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Firm Management

How Accountants Can Get Started Serving Cannabis Clients

Cannabis is a very close knit community where everyone seems to know everyone. Breaking into the industry is not as easy as you may think. First of all you have to have some sort of angle. For instance, mine is that I have found a way around IRC §280e ...

Cannabis Taxes Money

The first thing to realize is that cannabis is not a white collar business, contrary to popular belief. I got into cannabis because I am a small business owner, and have been for 24 years. I couldn’t imagine not being able to deduct my legitimate expenses. That is what cannabis business owners face in each state. Cannabis is legal in 29 states and the District of Columbia. However, cannabis remains a Schedule I illegal drug to the Federal Government. It is important to realize that the term cannabis is the proper way to describe the merchandise sold. Cannabis entails products derived from a cannabis plant. That can include marijuana, or hemp.

Cannabis is a very close knit community where everyone seems to know everyone. Breaking into the industry is not as easy as you may think. First of all you have to have some sort of angle. For instance, mine is that I have found a way around IRC §280e which states:

No deduction or credit shall be allowed for any amount paid or incurred during the taxable year in carrying on any trade or business if such trade or business (or the activities which comprise such trade or business) consists of trafficking in controlled substances (within the meaning of schedule I and II of the Controlled Substances Act) which is prohibited by Federal law or the law of any State in which such trade or business is conducted

However, there are several Tax Court, and Appeals Court Cases that give you various tactics to get around this oppressive law.

In addition, for the most part, I act like a consultant. I have connections to get my clients banking. The myth is that cannabis businesses cannot be banked. However, in 2013 the Cole Memo, was issued letting cannabis owners bank the monies they make from cannabis. Further, most cannabis companies have a hard time finding financing, and legal help. Being the answer to all of these problems, as well as providing a tax solution is the key to success in cannabis.

One issue that I have found that can be cumbersome is the menisci of state law. Each state has its own different rules regarding cannabis. For instance, one common tax strategy is to separate a cannabis business into two separate businesses. However, in states like Nevada, if you are a cannabis license holder you can only own your cannabis business and no other company. Therefore, a different strategy is needed for dispensaries, growers, and transport in that state. As a consequence, I try to stick to one state when it comes to cannabis.

Getting back to the first thing I mentioned about cannabis not being a white collar business, I present to you that even though cannabis is legal, in a lot of states like California, there is a huge black market of growers that are either too afraid to go legitimate or don’t know the process. Bringing these companies into compliance is something that is not only a good idea to do, it can also be very profitable. Not to mention, if you are squeamish about working with people that have street smarts, then this business is not for you.

There can be a lot of money that can be made in this business, but you need to diversify yourself. For me, I am a consultant first with connections, and a tax person second. Further, there was a a memo issued by the AICPA, warning CPA’s about the possibility of them losing their license for working with cannabis clients. There has been no such guidance on enrolled agents (EA). The fact of the matter is that there are literally hundreds of thousands of cannabis businesses, and the thought of the government cracking down on those that support the industry is impractical.

As cannabis is a close knit community, the advertising that is done is word of mouth. If you get one cannabis client and provide good service and are knowledgeable, then you can bet you will get more clients in that space.

In short, breaking into cannabis is not the hardest thing to do, but you need to do your homework and know what you are doing.


See inside August 2018

How to Speak to Your Accounting Firm Clients About Cannabis

How do you explain your cannabis clients to your non-cannabis clients? Good question, but we should start with two assumptions that need to be made. One, you are working with State licensed companies. Two, your client’s starting point of view on ...


A Tax Accountant’s Analysis of the Cannabis Industry

In 28 States and the District of Columbia, cannabis is legal in one way or another. The problem is when you are dealing with the Federal Government. Cannabis is an illegal Schedule I Narcotic. That being said, when it comes to cannabis, legal ...