Navigating the Marijuana Industry: CPAs' Perspectives

by Ashley Kittrell | May 16, 2018

Any specialty or focus within a career takes time and dedication to learn the nuances and demands associated with it. CPAs who have taken on the challenging business of servicing clients in the marijuana industry face unique risks. Because marijuana is classified as a Schedule I drug by the federal government, CPAs must be continuously aware of the potential legal and regulatory obstacles that require careful judgment and expertise.

Dean Guske and Dani Espinda have both acquired extensive skill sets and knowledge of the marijuana industry. In the interview below, Guske and Espinda discuss how they got started, the challenges they face, and share their advice for CPAs looking to get into this industry.


Ashley Kittrell: What are some of the challenges that you faced when you first began taking on clients in this industry?

Dean Guske: I guess from my from my perspective I kind of got into it by accident you know. And it was just, a client got referred to me, I helped him with some unrelated-to-cannabis issues and asked me to take a look at his cannabis business. And I said, well, let me do a little research first, because I know that there are some rules out there with respect to it. 

And so I just did that research and got myself comfortable in it and it took me a long time. I probably spent 20 or 30 hours over a couple week period to kind of get myself comfortable with what the issues were and what the tax rules were before I decided to accept the client.

Dani Espinda: The biggest challenges for me in the beginning were lack of books and records. That was back in the medical days before it was rec [recreational], and Dean's laughing because he knows exactly what I'm talking about. There were a lot of attorneys that would advise their clients, to keep them out of trouble and out of jail, to shred their books and records; leave no evidence. And as an accountant that horrifies me. That was the biggest challenge and converting people out of that mentality even in the rec market is a challenge.

Ashley Kittrell: You said you spent a lot of time researching before you took on any clients. So were there any steps that you had to take to mitigate any liability and protect yourselves or was it enough to have the assurance of the AICPA, the WSCPA, and the State Board that you wouldn't be charged or they wouldn't go after you for anything?

Dani Espinda: We also made calls to our attorney and our insurance company to be sure that there wasn't some kind of an exemption for representing cannabis  businesses and there were not. I don't know if you know, but I have I have a few partners in my business so I have to answer to them too. 

And before I actively held myself out in this space and accepted more clients, I had to sit down and make them comfortable with it. I had to teach them all about 280E and code section 471. And back then the unit cap rules because there was still some of that that was being utilized back in the day. There has since been, you know, a memo saying that they don't recommend that.

What advice would you give to a fellow CPA who is looking to take on clients in this area?

Ashley Kittrell: So what advice would you give to a fellow CPA who is looking to take on clients in this area? Do you think that there's a bigger risk now, or has it just stayed the same?

Dean Guske: I think that even though the attorney general has basically put the Cole memo on hold or said he's not going to recognize it. I think all the states are still going to follow the Cole memo, because it lays out sort of eight common sense elements that you've got to have and the states have already complied with that.

And so I don't think they're going to roll back any of those tenets of the Cole memo. So, most of the people that I talk to don't think that this is really going to affect the industry itself right now. I don't know what your take is on that.

Dani Espinda: Yeah, it's full steam ahead. The only people that seem to be getting cold feet are the people in the banking industry. I know that personally our firm got a letter from our bank asking about our concentration of business and asked for a list of clients, and you know what percentage of clients that we have in this industry. So banks are looking at ancillary companies in addition to marijuana companies. It seems like the banking industry is where I've seen the biggest change. 

I had spoken at a conference called Cannacon last week and there were a lot of people there from out of state and actually I took a poll of the audience and I'd say probably 95 percent of the people were from out of state and I flew down from Alaska with cash. Yeah, I don't take a lot of cash payments any longer. 

Most of my clients have banking, in fact, but that's one thing I do require of clients is they have a bank account. If they have access, it makes our job much easier. I have had some problems with clients that deal solely in cash in their cash management procedures. So, we work with them to try to get them to rein it in and if they can't, then we politely suggest that they use someone else.

Ashley Kittrell: One of my last questions was about banking and how that relationship works, and if you're still seeing a lot of businesses still operating on the cash method, and if they're wary of having a bank account.

Dean Guske: Yeah I think so, I mean the last couple of years, initially we were receiving a fair amount of cash. And you know it sounds great, but it's a headache. And now I rarely get cash. I can't remember the last time I got paid anything significant in cash. It's been at least a year and a half. 

So it's most, like I said in Washington and in Oregon, just about anybody can get a bank account. Here I think there's half a dozen or so banks that I know of that are right on top of mind. Oregon, there's three or four of the bigger ones, so it's less and less of a problem. 

And I think the other states as they're when they move to a recreational market or an adult-use market, the banks will become more comfortable just because they've gone through vetting with the state already, background checks and things like that. So, some of the banks here will also do that. Once the state has already done it I think the banks get a little bit more comfortable.

Dani Espinda: And there are there are companies that will do some of the compliance issues that banks normally have to do. So there can be a middleman between the banking and the business that will offer opportunities to bank at regular banks like Bank of America and those places, so those are popping up as well.

Ashley Kittrell: Any other advice or tips?

If you're going to serve clients in this industry, then jump all the way in and don't dabble.

Dean Guske: Yeah, start taking clients in this industry. Take the pressure off us. Yeah, I don't know if I said this before, but I think if you're going to serve clients in this industry, then jump all the way in and don't dabble. Don't do one or two or three or six or something like that because I think what you'll do is you'll, there's enough issues out there, I think just on the tax side alone that you're bound to miss a big issue at some point in time. 

So, I know we've both been doing this for quite a while and I can tell you I learn something every day, or at least once a week. So, I think if you're going to get in, get in, do your research, and make it to a niche that you have at least 25-30 clients. So you've got to get an understanding through the sort of the spectrum of the industry.

It has its unique challenges that regular or non-cannabis businesses face.

Dani Espinda: It has its unique challenges that regular or non-cannabis businesses face, they generally have large tax bills and negotiating payment plans. I've become good friends with the IRS. I talk to them pretty regularly on behalf of my clients. And I get a lot of referrals from other CPAs and other accountants because they don't want to dabble, which I don't recommend that in this space. 

I think there's too many nuances not only in the tax law, but to the regulations and things like that that some of our traditional tax planning you know needs to be tweaked a little bit depending on the state rules. You have to consider that when you're talking with clients, and understand those rules right.

Dean Guske: I would agree. And I think one other thing is is that I think as the market matures in each state especially when you have adult-use cannabis laws, the people that are getting into the industry are far more sophisticated today than they were say four or five years ago. 

So people that have had other successful careers, other successful business careers, are finding opportunities in this industry. And it's a little bit higher quality of client a lot of time, so they get it. They've been in business, they know how to comply with rules and regulations, so I think it's kind of nice.

Ashley Kittrell: Thank you both so much.

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

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