASB 141 for hemp.
11 South Australia cannabis and hemp landscape
South Australia has positioned itself as a hub for both medicinal cannabis and industrial hemp, making it particularly relevant to our Adelaide-based practice.
Medicinal cannabis: Several ODC licence holders operate cultivation and manufacturing facilities in SA, including operations in the Adelaide Hills, Barossa, and regional areas. SA Health administers the state-level framework for prescribing and dispensing.
Industrial hemp: PIRSA administers hemp licensing under the Industrial Hemp Act 2017. Cultivation licences are issued for up to five years, require a minimum of one hectare, and mandate the use of certified seed with sub-0.5% THC parent genetics. SARDI has conducted multiple variety trials in the South East and Riverland regions, testing 19 varieties for cultivation suitability.
SA’s climate, particularly in the South East and Riverland, is well-suited to hemp production. SA is the only state where we can provide face-to-face support for both medicinal cannabis and hemp operations, though we work with businesses nationally.
12 Common mistakes we see
- Treating cannabis like a normal business for accounting purposes. The AASB 141, GST, and record-keeping requirements are fundamentally different. A generalist accountant will produce non-compliant financial statements.
- Missing R&D Tax Incentive claims. Many cannabis companies are conducting eligible R&D but not claiming the incentive. At a 43.5% refundable offset for small companies, this is often the single largest missed financial opportunity.
- Incorrectly applying GST-free treatment to wholesale transactions. Section 38-50 applies to prescription supply to patients, not to B2B wholesale transactions.
- Not planning for the pre-revenue phase. ODC licensing takes 18+ months. Pre-revenue costs can exceed $1 million. The Section 40-880 treatment (five-year amortisation) versus immediate deductibility affects cash flow significantly.
- Inadequate inventory systems. Cannabis inventory must be tracked at batch level with full traceability. Businesses using spreadsheets invariably have reconciliation problems during ODC inspections.
- Not separating hemp and cannabis operations. If you hold both an ODC licence and a state hemp licence, the operations, records, and financial reporting must be clearly separated.
13 Frequently asked questions
Is cannabis a deductible business expense in Australia?
Do cannabis businesses pay GST?
Can cannabis companies claim the R&D Tax Incentive?
How much does an ODC licence cost?
Do I need to apply AASB 141 to cannabis plants?
Can I structure my cannabis business as a trust?
Is industrial hemp taxed differently from medicinal cannabis?
What happens if my hemp crop exceeds the THC threshold?
14 Getting specialist help
Cannabis and hemp accounting sits at the intersection of tax law, agricultural accounting standards, pharmaceutical regulation, and federal narcotics legislation. If your accountant has not heard of AASB 141, does not know what Section 38-50 means for your GST, cannot explain the difference between an ODC licence and a state hemp licence, or has never prepared an R&D Tax Incentive claim, you need a specialist.
At National Accounts, we handle tax returns, BAS, AASB 141 reporting, R&D claims, ODC compliance support, business structuring, and cash flow planning for cannabis and hemp businesses across Australia. We are Chartered Accountants based in Adelaide, with particular depth in South Australia’s cannabis and hemp landscape.