Eight Inconvenient Truths About the Cannabis Industry (that nobody is talking about)

CPAs in the cannabis industry are not being candid, honest and straightforward in talking about the cannabis industry. While I’m not suggesting that there are any easy corrections available for current positions, I do think that it makes sense for us to address the facts directly and honestly.1

A headline in a CPA newsletter today caught my attention: “CPA Andrew Hunzicker Creates Course in Cannabis Accounting: ‘This industry is very underserved by accountants.'”2 I strongly disagree; that position is not supported by evidence. In my Delaware Valley region (southeast Pennsylvania, southern New Jersey and northern Delaware market) the industry is already oversaturated. The CPA industry serving legal cannabis is overcrowded here with more well qualified CPAs than there are firms with cannabis licenses.

The cannabis specialty interest group within the New Jersey Society of Certified Public Accountants has over a thousand members. A recent local industry convention had four larger CPA firm exhibitors at a time when there was only six cannabis licenses issued so far in the entire state. CPAs are flocking to the field en masse while regulators are growing the legal cannabis industry at a snail’s pace.

To gain any meaningful insight into the industry trends, we need to consider the illegal cannabis market.

The truth is this:
1) 100% of the cannabis industry is still illegal under federal law. That includes derivatives like CBD used as food additives that are not approved by the Food and Drug Administration.
2) Close to 100% of the cannabis industry is illegal under state laws. Even in California that has the largest legal cannabis industry, almost 90% of the industry is still illegal.
3) Trends in decriminalization are causing the illegal cannabis industry to grow. The largest growth will come in illegal operations, not in licensed legal ones.
4) Despite licensing and decriminalization, the large majority portion of the cannabis industry will remain illegal.
5) The needs of the illegal cannabis industry are underserved. Economic profits are not certain, either for the legal or illegal cannabis industries.
6) The risks of serving the illegal cannabis industry clients are substantial. Legal, financial and professional constraints dominate.
7) CPAs don’t even want to talk about serving the illegal cannabis industry; the entire topic remains wide open.

I’ve decided that my own future professional opportunities lie in representing those with struggles in the illegal cannabis industry, just as I represent illegal clients in the farming, food processing, fisheries and construction industries. 4 All of these industries have high rates of noncompliance with accounting laws. That doesn’t mean that they don’t deserve a good accountant, but it does mean that their future accounting problems are likely to be higher than average. I’ve developed the business structure, tools, temperament and skills to be effective in this environment. I see big demand ahead in this area.

Reforms in the cannabis industry will continue to march forward at an awkward gait. Accountants will not be immune from the angst.


Footnotes
1 I took a similar stance in pointing out and documenting inconsistent positions within the profession in response to CPA statements and actions following enactment of the Affordable Care Act. These discussions are uncomfortable but still useful to ourselves and the industry.

2 Nothing in this post is meant to be disparaging to Mr. Hunzicker, a respected leader in this profession.

3 CPAs are governed by a core principle in the AICPA Code of Professional Conduct requiring us to avoid acts discreditable to the profession. Some interpret that to mean that no public discussion should be made of illegal, off-color or nonconforming opinions. However, that is not an accurate interpretation of the professional standard.

4 I’m not a user, proponent or impassioned by the cannabis industry itself. However, I have a strong track record of representing independent businesses in their struggle with government.

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