By Barbara R. Fallon
The cannabis industry has a cast of characters, each with a focused target on creating standard operating procedures to guide performance and production and improve their piece of the industry’s operating boundaries. For example, clinicians work to prescribe effective and safe dosages for medicinal purposes while patients seek relief from pain and disease symptoms. Researchers seek a scientific evaluation of various strains for usage while labs and scientists test for potency and contamination. Lawyers maneuver through legislative regulations while politicians weigh the outcomes of legislative policies legitimizing the expanding industry. Activists support expansion of usage from medicinal to recreational purposes while communities weigh the benefits and risks.
BUT the question is how a vertically integrated relationship of growers, producers, sellers, and investors navigate the complex tax rules when the industry (still relatively new) is evolving on a daily basis.
The smart ones partner with a tax accountant versed in financial disciplines of accounting, bookkeeping, tax, assurance, cash flow analysis and consulting as relates to the cannabis industry.
Marc Egort, CPA, PA, is a South Florida CPA firm of five dedicated professionals serving a variety of industries and individuals from Architects to Yachtsman and everything in between. Founded by Marc Egort in 1999, the boutique firm which bears his name, is built on his personal experience in the home health care industry. More than three decades focusing on finance, reimbursement, cost reporting and accounting on the home health circuit, elevated him with a reputation as an industry expert. In addition to this professional experience he is surrounded and supported by industry leading accountants with Big Ten firm experience, retail expertise and ecommerce, broadening the base of clients.
“Our mission is a personal commitment to protect and be in a position to defend financial practices of every client,” Egort said. To that end he advises that the best defense is a good offense.
According to Egort, the firm builds compliance from the ground up assisting clients within a controlled business strategy to collectively:
• create, document, and follow policy and procedure
• chart and correctly account for all related costs
• consistently apply a collective financial discipline at a granular level of compliance to use as a defense when questions arise
“It’s best not to have to play catch up at the end of the year.” he said.
The 280E IRS code is a major stressor providing a frustrating and complex tax scenario for clients. It was initially drafted to prevent drug dealers from claiming tax deductions for their business expenses; however since even state-legalized cannabis is still federally considered illegal trafficking of a controlled substance, there is a conundrum in what can be categorized as allowable cost of goods (COG) deductions. The 280E code is currently interpreted to include state-legal cannabis businesses which results in a major reduction in allowable COG deductions and in turn means increased taxable income for the cannabis entrepreneur.
Marc Egort specializes in GAAP (General Accepted Accounting Principles) cost accounting to maximize the tax implications and minimize the tax liabilities by providing a path of compliancy regarding costs of cannabis business.
“If the past 30 years of education at the school of hard knocks has taught me anything, it is to be ready for some level of interaction with federal agencies, including the IRS, FBI, FDA, and DOJ,” Egort remarked. “Every client in the cannabis industry should assume at some point they will be audited, so we build a strong defense file from the ground up demonstrating a culture of compliance every step along the way,” he continued. “As partners we are prepared to sit at the table beside owners, CFO’s and comptrollers when these federal agencies come calling. Their purpose is to knock holes in any tax strategy and ours is to be prepared to show a comprehensive compliance approach and shore up every hole,” he explained.
With a regional client interest, the firm maintains a continually updated knowledge base of rules and regulations which vary from state to state to federal. Just as a laboratory seeks review and approvals from a full range of agencies, Egort clients have the advantage of proven guidelines and solutions to navigate daunting fiscal and operational challenges.
As a still relatively new industry, the evolution of the cannabis scenario continues. As activists, politicians, business professionals, investors, law enforcement, clinicians and patients engage in the cannabis industry, there will no doubt be further revolutionary changes in the cannabis tax landscape and Marc Egort plans to have a voice in molding those changes with a best practices tax management approach.
For more information, visit www.egortcpa.com or call (754) 301-2183.