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Firm Management

How Accounting Firms Can Serve Marijuana Businesses

Providing services to clients engaged in a business that is legal under state law but illegal under federal law has raised concerns among CPA firms regarding professional liability risks and compliance with professional standards, laws and board of ...

More than 25 states allow the sale of marijuana for medicinal use; eight states permit the sale for recreational use. This activity has created new business opportunities for many public accounting firms, but there are unique challenges and risks in serving these clients.

Providing services to clients engaged in a business that is legal under state law but illegal under federal law has raised concerns among CPA firms regarding professional liability risks and compliance with professional standards, laws and board of accountancy regulations. Under federal law, marijuana remains illegal under the Controlled Substances Act. This exposes firms that service marijuana businesses to charges of aiding and abetting or conspiracy to violate this law, as well as criminal prosecution and civil claims alleging violation of federal racketeering laws.

Many banks refuse to provide services to these businesses due to concerns about application of both the Controlled Substance Act and anti-money laundering laws. As a result, marijuana businesses handle large amounts of cash, highlighting the need to address internal controls and the risk of theft and fraud. Additionally, the application of federal and state tax laws to income tax reporting by marijuana businesses is complex, requiring a heightened focus on compliance by both CPAs and their clients.

Quality control procedures will be of heightened importance for any accountant serving marijuana businesses. Vigilance in client engagement acceptance and continuance can help mitigate the elevated risks of servicing these largely cash based businesses, which must comply with conflicting federal and state laws. Both audit and tax services present unique challenges, such as the valuation of inventory and the disallowance of tax deductions under §280E of the Internal Revenue Code.

These factors create obvious risks for CPA firms providing services to marijuana businesses. When assessing client acceptance and continuance, CPA firms should determine whether the marijuana business has conducted criminal background checks of its employees and if any adverse findings will affect their ability to effectively render services. When entering into an engagement, CPA firms should obtain a representation letter from the business principals expressly stating that they fully understand and intend to comply with all state laws applicable to their business. Engagement letters should clearly define the scope of the services to be rendered, and require client management to acknowledge that it is their responsibility to maintain all tax and accounting records as needed to respond to inquiries, investigations or audits initiated by regulators and criminal or tax authorities. Additionally, all communications with the client should be documented in writing.

A related concern raised by many CPAs is how professional liability insurance coverage applies to claims that may arise from servicing these clients. Insurance coverage cannot be determined prospectively by the firm’s insurer, agent or broker. However, understanding how coverage applies can ease the process of evaluating and mitigating the risks of servicing this growing industry.

Professional liability insurance policies include a definition of “professional services”, which generally is broadly drafted to cover services performed by accounting firms. The majority of services CPA firms are likely to render for marijuana businesses are no different from those performed for other client industries.

Many policies also provide coverage for the costs associated with responding to a disciplinary or regulatory investigation. While coverage varies, these policy provisions are designed to provide coverage for the legal costs of responding to a complaint filed against the CPA firm or its employees by licensing boards or regulators. Professional liability policies generally do not, however, provide insurance coverage for the legal costs of responding to a criminal investigation or defending criminal charges filed against the firm or individuals. Policy exclusions specifically define and deny coverage for these exposures.

Additionally, these policies generally do not provide coverage for civil or criminal fines, penalties, sanctions or forfeitures. Coverage for these exposures is usually limited by the definition of Loss contained in the policy.

As a practical matter, how does this play out in the event a CPA firm or its employees encounter civil or criminal investigations, claims or legal action related to their services to marijuana businesses? Coverage is determined pursuant to a policy’s terms and conditions, as well as applicable laws, regulations and professional standards.

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Professional Liability Claims and Lawsuits:

Insurance coverage generally will apply, just as it would to services rendered for clients in other industries. However, in light of the fact that marijuana businesses remain illegal under federal law, claims may include allegations that the firm or individuals employed by the firm engaged in dishonest, fraudulent or criminal acts. Coverage is typically excluded if this occurred, but the relevant policy exclusions contain important exceptions. These usually indicate that the exclusion does not apply unless there is a final judgment by a court finding that the insured party is guilty of the allegation.

Fines, Penalties, Sanctions and Forfeitures:

Policies generally exclude coverage for these exposures. This includes penalties imposed on the CPA firm or individuals by licensing, taxing, regulatory and other legal authorities. Individuals or firms that come under investigation by any of these authorities should promptly place their professional liability insurer on notice of these matters. While there likely will be no insurance coverage for these exposures, there may be insurance coverage for the costs to hire legal counsel to defend the firm or individual, subject to other limitations contained in the policy.

Criminal Investigations and Criminal Legal Actions:

The costs to defend these matters generally are excluded from coverage. Once a firm becomes aware of such investigations or actions, they should promptly retain a qualified criminal attorney to represent the parties.

This is intended to serve as a brief overview regarding coverage under professional liability insurance policies for claims and lawsuits that could arise in connection with rendering professional services to legal marijuana businesses. CPAs should consult with competent legal counsel and their insurance agent or broker for further questions, including implications regarding other types of insurance coverage. All CPAs considering providing services to clients in the marijuana business should review the AICPA white paper, An Issue Brief on State Marijuana Laws and the CPA Profession, which addresses relevant legal, regulatory, and risk mitigation concerns, and is updated yearly.[1]


Stanley Sterna ( is a vice president and Joseph Wolfe ( is a risk management consultant at Aon Affinity, the endorsed provider of the American Institute of Certified Public Accountants (AICPA) Professional Liability Insurance Program since 1967.  For more information call 215.773.4653 or visit

This article is provided for general informational purposes only and is not intended to provide individualized business, insurance or legal advice, You should discuss your individual circumstances thoroughly with your legal and other advisors before taking any action with regard to the subject matter of this article. Only the relevant insurance policy provides actual terms, coverages, amounts, conditions, and exclusions for an insured.