According to the Ventura County Star, “Santa Barbara County and cities in its boundaries have received 799 permits to grow marijuana – 14 percent more than Humboldt County” as of April 2018. The cannabis industry is upon us. With the industry growth in the County and the significant revenue potential, CPAs are likely to be sought after for accounting and tax advice.
As practitioners, we have the choice to work in the industry or not, and I know there will be CPAs that say they will never work with the cannabis industry. However, even if you do not work directly with growers or dispensaries, what about your clients? There is a chance that one of your clients will work with the businesses in this industry. Now, while you have not directly engaged with a cannabis business, you are inadvertently working in the industry. For example, if you have a real estate client that owns either a commercial building or agricultural land, what happens when they rent to a grower or dispensary? What if your client offers goods or services to a cannabis related business? What advice should you give to your client? For starters, make sure they are aware of the following:
- IRS Form 8300 requirement:
- The amount of cash paid in one transaction to the business is over $10,000.
- Multiple payments that added up within one year of the first payment total over $10,000.
- Form must be filed within 15 days after the transaction, or the payments reach $10,000.
- Intentionally failing to report has a minimum penalty of $25,000.
- Property issues:
- Is there a possibility of the federal government seizing the property used for cultivating, manufacturing or selling cannabis?
- Renting property to a cannabis industry can cause lending and bank issues.
While it may be hard to imagine that any of your current roster of clients are involved in the cannabis industry, the dollar impact of the industry is undeniable. For the first quarter of 2018, the California Department of Tax and Fee Administration reported collecting $61 million in taxes. This was the first quarter that cannabis was legal for recreational use. I believe this industry will have an effect on you, the CPA, whether you like it or not. I also believe that to provide the best services to our clients, we need to have the knowledge to advise our clients related to the complicated issues surrounding the cannabis industry. Our Chapter has provided multiple discussion groups and future CPE about the industry. Please attend if you have any questions.