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What CPAs Need to Know About Providing Services to Marijuana Businesses

by Journal of Accountancy Podcast | May 16, 2018

Providing accounting services to marijuana businesses is full of potential legal and ethical minefields. This episode explores what CPAs need to know about the latest developments in providing accounting services to marijuana businesses.

Transcript

Chris: Hello, I'm Chris Baysden, an editor with AICPA's Journal of Accountancy. Today on the JofA podcast, we're going to talk about a topic that is full of potential legal and ethical minefields: providing accounting services to marijuana businesses. Because of all the controversy surrounding this topic, I think that this is going to be one of our most interesting podcasts that we've ever recorded, but before we get started, please take a few seconds to listen to a short message from our sponsor.

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Chris: Welcome back. CPAs who are considering providing services to marijuana businesses have a lot of ethical and regulatory issues to consider. Today. I'm going to talk about some of those considerations with two guests. The first is Julia Woislaw, a Manager of Advocacy Communications for the AICPA, and we also have Ashley Kittrell who is the Government Relations Coordinator with the Washington Society of CPAs. Julia, let's start with a few questions for you. First of all, what is the current environment in the states for CPAs providing services to marijuana businesses?

Julia: So right now over half the country has some form of legal marijuana. Right now eight states and the District of Columbia have legal recreational marijuana and then actually just recently Vermont passed a bill to legalize recreational marijuana that will take effect on July first of this year, so that will be at nine states and total in 2018 we saw about 21 states introduced legislation that would legalize recreational marijuana and some of those bills are still active.

Some didn't make it through the legislative process before their state adjourned for the year, but that was a significant number of pieces of legislation. And then 29 states, DC, Guam, and Puerto Rico all allow for medical marijuana. And 14 more states introduced medical marijuana legislation in 2018. Oklahoma has a ballot measure in June where voters will get to decide on medical marijuana in Oklahoma, and there are also proposed ballot measures in both Missouri and Utah, so those are both still going through the process to qualify for the ballot right now.

And so it's so many states having some form of legal marijuana, marijuana related businesses are more and more seeking out professional services like CPAs, just like any other business, but because marijuana is still illegal at the federal level, it really does create some challenges for CPAs who aren't sure if they can provide these services or if their state board of accountancy will take disciplinary action against them.

So CPAs are really looking for guidance from their state boards of accountancy to determine if they can help provide these services. And right now 12 state boards of accountancy have issued official guidance for licensees in their states who want to offer services to businesses in the marijuana industry.

Chris: Have there been any big recent policy changes at the federal or state level?

Julia: There was a lot of commotion earlier this year because Attorney General Jeff Sessions rescinded the Department of Justice memo that had said federal funds would not be used to enforce marijuana laws against individuals and businesses that we're in compliance with state medical marijuana laws. So if you were operating a business, a medical marijuana business in a state with legal, medical marijuana and you were in compliance with the statewide, the DOJ would not prosecute you. And then Attorney General Sessions rescinded that memo.

Then just recently on March 23rd, Congress approved a spending, a bill, a spending bill that had an amendment that would replace those same restrictions and again prevents federal prosecutors from going after state medical marijuana businesses in states with legal medical marijuana. The only thing with that is that because it was attached to the spending bill, it would have to be renewed again next year when the spending bill backup for fiscal year 2019.

And then there's been some other chatter on the federal level around marijuana issues. For example, Senator Mitch McConnell announced plans to introduce legislation to legalize hemp as an agricultural commodity, which would take it off the controlled substances list and that legislation hasn't actually been introduced yet, but it would definitely be something to watch out for.

Chris: What can CPAs do if they have questions about providing services to marijuana businesses?

Julia: They should definitely contact state boards of accountancy and your state CPA society. Those can give you more information specific to your state and your practice area and you can also visit our website which is AICPA.org/marijuana, where we have more updates and some resources on this issue too.

Chris: And are there other groups that are providing guidance on this issue?

Julia: yeah, so the Marijuana Public Policy Project has model state legislation for states that want to legalize marijuana and it has a specific exemption in it for professional occupational license holders so that if they provide advice or services to marijuana businesses that are compliant under state law, they--there's a regulatory board could not take disciplinary action against them. And so that would include CPAs as a professional license holder.

Chris: So actually, let's move on to what's happening in Washington State. First of all, what's the regulatory environment like in Washington for CPAs that provide services to marijuana businesses?

Ashley: Well, right now I think it's the best it can be considering the recent activity at the federal level. Our State Board of Accountancy and Governor's office has really done a great job researching what other organizations and states are doing as well as communicating their positions. So the State Board of accountancy's position is that CPAs who provide services to the marijuana industry don't violate anything in the Public Accountancy Act or the board rules.

 With that said though, the Board does strongly advise that CPAs in firms approach this at their own risk and that they really consider the potential liability because of the uncertainty at the federal level and what will or won't be enforced. Governor Inslee and our attorney general have also taken proactive steps seeking to clarify the DOJ enforcement policies. So right now I would characterize it as somewhat cautious, but by no means preventative or discouraging.

Chris: Tell me about the amendment that recently passed in Washington.

Ashley: So Engrossed Substitute Senate Bill 5928 was really promoted as a safety measure for these all-cash businesses and it demonstrated the need for more security of financial transactions while limiting the criminal repercussions for financial institutions on a state level. You know, the testimony during these hearings gave a lot of examples of owners having to carry around thousands of dollars of cash in duffle bags and robbers who have perfected the art of breaking into a store and stealing the cash in the safe box.

The bill itself is less than two pages long and adds a new section to the Crimes and Punishment Statue of the Revised Code of Washington. And it says that any person or entity defined under the uniform controlled Substances Act does not commit a crime under Washington State law simply for providing services to these businesses. Our lobbyist brought the bill to our attention early on in the legislative session and after consulting with AICPA and the State Board, we wrote an amendment that said essentially the same thing: that CPAs or CPA accounting firms don't face criminal liability solely for providing professional accounting services for a marijuana producer, processor or retailer.

Chris: And why was it important to have CPA specifically exempted?

Ashley: It really adds an extra layer of protection for the profession on the state level. In order for marijuana businesses to comply with the law and properly pay taxes, like Julia was saying, they have to utilize the expertise of CPAs.

The CPA profession is bound to a really high standard of ethics, so they're concerned about providing services in an industry where they could potentially lose their license or face federal charges. So while we can't really give that assurance on a federal level, we can give it on the state level.

Chris: Was there any push back from your legislature on the amendment?

Ashley: There wasn't any on our amendment. There was a handful of legislators who voted against the bill and I think their main concerns were opposition to marijuana legalization in general and the fact that it is still a Schedule I drug on the federal level. But the consensus was that this is a positive public safety measure.

Chris: And have you seen problems for your members in Washington that provides services to marijuana businesses? And if so, what types of problems are those?

Ashley: You know, we really haven't. I think right now CPAs are comfortable providing services to this industry. I recently spoke with two of our members who work solely in this area and they indicated that it's really full steam ahead on continuing to serve clients as well as taking on new ones. That being said, these CPAs have really put in the time and effort that it takes to know the regulatory nature of the marijuana industry. And so they were saying you have to immerse yourself in it if you want to be successful and you have to be aware of what's going on.

So at a state and federal level and kind of going back to your first question, the Governor's office and the State Board has clearly communicated their policies and they're closely following the federal scene. So that has given CPAs a lot of assurance as well.

Chris: Thanks Ashley and Julia. And I'd also like to thank our audience for listening today. If you enjoyed this podcast, check out more podcasts on our website and Podomatic.

Advertisement: This podcast is designed to provide illustrative information with respect to the subject matter covered and does not represent an official opinion or position of the AICPA or AICPA.org. It is provided with the understanding that the AICPA and AICPA.org are not engaged in offering legal, accounting or other professional service. If such, adviser expert assistance is required, the services of a competent professional person should be sought. The AICPA and AICPA.org make no representations or warranties or guarantees as to and assume no responsibility for the content or application of the material contained herein and especially this claim all liability for any damages arising out of the use of reference to or reliance on such material.

Looking for information on federal taxation of legal marijuana? Find CPE programs here.

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