CPAs and cannabis businesses – a 2023 update

Advising legal cannabis-related businesses is a growing opportunity for CPAs. The landscape is ever-changing, on regulatory and other fronts.

Andrew Hunzicker, CPA, the founder and CEO of Dope CFO Certified Advisors in Oregon, and Ron Seigneur, CPA/ABV, founder and partner at the firm Seigneur Gustafson LLP in Colorado, joined the JofA podcast recently to provide an update on what has changed in the industry as well as highlights of the upcoming AICPA & CIMA Cannabis Industry Conference, Aug. 14-16 in Boston.

They discuss common questions CPAs have, how laws and regulations have changed over the years, and more.

What you’ll learn from this episode:

• An overview of the cannabis industry’s regulatory landscape since one of the speakers was on a JofA podcast episode in 2020.
• What attendees can expect at the AICPA & CIMA Cannabis Industry Conference in August.
• Details about accounting-specific guidance as it relates to cannabis businesses.
• The questions that Hunzicker and Seigneur often get about advising cannabis businesses.
• A list of some of the specific niches that make up the cannabis industry.

Play the episode below or read the edited transcript:

To comment on this episode or to suggest an idea for another episode, contact Neil Amato at Neil.Amato@aicpa-cima.com.

Transcript

Neil Amato: The AICPA & CIMA Cannabis Industry Conference is in Boston in August. Two of the speakers at that event are joining me today on the Journal of Accountancy podcast. This is your host, Neil Amato, with the JofA. To start, we’ll have each of the CPA guests introduce themselves. First, Andrew Hunzicker from Oregon, and then Ron Seigneur from Colorado.

Andrew Hunzicker: Hey there. Thanks for having me. My name is Andrew Hunzicker. I’m a CPA in Oregon. I also served with Ron on the AICPA Cannabis committee. I think we’re in Year 4 and we have our annual event every year, including this year. I got involved in cannabis eight years ago, I think, kind of accidentally when it came to Oregon and got involved with farm, testing lab, and some dispensaries. Quickly from there transformed into teaching other CPAs how to get into the same industry. To date now, I think I’ve trained over 1,300 CPAs across the US and CFOs pretty much in every state with our program Dope CFO.

Ron Seigneur: Hello, everyone. I’m Ron Seigneur. I’m a licensed CPA in Colorado. I’m the founder of Seigneur Gustafson CPA located in Lakewood, Colorado. I’ve been practicing accountancy for over 40 years. I’ve been honored to serve on the planning committee with Andrew and a few others for the last few years for the annual AICPA Cannabis Conference that Neil mentioned is coming up in August on the 14th through 16th. Most of my practice focuses on valuation and forensic accounting issues, although we do have a couple of dozen tax compliance clients in the cannabis space. And I am very happy to be with you today to talk a little bit about our conference and what’s on the agenda.

Amato: First for Andrew, I guess, for our audience, which has heard over the years about the growing opportunities for firms to become advisers in cannabis-related businesses, what has changed in say, the past 18, 24 months, I guess since since Ron was on the JofA podcast with me to talk about the landscape in [2020] as it related to legal cannabis products.

Hunzicker: Yeah. A lot of things have changed in the last two or three years, and really going back to COVID. For one, and even a few years before then, originally, I would talk to CPAs and 90% of them were like, I’m never going to touch cannabis ever. Since that time, as cannabis has swept across the U.S. in many states, we’ve seen solo CPAs, regional firms, national firms all jump into the space as these more and more states open up, and it keeps growing every day. We’ve, I believe with Minnesota, we’d have 23 of our states fully legal. That’s almost half and many more medical as well. We’re also seeing a lot of federal movements. So for example, the Safe Banking Act, which basically provides a safe harbor for financial banks and institutions to serve cannabis, that’s failed now about seven times.

Although this year, in May, just last month, it was reintroduced, and this was the first time that both chambers of Congress have brought this at the same time, including Senator Steve Daines (R-Montana). We actually feel there’s a pretty good chance of this passing. There’s also bills, I think one, HR 610, Marijuana 1-to-3 Act, and that’s talking about very similar to what we saw in hemp and CBD several years ago. I don’t know if people remember hemp and CBD were completely illegal Schedule 1 and with the 2018 Farm Bill, they became fully legal just by moving it off Schedule 1. That’s when we saw CBD literally sweep the nation, not to mention hemp. Now there are bills talking about taking cannabis off Schedule 1. One of the requirements to be on Schedule 1 is to have no known medical benefit.

Well, we all pretty much know at this point, there are hundreds of medical benefits that are being documented and tested in hospitals and labs and science all over the globe actually, and so real science is catching up. That’s feeding the fact that 8 out of 10 Americans want access to medical cannabis because of that research and results. When 8 out of 10 of us agree on something, it will happen. That’s why we’ve seen it sweep through the U.S. in the last 10 years.

Amato: I think that’s a pretty good summary. Ron, then I guess to follow up on that, that’s set the stage and where things are with states and federal laws. But what are some of the top two or three issues for CPAs who work with clients from legal cannabis businesses?

Seigneur: That’s a great question, Neil, and It dovetails really nicely into what Andrew just outlined. The Safe Banking Act, which actually stands for Secure And Fair Enforcement, it’s passed the House like seven times, but it’s never been able to get out of the Finance Committee in the Senate. But now we’re seeing some changes in the Senate hierarchy, and there’s interest in getting that pushed to the floor to create a good, safe banking alternative for cannabis. A lot of states have in part of the answer to your question, Neil, is this industry is so unique because it’s so jurisdictionally bound to the rules of each particular state that have legalized recreational or medical or both.

As Andrew said, Minnesota just became the 23rd state to legalize recreational. I think there’s 38 states that have legalized medical access, but each of those have their own regulatory framework and they don’t allow interstate commerce. That’s one of the big things for people to be aware of is this industry, which is a $30 billion a year industry that the state regulated legal side, not counting the illicit side, $30 billion it has to be done each within state boundaries. When things start to move in Washington in terms of safe banking and other legislation, there are signs that maybe those interstate boundaries will be coming down. We’ll have interstate commerce. It will be a tsunami, if and when that happens. It probably won’t happen within the next couple of years, but it’s something for practitioners to be aware of that likelihood is becoming more of a reality.

This is an industry in distress, and it’s important for people to recognize that. We came through COVID. COVID was very good for cannabis generally speaking. People were off work, sheltering in place. They had stimulus money. They may have spent their stimulus money on the wrong stimulus. But in any event, the access to cannabis came up with ordering online and drive-through, curbside service, and everything, and that’s stuck around. Now we have an over-saturated market in many areas, particularly out west in Oregon and California and even Colorado. That’s a big deal because I think as practitioners get into this industry, they’re going to find that the big players are struggling financially to meet their metrics, and access to capital is very difficult as well. There’s a lot in that, but those are just some of the things that practitioners need to be aware of, if they’re going to be working in this space.

Amato: Great. Andrew, anything you’d like to add to that?

Hunzicker: No. I would just reiterate all what Ron said and so at the end of the day, at least for the lower quality, marijuana is a little bit of a commodity. Imagine if we had 50 different states prices for oil and gasoline, and that would be very tricky. And we have that a little bit, but in cannabis, you could just have crazy differences in pricing due to supply and demand in different states. Once those state walls come down, hopefully that will level out a little bit and not be so incredibly cyclical of big highs on pricing and big lows, it makes it very difficult for people to run their business.

Amato: I guess for Andrew again, what about for accounting-specific guidance related to these cannabis businesses? What’s the latest on that front, either in your state or other states or on a national level?

Hunzicker: The bad news is, it is complex. It’s hard for us to deal with. What some people don’t realize – I call this an industry as opposed to a niche. We’re seeing the birth of an industry and that includes many niches: farming, chemical processing, product manufacturer, distribution, retail, even delivery companies, testing labs, sometimes all of that within one company so there’s a lot of complex cost accounting. Now the good news is, we feel it’s the smartest for any cannabis company in any state in the US to as best they can, follow GAAP level cost and accrual accounting. We say first and foremost, that helps you run your business better. It gives you easier access to capital, it’s better for your lenders, it’s better for exits. And oh, by the way, it actually sets you up for that federal tax return pretty nicely.

Amato: Ron, anything you’d like to add on that front?

Seigneur: Just to emphasize that’s a really critical component and a real interesting opportunities for CPA practitioners to understand the importance of good inventory accounting. The GAAP accounting that Andrew pointed out is important because so many of the players in the industry are trying to get their financials cleaned up so they’re looking to CPAs to attest on their statements because they’re out looking for capital. They’re out looking to be acquired. They may be hoping to go public someday, so there’s a lot of emphasis right now on upgrading their accounting and reaching out to professionals that know the niche, know the industry to help them get their books in order.

Amato: Now both of you, I guess, will be at the conference in August. We mentioned that at the top of the recording. I guess for Ron, would you like to sum up what you think the highlights will be at that event?

Seigneur: Absolutely. I’m excited. We hosted the conference in Denver last year and it was wonderful and we got to show people Colorado cannabis industry. We’re going to be in Boston, and the Northeast is the hot area right now because there’s just so much happening with New Jersey and Pennsylvania potentially getting closer to recreational and some of the emerging states out there. We’ve got regulators from the area that will be speaking, we’ve got Aaron Smith coming back again. He’s the CEO of the National Cannabis Industry Association, well-respected within the industry. He’s going to be the opening keynote. We’ve got some legal minds that are coming. We have Luke Ortner, who’s actually with the Internal Revenue Service, who has agreed to speak.

When you get somebody to come from the Internal Revenue Service that’s willing to open up and tell us what the IRS is thinking and seeing, that’s really important, particularly in this industry because of the Section 280E nuance, which is huge to understand. Jen Benda, who’s an incredible legal mind, will be speaking, I think Nick Richards on some industry accounting techniques from a legal perspective. Lots of networking opportunities. We’re co-located with the AICPA Agriculture Conference. So there’s some opportunity that if you’re maybe from rural practices and you want to learn more about agriculture accounting and I think you can cross over and do some sections over on their side of the aisle as well. That will be fun. That worked well in Denver.

Amato: That’s great. Now obviously we’ll have a link to the conference in the show notes for this episode. We’re recording in early June. Again, the conference is in August. Anything else you’d like to add in closing? I guess Ron first.

Seigneur: Maybe one thing that we haven’t touched on is, so many CPAs they look at this and they go, is it ethically appropriate for me to work in the cannabis industry. Most state boards of accountancy have issued position statements saying as long as you follow your professional standards and adhere to the rules of being a licensed CPA, you’re OK to work with state legal, regulated cannabis businesses. Stay out of the illicit patch, that’s for certain, because it still is illegal federally under the Controlled Substances Act, and that’s something to be aware of. Andrew and I, we don’t worry about that, and I think most CPAs that might have that trepidation and they can get some input. We’re going to have ask-the-expert sessions at the conference and lots of opportunity to maybe get some of those questions answered as well, if you’re trying to scope out where that fits in your practice decisions.

Neil Amato: Andrew?

Hunzicker: I would totally reiterate that. I get that question all the time. The national firms, I say, wouldn’t be in the space if there was any risks from their insurance or legal advisers. We’re moving quickly there. It can be a messy industry and you’re going to see it at some point, whether you’re at a big firm right now, or you’re a solo tax person, or you’re wanting to be a CFO or are a CFO for these companies, you’re going to see it. I get this call all the time — it’s like, I didn’t want to get in the industry, but my sister’s cousin has a new farm that’s in cannabis and they’re bugging me left and right to help them out.

The industry is going to come to you, whether you come to it or not. We have a chance to make a difference to these companies. Many of them need our help, especially CPAs. I tell people in a 30-year career, you may have the chance to get involved in a new industry maybe once in your career, and the time is now for cannabis. That’s how I feel about the industry. By the way, Ron will attest to this, we have a lot of fun to these AICPA events. We’re going sailing, the Red Sox are playing. We’re going have a lot of fun.

Amato: Yeah, it sounds like it. Thank you both for this update on the topic and also the preview of the conference. I appreciate you being on the podcast.

Hunzicker: Thank you.

Seigneur: Thank you, Neil.