Outrun Change

We need to learn quickly to keep up with the massive change around us so we don't get run over. We need to outrun change.

Update on marijuana regulation: Supporting businesses are starting up, including a CPA firm – #20

Image courtesy of DollarPhotoClub.com

Image courtesy of DollarPhotoClub.com

For background, I am watching the newly state-legal recreational marijuana markets develop in Colorado and elsewhere. My hypothesis, and the reason for my coverage, is that heavy-handed state regulation will strangle a new industry.

10/1 – Accounting Today – Blazing a Trail / A Colorado CPA finds success serving the growing marijuana industry – A CPA in Colorado started getting so much work from cannabis businesses that he started a new firm and moved all that work out of the old firm. The new firm has three partners with total of 10 staff (I think that includes the partners).

Several surprises in the article.

First, he has a very cordial relationship with the IRS. He suggests the IRS wants good compliance and therefore staff are willing to openly work with him. Second, most cannabis companies in Colorado do have bank accounts. There are local banks who will take on those deposits. There is still a huge amount of payments made in cash though.

Article suggests various regulators are aware of and concerned about the social risks of huge amounts of cash floating around. It would actually be in the best interest of tax agencies (at the federal and state level) and local police to get all that currency on the books, in the banks, and out of storage rooms. In his initial research he was told that no CPAs have ever been sanctioned in California for helping medical marijuana dispensaries during the 15 years they have been legal.

He said that making sure all sales are fully reported is a minimal issue. No one want to risk losing their entire business by selling a little bit out the back door.

There is a new reporting form for large cash transactions that address marijuana deposits. Presumably these are getting less attention from the feds, especially the DEA. This allows separating out businesses that are state-legal from other dodgy businesses that are even not trying to be legit.

Internal controls are a major issue in a cash-based industry. The CPA indicates the controls used in the gaming industry have been replicated in the cannabis industry. That should mitigate the risks of currency disappearing. Inventory control is quite tight he says.

If you wish to take his comments at face value, there is room for quite a few more CPAs to start a practice serving the industry.

9/28 – AP at Bismarck Tribune – Oregon medical marijuana dispensaries gear up for rec sales – Recreational sales of marijuana will not start until 2016 (I’m not sure of the date and the article doesn’t say). Personal growing and use became legal July 1, 2015. As a transition rule, medical dispensaries who get appropriate permission can start selling for recreational use this week. Over 200 of the 345 authorized medical dispensaries planters be selling recreational material this week.

Infused products will not be allowed. Taxes on recreational sales start January 4, 2016 when the tax will be 25%.

As is expected for such an article, there are simultaneous concerns expressed about too much competition on one hand, and insufficient supply of product on the other hand.

10/15 – The Cannabist – Denver ballot: Marijuana tax question would let city keep $5.3 million – Apparently there is a superb law in Colorado that requires taxes collected over some amount (not sure if it is the forecast budget or actual expenses) be returned to the taxpayers.

In Denver, this is affecting the 3.5% tax the city levies on marijuana sales in addition to other excise and sales taxes. Because the revenue will be over the target number, the city is expected to return $5.3M to taxpayers. Since giving money back is a terrible thing for politicians and tax collectors to accept, there is a ballot measure up for consideration which would let the city keep the extra windfall.

10/14 – The Cannabist – ‘The Mary Kay of MJ’: Startups add new facets to pot industry – Lots more entrepreneurs are entering the market.  One venture capital company is funding startups with a cash infusion (sorry!) and training. New companies are entering the industry in a variety of ancillary roles. Featured company in the article is an outfit that will come to your home and introduce you to the market, new products, and where to buy. Um, I hope they don’t take any, um, samples with them since that would be far outside the law for licensed recreational facilities.

Seriously, I think this is good. It is a very good thing for entrepreneurs to enter a new market and explore ways to meet consumer demand. Let’s see if the regulators let this develop or whether they will try to crush the emerging businesses.

Useful stats for Boulder County and Denver:

  • Bould. Denv.
  • 46      496 – licensed grow operations
  • 25      385 – licensed retailers
  • 14       143 – product manufacturers
  •   1          17 – testing faculties

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