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Pioneering Tax Help for the Cannabis Frontier

Pioneering Tax Help for the Cannabis Frontier

Pioneering tax help for new businesses, new communities and new enterprises has always been met with caution by CPAs.  So let’s look at the traits of our newest niche on the business frontier:

  1. This month the prestigious Accounting Today magazine called it the “entirely new industry that’s taking the country by storm…”
  2. One of its many advantages is that it is replete with cash dollars.
  3. Likewise, this new business has excellent prospects for growth and scaling.
  4. Moreover, the new business has an inherent craving for a massive level of pioneering tax help and financial coaching.

New Business Offers Vast Territory for Pioneering Tax Help

Cannabis is the new niche that is thriving as it becomes respectable.

A New Industry is thriving as it gains legitimacy.

The qualities listed above should draw an overwhelming amount of accountants and financiers who are eager to pioneer tax proper procedures.  And yet the accounting industry, as well as financial, has pulled back, hesitated, and even snubbed, this new industry.

Oh, yes, we forgot to add one small detail to the above list:  This burgeoning new industry is illegal according to federal law as well as in some states.

So, What’s the Big Deal?

That’s a big ethical issue for some accountants who have enjoyed the stuffy reputation of being very conservative in behavior, dress, and manner for generations.  (And yes, we are speaking of cannabis.  This is the new industry whose tax issues we have showcased in a few of our recent blogs.)

Trained Accountants:  Pioneering Tax Help between Legal and Illegal, Profit and Loss

Adventurous firms might be comfortable with the illegal aspects of the law.  “But for many accountants, that conflict with federal law raises too many red flags,” stated Accounting Today.  Stan Sterna, Esq.,  is vice president and risk consultant for insurance broker Aon Professional Firms.  He said, “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?’”

Clearly, there are a lot of obstacles to pioneering tax help for the cannabis frontier.  However, as long an accountant vets clients in this new niche as thoroughly as in any other niche, there will be no legal harm in offering your help.

By the way, we have answered some of the primary cannabis tax questions in another recent blog.

Cowboys, Competition, and Cannabis

Here at Gavrilov & Co, our tax squad does not generally think of accounting as an industry of cowboys set out to tame new territory.  And yet we feel CPAs should be prepared soon to face the innumerable tax and accounting issues of the Cannabis industry.

On the one hand, some CPAs are judging the industry by a shady past and they are avoiding that frontier.

On the other hand, there is a breed of tax accountant that believes in training to tame the tax frontier of this new industry.  With the tax code in one hand and the Law in the other, they are training to bring order and swift accounting services to the new green business.  And remember, soon, there just might be some competition for the most skilled tax advisers.

Whoa. Let’s Pause for Some Numbers, Please…

Legitimate Businesses require solid business plans and tax compliance.

New Frontiers Must Get Solid Help from Mature Industries and Tax Planners.

Just How Big is this New Industry? Some firms are missing out on the training and opportunities in this industry.  They simply do not understand how big it is.  As always, Gavrilov & Co goes to the heart of the industry, its numbers.  Let’s see just how “replete” this new industrial frontier is.

  • Marijuana Business Daily conservatively estimates $7-9 billion for legal medical and recreational sales.
  • Compare that to the movie industry’s revenues in the U.S. for 2017 at $43 billion.
  • Contrast that with 2016, illegal pot sales figure of $46 billion.

A Cry for Tax Help –and More–From the New Frontier

But legal cannabis a very young industry compared to such institutions as the movie industry.  Let us remind you of 2 other numbers.  Cannabis is legal for medicinal purposes in 23 states and legal for both medicinal and recreational purposes legal 10 states.  Yes, it is proving to be a cash crop enterprise and many accountants are beginning to see some advantages to pioneering tax help for the cannabis frontier.

Chris Walsh, the founding editor of Marijuana Business Daily, stated, “I realize accountants are by nature more conservative.  But this industry is coming out of the shadows, and desperately needs help.  It’s becoming a legitimate industry.”

Meet A CPA Who is Pioneering Tax Help

Way back in 2014, Oregon-based CPA Andrew Hunzicker, realized the direction in which the cannabis industry was heading.

His company, DOPE CFO, now not only specializes in assisting legal cannabis clients with taxes,. But he also trains accountants in the complexities of cannabis tax, accounting, and bookkeeping issues.

“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 true our recent blogs have focused on the lack of banking support for the industry as well as the difficulties of tax laws like 280E.

He added, “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.”

You can see why Gavrilov & Co has nick-named the niche a “frontier.”

The Hidden Difficulties that Come with Cannabis Frontier

And now we spy the crux of the difficulty.  The difficulty is not just the complexities of new taxes. Hunzicker explained.  “Because it developed in an atmosphere of few or no regulations, a lot of these companies aren’t keeping very good track of their finances…”

Fledgling Cannabis enterprises have much to learn about compliance with the law.

Cannabis Decisions Yet to be Decided in New York: Tax Rate? Compliance? Enforcement?

And Chris Walsh adds a warning to every cannabis dispensary in America.  He states, “and as the industry becomes more mainstream and professional, they’re going to need to get their books in order, or they’re going to be in trouble.”

On the bright side, our Gavrilov & Co tax squad knows that Cannabis clients can also afford the help they need from accountants. Therefore we should not mind the extra hours of work or training as we gear up to do our part in pioneering tax help and planning for the cannabis frontier.

And if bookkeeping and payroll counseling is also necessary, we should also be fearless. (After all, you cannot expect to open up a new territory without taming a few tumbleweeds or rounding up a few wild cows.)

Some More Stats for Today’s Terrific Tax Take-Away

So let’s take a look at a one more cannabis statistic recently featured in the New York Times.  Their article stated that “if marijuana were fully legal in all 50 states, it would create at least a combined $131.8 billion in federal tax revenue between 2017 and 2025.  That is based on an estimated 15 percent retail sales tax, payroll tax deductions and business tax revenue.  ”But at this point, we think the federal government’s loss is the states’ gain.

As always,  we thank you for reading the Gavrilov & Co Blog, and we hope you return next week for part 2 of this exciting frontier saga.