The Risks Of The Trade: Providing Accounting Services For The Marijuana Industry

The New York State Society of Certified Public Accountants (NYSSCPA) and the Foundation for Accounting Education (FAE) hosted their 2016 Marijuana Symposium: Business, Tax and Legal Implications last Tuesday.

After the event, Benzinga had the chance to chat with one of the keynote speakers, Mat Young, vice president of state regulatory and legislative affairs at the American Institute of Certified Public Accountants (AICPA)’s state regulation and legislation team.

Federal Vs. State Level

Benzinga started by asking why legalization is so challenging on a federal level.

“The fundamental issue is that marijuana is a Schedule 1 drug, so it’s clearly and unambiguously illegal,” Young commented. “That obviously creates tension between a drug that the U.S. government has determined to be of no medical value, whereas over half of all states say it has medical value, and then eight more states have said, ‘This not only has medical value; we think it’s not only appropriate for it to be legal, but we’re going to set up a regime for that, and we’ll sell it, and we’ll tax it.’”

Benzinga: Which state do you think will be the next to legalize or decriminalize cannabis?

Young: “This is pure speculation, but I think it is quite likely that some of the traditionally more progressive states [will be the next to legalize marijuana]. If you look at the trend for medical marijuana, it was California, and then the West Coast, the mid-Atlantic and the New England area that moved first. So, it would not be surprising if a similar trend followed for recreational use.”

CPAs And The Marijuana Industry

Moving on to the challenges that the cannabis industry faces, Young declared, “One of the biggest challenges for a lot of these marijuana businesses is that they need traditional services that all businesses need. This includes legal services, and certainly includes accounting and auditing services. So, the question that has been asked time and time again by CPAs is if its permissible to provide services to these businesses, where the states have clearly said that they are allowed, [even though] the federal government has said that they are illegal.”

This raises a number of questions for CPAs, especially in relation to the extent to which they could be aiding and abetting a federal drug trafficker, and to the possibility of being subject to prosecution by providing these services.

“That’s a big unknown,” he added. And, while the Cole Memorandum provided marijuana businesses with a “certain degree of comfort about prosecution priorities,” it says nothing about service providers to these businesses, he explained. “So, the more fundamental question from a CPA perspective is: what impact might this have on my CPA license?”

“What has generally been the case over the last four years or so, is that, to the extent that state boards of accountancy are offering policy guidance, they are saying ‘it’s not our job to opine on federal or state drug laws, so we will not consider this as an act discreditable, but if you get prosecuted, we reserve the right to investigate and take our own action,’” the expert supplemented.

Risks Of The Trade

Discussing occupational hazards for CPAs serving the marijuana industry, Young explicated that “One thing that states are doing as they move toward legalization is requiring financial audits for these [marijuana-related] businesses. And, the only people that can provide these services are CPAs.”

“So, what do you do when the state has mandated that a business obtain an audit from a CPA, and the CPA does not know if it’s legal to do this work per se?” he questioned.

“In a nutshell, this remains illegal on a federal level, there’s a lot of uncertainty at the state level. But, at the end of the day, these businesses are emerging, they are growing quickly, and they need certain services, including CPA services, and it’s going to be a really grey are, even in cases where the state mandates these services,” Young continued.

Having said this, he supplemented, “I am not aware of any CPA that has been prosecuted for providing services to marijuana business. That is not to say that it couldn’t happen.”

“We encourage CPA to take legal counsel,” he concluded.

Liked this interview? Now check out our conversation with Viridian Capital Advisors president and founder, who shared a look into its Cannabis Stock Index, which tracks a few biotech companies including GW Pharmaceuticals PLC- ADR GWPH and Zynerba Pharmaceuticals Inc ZYNE.

Brett Hershman contributed to this report.