Despite the differences between state and federal cannabis laws, "cannabusinesses" are at the expanding forefront of a $25 billion industry with enormous potential.
"This niche is in its infancy. In my 40-year career, I can think of two massive opportunities, one of which was the birth of the internet. I think we're going to see a similar thing in cannabis," said Andrew Hunzicker, CPA, co-founder and partner of Dope CFO, which offers cannabis training programs for financial professionals.
Hunzicker will be a speaker at the AICPA & CIMA Cannabis Industry Conference, on site in Denver, CO, and live online Aug. 8–10.
Cannabusinesses aren't showing signs of slowing their growth, either.
"Your typical 'mom and pop' could start with one dispensary, grow to two, three, four, buy a farm, and very quickly you have a $10- to $20-million-dollar company," Hunzicker said. "These businesses make very good clients."
With plentiful opportunities and numerous bills aimed at federal legalization, you might be considering offering your services to the lucrative cannabis market. Here are some tips from Hunzicker to get you started.
Focus your resources
Becoming a specialist in a specific accounting area, like cannabis, can enhance your skills and future.
"If you are a new CPA coming in [to cannabis], investing your time into the niche and becoming an expert will better your career," he said. "You'll provide more value to your clients, they'll pay you more, and it's less stressful than generalist accounting, too."
Working primarily in a niche can help you dedicate your resources to productive areas.
Hunzicker recommends approaching the cannabis niche with a broad knowledge base, including a full understanding of "cannabis science, medicinal uses, software tools, and business operations, then layer in accounting — GAAP, cost accounting, the tax codes and the court cases."
Knowing each facet of cannabis production and commerce equips you with the best answers to clients' tough questions.
Join a professional cannabis community
Addressing knowledge gaps can remove barriers to the quality and legality of your service.
Seeking out informed individuals can help you find solutions, enabling you to offer the best guidance to your cannabis clients.
"If there's a question on cannabis, we can find the answer," said Hunzicker. "My guidance to CPAs speaking to [cannabusiness] clients is to seek a tax and corporate attorney well-versed in cannabis."
"There are cannabis events all over the U.S. every weekend of the year," he added.
If you live in a state where cannabis is legal, Hunzicker urges you to attend local cannabis events to learn about the industry and network with business owners.
Understand your state's regulatory environment
Knowing your state's regulatory environment inside and out is crucial to being successful as a trusted adviser to cannabusiness owners. To bolster your services, aim to build a permanent audit trail every month for each client and promptly seek nuanced legal counsel when you feel you are operating in gray areas.
Hunzicker also seeks to reassure CPAs as they consider offering their services to cannabusinesses.
"Even back in 2018, most national firms would never touch cannabis. That's changed quickly," he said.
With cannabusinesses displaying a high demand for professional financial services, and legal developments allowing better access to a growing multibillion-dollar industry, national firms are also starting to establish cannabis practices.
Know your way around cannabis taxation
Cannabusinesses' reliance on cash-only trading, which the proposed Secure and Fair Enforcement (SAFE) Banking Act would look to reduce, requires diligent tax compliance and mitigating the heightened risk of material misstatement. Otherwise, you risk accusations of gross negligence.
"We want to help our clients, and they are having a lot of difficulty with Sec. 280E of the tax code," Hunzicker noted, referring to the fact that cannabusinesses are prohibited from claiming ordinary business deductions and credits because marijuana is a federally controlled substance.
CPAs are well positioned to assist cannabusiness owners who, due to a lack of knowledge or complex regulations, might be tax inefficient.
"The one bright spot for farmer, processor, product manufacturer or owner is Regs. Sec. 1.471-11, a rule for inventory," said Hunzicker.
Regs. Sec. 1.471-11 states that in performing accurate, GAAP-level cost accounting in your recurring financials, there is a whole category of costs you can add to inventory that can be allocated to cost of goods sold, legally and correctly lowering your clients' taxable income.
Exercise caution with technology
Every cannabis-legal state mandates the use of a predetermined seed-to-sale software designed to verify compliance and track cannabis production from cultivation to purchase.
To supplement your inventory and cost accounting, you may also be tempted to use an enterprise resources planner (ERP) program. But Hunzicker has reservations.
"Be careful with ERPs," he cautioned.
Because ERP software is a relatively new introduction to a CPA's toolkit, it is Hunzicker's view that we are still far from having reliable cannabis-specific ERP programs.
Whether you opt for or against the use of ERPs, Hunzicker recommends that you "test and reconcile inventory regularly, try not to rely on seed-to-sale software, and keep your systems separate."
Rather than seeing technology solely as an opportunity to automate processes, capitalize on the pitfalls of technological advances to offer additional value to your client.
"Whenever you have a new industry, you'll get scammers — small businesses need CPA protection, too," he noted.
"I tell everyone, 7 out of 10 Americans want legal cannabis. When 7 out of 10 of us actually agree on something, it will likely happen," Hunzicker concluded.
Grow your career and become part of the CPA movement paving the way for better regulation of the cannabis industry. Network with cannabis industry experts, learn how to best serve your clients, and take a deep dive into accounting specifics during the AICPA & CIMA Cannabis Industry Conference, Aug 8–10, on site in Denver, CO, or live online.
Joel Gunner is an associate content writer at the Association of International Certified Professional Accountants, representing AICPA & CIMA. To comment on this article, contact Courtney Vien at Courtney.Vien@aicpa-cima.com.