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| Joseph Bailey, CPA |
You have likely tried to google "280E CPA", "cannabis CPA", “cannabis tax” etc. and found that your options seem to be somehow limitless and horribly limited at the same time.
Whether your State is legal for adult use
(such as Oregon, Washington, Alaska, California, Colorado, etc.) or medically
legal (29 States), the tax implications remain the same, and finding a good CPA
can be daunting. Just getting to a good list of questions to ask a cannabis CPA
can be impossible.
We have been in the cannabis industry for
years, helped hundreds and hundreds of businesses, and often are asked about
what makes for a "good" cannabis focused CPA.
The list below, while not exhaustive, should
help point you in the right direction and at least weed out (pun certainly
intended) folks who simply will not meet basic requirements.
1. What certifications do you hold?
A lot of the folks entering the industry are
doing so out of lack of options versus passion for the industry. As such, does
your CPA have an accounting degree, CPA (certified public accountant)
certification, EA (enrolled agents), MBA (Master of Business Admin)? Different certifications
can provide a certain level of assurance as to expected quality of tax return
preparation, and highlights more importantly what someone is NOT certified to
do. Make sure your CPA/EA/etc. has the background and certifications you
need.
Beyond this, it is good to check on where
someone is licensed, then actually go to that State Accountancy Board website
and look up that person's license. From there you will have a good view as to
whether they have been disciplined by an Accountancy Board currently or in the
past.
2. How many years’ experience do you
have?
This should be obvious, but in this industry,
you really don't want your CPA to be learning their craft on your business.
There is a GIANT amount of learning curve that CPA's undergo in the first 5
years of practice, let alone the first few years in cannabis. This is even more
so when a CPA can achieve employment with a "Big 4" firm (we will
discuss this in a later point).
3. What industries have you worked in?
Outside of understanding cannabis specific
issues and practices, having a CPA with a varied background will be quite
beneficial as they will have insights that someone who has been wedged in one
industry for 20 years just won't have. Experience in retail, manufacturing,
agriculture industries is an obvious benefit as well.
4. Have you worked internally for any cannabis
companies?
This is a bit of a BONUS style question. You
will be able to find CPA's who do not have operational/inside experience
working within a cannabis company, that will still be able to help you achieve
great success. But if you have two CPA's that are 100% matched against each
other, wherein one has managed internally, I would likely utilize the services
of the CPA with internal experience as they will have seen things that someone
on the outside looking in will not have had exposure from.
5. Why did you join the industry?
At BCC, we are here to help an
underrepresented class of businesses and owners, support a community and
culture that we love, and we have a special set of skills and background that
can and have greatly impacted business owners.
Now, you would think a CPA in this industry
would be prepared to answer this question, but you will be surprised by the
answer you get from a lot of people. If your CPA isn't PASSIONATE about this
industry, they will at some point place their cannabis clients at the bottom of
the pile. Why? There are just easier ways to make money as a CPA than working
with cannabis companies. At this current level of maturity of the industry,
there is a lot of hand holding, revisions, and messy clean up that takes place
within these companies.
6. Do you use IRC 263A to allocate mixed
service costs?
This will not mean much to you now, but it is
a VERY important part of limiting IRC 280E impact on cannabis companies. If
your CPA is not using 263A, you are overpaying on taxes, plain and
simple.
7. How do you deliver sensitive information to
clients?
CPA's tend to be behind the times, which means
they are still handling a lot of business via paper, as well as sending a lot
of personal information through email. You want to work with someone that can
operate paperless (saves time and money) and utilizes secure servers and means
of delivering info to you. There is already plenty of risk in this industry,
you really don't want to have to worry about sensitive information being stolen
electronically due to lax data security protocols.
8. Have you or any of your staff ever been
convicted of a non-traffic related crime? Was that crime directly related to
your work?
Do you really need an explanation here? The
public tends to think that if someone has a CPA license that it means they have
never been in trouble... think again. There are plenty of FELONS that are
CPA's, you should probably make sure that your CPA isn't one of them.
"Street Cred" isn't something your CPA needs.
9. Do you have experience working in public
accounting? Was any of that experience at the "Big 4" level?
A CPA that has only ever worked internally at
a company will not have had the opportunity to work on the amount and varying
type of issues that someone in public accounting will have seen. Now, that
experience may be EXACTLY what you need, but usually that is only the case when
someone is looking to hire a CFO, not a CPA.
Discussing the Big 4 is usually where CPA's without Big 4 experience get upset. Please note, I am not saying that being a Big 4 accounting firm alumnus makes you better than someone without that experience. Remember "Big 4" is simply a reference to the biggest four CPA firms in the US. PwC, Ernst Young, Deloitte, and KPMG.
When a CPA has a background in Big 4, especially for an extended number of years, that person has been through ten times the number of situations that someone from a small firm has seen. This isn't to say that they aren't as good of a CPA, I am simply pointing out that your chances of finding a high-level CPA are greater with a Big 4 accountant as they have been subjected to a large amount of high level, high stress work with very high expectations of completion and quality. Again, Big 4 experience doesn't mean the CPA will be great, but I personally find that the chances of hiring a good CPA go up when looking at Big 4 candidates versus non-Big 4 candidates (all other things equal of course)
10. Have you successfully defended any clients
in the face of an IRS audit?
This will simply help put the cherry on top of
the interview as it will get to the heart of the CPA candidate's experience
level. "Pump and dump" firms exist all over the place, including the
cannabis industry. They are attentive when accepting retainers, attentive to
get your e-file form signed, then you never hear from them again. Preparing a
return is one thing, defending it under IRS audit is another matter altogether.
If you are looking for a CPA to partner with your company for success, having
even minor tax audit experience will be beneficial.
