First off, how are you and your firm doing in light of COVID-19? What adjustments have you made to your business as a result of the coronavirus?
In 2012, we began re-engineering our technological environment to accommodate remote access (or with remote access at its core). The resulting centralized management, teleconferencing solutions, and improvements in digital processing have enhanced interaction and collaboration among our users and with our clients independent of geographic location. The team members in our Cannabis Solutions Group are in different geographic areas and have been working remotely as a team for years. Many of our clients are also in geographic areas as well. Consequently, the transition in 2020 to working remotely for the professionals and staff of our 17 offices was seamless—without interruption or disruption of our services. The biggest difference was less travel.
How did HBK CPAs & Consultants first start working in the cannabis industry?
Initially, our existing clients came to us with their investment opportunities in the industry in the western part of the country. As their trusted advisor, we began learning about the industry, we saw there was little guidance available for businesses to help them navigate through the hurdles of starting a new business in the cannabis industry. We wanted to be one of the first firms offering services in the cannabis industry in our geographic areas.
Can you explain what services HBK CPAs & Consultants offer to cannabis companies?
We counsel owners, management and investors in multiples states and countries, helping them with key financial activities: from planning start-ups to connecting operators with investment bankers to facilitating M&A; from pre-offering projections, state applications and licensing to management planning and operations.
Our industry expertise is well known. We regularly address industry meetings and conferences, and we are active in the organizations and associations dedicated to moving the industry forward, including the National Cannabis Industry Association, the New Jersey Cannabis Business Association, the Florida Hemp Council, Minorities for Medical Marijuana, and Cannabis LAB (Law, Accounting and Business).
What industry segments does your organization cater to?
We were among the first large accounting firms to specialize in the cannabis industry and have worked beside entrepreneurs in all industry segments—cultivators, processors, retailers—from single facility to multi-location and integrated operations.
What challenge does IRS Section 280E present to cannabis operating companies?
The tax burden of 280E can cause serious cash flow issues for business owners. Taxes are calculated based on gross profit, not operating income. General and administrative expenses are not deductible, but still must be paid. While a business may show an operating loss, they could still have a significant tax liability. If the entity is a pass-through entity, the shareholders or partners will have to pay the income taxes out of their own funds without receiving a distribution from the business to offset it.
What is your view on the current status of the cannabis industry in the US today?
Right now we are seeing a lot of acquisitions enabling companies to enter into markets into different states. Due to the different regulations in each state, it is still difficult for companies to operate the same way in each state though. Once there is less regulation, businesses will be able to operate more efficiently with standardized processes across the entity.
Aside from full legalization, what do you think would be the single most helpful thing that lawmakers could do to help cannabis companies?
Descheduling cannabis would be ideal. Aside from that, passage of the SAFE Banking Act would help businesses by lowering operating costs and allowing greater access to capital. The cost of compliance to banks is significant and those costs are passed through to customers. If the compliance costs were less for banks, they would be able to charge less for their services.
Any advice that you’d provide to an entrepreneur or company new to the cannabis industry?
Gather a team of knowledgeable and trustworthy advisors and professionals that understand the industry.
Learn more about HBK CPAs Cannabis Solutions here: https://hbkcpa.com/cannabis or ask them a question via the Who's Who: https://whoswhoincannabis.com/listing/hbk-cpas-consultants/#ask