Last week the AICPA hosted their second annual Cannabis Conference. As a speaker and AICPA Cannabis Committee member, I had the privilege of presenting to a large room of CPAs either currently involved or looking to get involved in the cannabis industry. Amongst the numerous high-quality questions asked, I felt one, in particular, warranted more attention than time permitted at the event. That question was, “What is coming next for CPAs in the cannabis industry?”
While I could go on for hours in response, there are three items CPAs interested in the cannabis industry should have on their horizon.
The attitudes and markets for alternative medicines are indeed warming up. For example, a recent article published by John Hopkins University exhibited clinical evidence that psilocybin may have dramatic, positive effects on severe depression. Meanwhile, Oregon state legalized the use of psilocybin for therapeutic purposes back in November 2020.
While there are many differences between cannabis and psilocybin, they share a similar classification related to the federal government. Both are Schedule 1 controlled substances, meaning the sale of psilocybin in any form is currently federally illegal. Additionally, it falls subject to tax code section 280E, just like cannabis. If you are a CPA who is already well versed in cannabis, you are in a unique position to understand the hurdles that the psilocybin industry will undoubtedly encounter. You also have a tremendous opportunity to get in on the next big wave of emerging psilocybin markets.
- Cannabis Industry IRS Audits
Many of us in the cannabis industry felt strongly that federal legalization was near when the Biden administration took office. Thus far, we have yet to see any meaningful movement in that direction. However, a recent bill introduced by Republican representative Nancy Mace of South Carolina has me looking yet again to the possibility of a federal resolution on the issue of cannabis legality.
While federal legalization may provide much-needed relief from issues such as 280E and banking, it will likely result in a significant uptick in IRS audits of cannabis operators in anticipation of any such resolution. Further, the need for additional tax revenue to address the mounting federal deficit gives more incentive for the IRS to target the cannabis industry with audits. Accordingly, CPAs should be on guard and ready with support and guidance for cannabis operators both preemptively and in response to IRS audits.
- Cannabis Exports
As long as cannabis remains a federally illegal product, it is unlikely that domestic and international exports will become a possibility. This is because the current infrastructure that exists within the industry is set up to treat each state as an individual island of production, with no crossing of state lines.
That said, a federal resolution on cannabis will likely grant clarity and opportunity for cannabis operators to begin exploring exports. This creates a massive new opening for CPAs to advise on everything from proper accounting to IT systems set up to accommodate yet another new revenue stream. While this is still a future consideration related to the industry, CPAs within the space should be keeping an eye on it. I would recommend looking to other industries, such as pharmaceuticals, as a model for export of highly controlled substances.
As with any emerging market, new challenges and solutions seem to arise daily. While it can sometimes seem daunting to stay on top of it all, it also speaks to this industry’s massive need for well-qualified CPAs. So if you are dipping your toe or already deeply emersed, the professionals at Rebel Rock are here as a resource to support our fellow CPAs.