spreading, with sales for medicinal purposes legal in 23 states, and both medicinal and recreational marijuana legal in 10 states and Washington, D.C.
Cannabis is also unique in the depth of its need for accounting services. Oregon-based CPA Andrew Hunzicker, whose DOPE CFO serves cannabis clients and also offers training to accountants, realized this in 2014, when he started focusing on the field: “We hear about the cash issues and the banking issues and the insurance issues, but we don’t hear about the accounting problems. It’s tens of billions of dollars, and thousands of companies, but there’s no Big Four, there’s no industry guidance, there’s no GAAP guidance, and cannabis is very complex accounting-wise.”
Cannabis clients can also afford the help they need from accountants. “Just a small dispensary is usually multi-million in sales, and so they have higher revenues — and can pay higher fees,” said Hunzicker.
Less risk than you think
For many accountants, the conflict with federal law raises too many red flags.
“As soon as marijuana started being legalized, we started getting calls from even large and sophisticated firms about what the risks are: ‘Am I providing a service to an illegal enterprise? Do I have liability? Can I be subject to civil RICO charges?’” recalled Stan Sterna, Esq., vice president and risk consultant for insurance broker Aon Professional Firms.
Sterna assured accountants that, first and foremost, serving the industry won’t have any affect on their insurance, as the services firms will be offering aren’t criminal in themselves. He also suggested accountants shouldn’t let their fears hold them back, pointing out that, while the federal government is standing by its characterization of marijuana as a Schedule 1 controlled substance (the highest classification, putting it on par with heroin and making it illegal to sell or distribute for any purpose), “No one hears about the feds coming in and shutting down dispensaries.”
A number of state boards of accountancy have also announced that it is ethical for CPAS to serve cannabis businesses, and offered guidelines. (For more on that, see the American Institute of CPAS’ cannabis resources page, at www.aicpa.org/advocacy/state/marijuana.html.)
“Your state is likely going to say, ‘Do what you do for all your companies — vet your clients, make sure they have good internal controls and good processes; do what we all do as a CPA anyway,’” said Hunzicker. ”To date, I don’t know of a single accountant, bookkeeper, attorney, plumber or electrician who’s gotten in trouble simply for serving a cannabis company.”
That’s not to say that the other areas don’t have some risks. Federal law prohibits Fdic-insured banks from serving cannabis businesses, which leads to a number of complications. “Banks are very reluctant to do business with the marijuana industry, because they’d be providing services to illegal activities,” said Sterna. “That lack of bank clarity leads to cash issues, and issues of public safety. It’s a cash business — no credit cards, no checks. They have a lot of cash on hand, and accountants know the issues that go along with lots of cash — a higher risk of defalcation, IRS audits, and so on.”
Nonetheless, the general expectation is that time, and the mood of the country, are on the side of marijuana. Sterna pointed to legalization in Michigan as an indicator that the generally conservative Midwest is beginning to shift, and said that support is largely bipartisan.
Hunzicker is even more optimistic, predicting marijuana being delisted from Schedule 1 in as little as 24 months, and that banking issues may be resolved even sooner: “The feds and states get that there’s billions of dollars of legal cash floating around the system, and we need to get that into the banking system, so I think they will quickly address that.”
Nonetheless, accountants should not jump in lightly. “There are firms that … don’t feel comfortable taking on an engagement like this — they don’t like breaking the law,” said Sterna. “If your gut tells you not to do it — don’t do it. Don’t dabble.”
That last piece of advice is important: One thing everyone who serves or observes the cannabis industry agrees on is that you need to know what you’re doing.
You can’t fake it
From its banking problems and the ramifications of IRC
Discussion No. 3: Modernizing your technology stack.
The rate of technology change is not going to slow. Newer, better and faster innovations will continue to hit our profession. Start this discussion in your firm by asking such questions as: What is our position on adopting modern technologies? How agile are we in terms of implementing new apps? Do we have buy-in on modernizing our tech stack from all partners? How badly do we want to be seen as modern and maintain a distinct competitive advantage? Section 280E (which prohibits businesses from taking tax deductions or credits related to illegal activities), to the vast and varied tangle of state rules and regulations, cannabis requires serious expertise from accountants and tax professionals.
Jason Hoffman — who built a cannabis practice on his own at a different firm, and brought it to New York-based CPA firm Janover, where he’s now a senior manager and leader of their Cannabis Industry Practice Group — warned other accountants about the steep learning curve in the field: “Don’t just take a client because it’s there, because you’re putting them at risk. Reach out to other accountants who’ve been in this space. Reading a few articles is a start, but for me to be comfortable with my first client took hundreds of hours of research, and then spending lots of time with my clients to understand their businesses,” he said.
That need for education was what led Hunzicker and co-founder Naomi Granger to start offering training through DOPE CFO. When Hunzicker first moved into cannabis, “I had to develop my own cost accounting workpapers, charts of accounts — everything you would need for a new industry, because it simply wasn’t there. You couldn’t Google it, you couldn’t call Deloitte & Touche — you couldn’t call anybody,” he said. Over time, he became an informal guru for other professionals looking to serve cannabis, answering questions and sharing the resources he had created with whoever needed them.
“Eventually the need got so big that we launched a program, and now we have 140 students in 39 states — CPAS, CFOS and MBAS that we’re teaching the correct cannabis accounting and tax,” he said.
The training program is a hybrid — besides access to a host of workpapers, templates, Excel files, engagement letters and other documents, there are also a range of video course materials devoted to topics like cost accounting for cannabis businesses, as well as live Q&A calls every other week. Hunzicker and Granger also answer questions on Facebook every day.
Regardless of whether you take the course or not, he said, “If you want to serve this industry, you want to develop your expertise. Spend at least an hour a day learning not just the tax and accounting issues — you want to learn about the software issues, you want to learn
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Change is not easy, especially in a profession that moves as fast and furiously as ours does. But when you lead with an educated mind, it makes implementing change that much easier because you’ve opened the door to alternative solutions. Use your educated mind to challenge the traditions of the accounting profession, to start resolution-generating discussions with those around you, and to move forward in achieving the life and business you want and deserve!