And one of those was the rise of the cannabis industry with state after state legalizing marijuana in one way or another, and accountants discovering that was a, a growing business with some very serious tax and accounting issues that it needed professional help with.
Dan Hood: It’s uh, this is an exciting topic there’s and like I said, it’s sort of, at least for, I think for a lot of people sort of dropped off their radar with the late unpleasantness with the, the pandemic.
I don’t wanna take my chances, but the fact that it was deemed essential, we’re able to see that it’s here and not only was it deemed essential.
I didn’t, uh, I had no idea that I knew it was a big, uh, opportunity realize it was quite that large, but I guess that makes sense, right? Because those are, you know, in many cases it’s hitting huge states, right? New York to say, uh, Virginia, big, big states, the lots and lots of opportunity.
However, the states are coming on board because they’re seeing the benefits of being able to collect tax revenues from this, from this industry.
Dan Hood: Well, and that all of literally every word you just said is a perfect example of why this is a huge issue for accountants, right? The variation among the states, uh, is a huge issue.
And so it’s important that accountants understand, you know, their states and they understand how those companies are taxed, because that can mean the difference between your operator, keeping their doors open and having to shut their doors down because they have this huge tax bill that they weren’t anticipating.
I think we will talk a little bit more about that, but, but there’s also compliance regimes in a state, right? There’s the, uh, seed to sale sort of requirements for, um, uh, all that sort of stuff.
So when the regulators come and they’re auditing these, which they do regularly, the state regulators come at a minimum on a quarterly basis, but they’re looking at the inventory levels.
There sometimes might be a daily fine $500 a day until you get this fixed or shut your doors down until you get this fixed.
But it seems like there’s a lot of other folks who go in with no idea, no idea of what it means to, uh, to be fully compliant with these systems. And they’re the kind, you know, it’s just as with small businesses or business anywhere, they’re gonna look to their accountant for advice, even if it’s not strictly speaking a tax or accounting issue.
So with these state mandated systems, the accountant should have a three way match set up where they are looking at the inventory manifest from the seat to sale system, the invoice that the client received and, or the, the PO as well as the POS system, to make sure that the amounts were imported into the, um, records into the POS system for your client properly.
Um, so one of the things we hear is that the technology is still, still, uh, still fairly new and any te that’s that, and it was gonna have bugs or problems or integration issues and that sort of thing.
You need to count the inventory in the store and then make sure that things are all reconciled and then do your upload and double check and triple check that numbers are going into each system properly and that you have an accurate set of books.
I’d like to dive a little, a lot more into, you know, uh, what would go into building sort of an accounting practice or tax accounting practice for, uh, for cannabis industry clients.
So a lot of time, many accountants, anybody who’s looking into the cannabis industry, they have an idea and they know that banking is limited, but what was the most surprising thing to was, you know, knowing that, but then actually walking into a dispensary and seeing that they are keeping their records or not their records, but doing their banking under the envelope system.
Um, and, and I think, you know, my next question is, um, apart from listening to podcasts like this, uh, you know, where do people, where can people, what do people need to know when they want, if they wanna look at starting a practice like this and where can they get that sort of knowledge.
I mean, there is a way that you can figure it out yourself, but there’s a higher risk when it comes to cannabis because you can risk your clients’ business by not doing things correctly.
It’s definitely not something you’d be like, ah, it’s just another small business or it’s just another business client to take on.
And I, if you’re an accountant looking at this, um, you know, how broadly or how narrowly do you think it makes sense for an accounting firm to, to structure its practice? Should it be just focused on their state? Should it be just focused on one part of the industry? Uh, or should they be like, yeah, we, we know what accountant, what, what the issues are for, for cannabis so we can serve anybody in the, the space.
So first of all, the supply chain, we, we touched on that little bit because it’s only state legal, the entire supply chain has to happen within the state.
And so the cultivation is the very beginning of the supply chain and that’s where you put the plants in the ground and you’re growing.
So there’s so many different avenues, um, when it comes to the supply chain for cannabis and when you are specializing in cannabis, you can also, so these businesses are not your, you know, if you’re thinking about a small cannabis depending on your state, but they can go from zero to three to 5 million within the first year of operations.
And I know there’s a lot of accountants who love what they do, but they just hate the payables piece or they just hate the bank reconciliations, but do it all well with cannabis, you can kind of niche down into whatever practice you, you prefer to do.
Is that a thing we expect that to, to continue? Is it, I’m assuming it’s driven by state regulations as opposed to it’s separate from the federal issue of being illegal at the federal level.
And so that’s the reason why most of these stores are so heavy cash because pull either if they have a bank account, you can, if they have a terminal, you can use your debit card, but you cannot use a credit card inside of a cannabis, um, dispensary.
And now that I see how complicated it is, I’m thinking that it’s probably gonna be maybe not this administration, but maybe the next one, the next one, after that, that will probably finally go, go legal.
And clearly, because it’s such a new industry and a lot of people are, you know, just coming into it for the first time cuz it didn’t exist before.
We’re connected with a lot of the state legislators and we are making sure that we, our voices are heard and we’re able to make a difference because a lot of times you’ll have your legislators, their sole focus is tax, how much tax revenue can we make, but on the practical side from account, from the accounting standpoint and us seeing our clients and seeing what they need, they need to have that feedback.