This week, the California and Colorado Society of CPAs, along with 18 other state CPA groups, from Alabama to Iowa, are hosting a virtual event that they hope will answer some of the toughest cannabis-related questions that certified public accountants face as they advise clients in the industry.
Topics included how the cannabis industry was disrupted by the COVID-19 pandemic and how it might recover, hemp and cannabidiol in food, intellectual property and taxation, and regulatory, banking, and labor issues.
Aaron Smith, executive director of the National Cannabis Industry Association, kicked off the event with a birds-eye update on cannabis. While much of the national cannabis conversation has focused on whether President Donald Trump might legalize cannabis if re-elected, or if former Vice President Joe Biden will go beyond his plan to decriminalize, Smith emphasized that attention should be on the five states that have adult use and medical legalization on their ballots this fall (New Jersey, Arizona, South Dakota, Mississippi, and Montana).
“Because of the federalist system in this country, states are able to really be the laboratories of democracy,” Smith said, pointing toward strong polling in New Jersey, the state’s population of nine million, and its “significance in the region.”
“New York, for example, has been looking to enact adult use cannabis laws for a couple of years. Came very close last year. And I think that victory in New Jersey in November will really be kind of the thing that tips New York early in 2021, and then perhaps Pennsylvania and Connecticut,” Smith said.
Given that many people in the audience were accountants or attorneys, it didn’t take long for the conversation to shift to the Internal Revenue Service. (Read Cannabis Wire’s resource page on tax hurdles faced by the cannabis industry.)
“The crushing and unfair provision of the tax code Section 280E, which doesn’t allow businesses to take their deductions in our industry, is really holding us back,” Smith said.
Smith mentioned how the COVID-19 pandemic, in some ways, slowed attempts at national cannabis policy reform. The SAFE Banking Act, which had momentum before the virus hit, has taken a back seat as lawmakers shifted away from “anything that’s not directly related to either the public health crisis that the pandemic posed, or the economic fallout of the pandemic, understandably so,” Smith said. And while the HEROES Act, the House-passed COVID-19 relief bill, includes SAFE Banking language, “the death of Ruth Bader Ginsburg has now moved the Senate into prioritizing, fast-tracking a Supreme Court Justice,” while coronavirus relief remains uncertain.
A panel discussion about the coronavirus pandemic, which included Josephine Giordanoa, a CPA based in Arizona, Tom Hood, a CPA in Maryland, and Ted Lichtenberger, co-founder of the Flower Company, a wholesale cannabis membership club that compares itself to Costco, dove deeper into how COVID-19 changed the cannabis industry.
“Overall, the supply chain has been pretty strong in resisting the ups and downs of COVID,” Lichtenberger said.
Giordanoa noted that many current hurdles, including slow investment, are issues that already existed for the cannabis industry — the pandemic just exacerbated things.
“Once COVID hit, they’ve been a little bit shy in providing capital that’s needed, although we’re starting to see that starting to overturn,” she said.
Giordanoa also highlighted that while nearly every cannabis business was declared “essential,” COVID-19 still brought “operational changes,” like the need to physically distance.
“Social distancing is an issue. Having the customers come in and having to maintain a certain number of customers within the dispensary itself just cuts back on the amount of people that could gravitate toward different products within the dispensary,” she said.
Some cannabis business owners have had to furlough and lay off employees, while others are succumbing to the difficult market presented by the synergistic effects of federal prohibition, banking issues, and the pandemic. Still, many of the owners that Giordanoa said she’s spoken to have said that they’re doing everything they can to avoid layoffs.
“I think by the time we weed out the non-performers, we’re going to be in a mature industry that’s really going to be able to sustain itself beyond this point of the pandemic,” Giordanoa said.
A panel discussion on hemp and CBD in food brought together Amanda Conley and David Bush, both attorneys, and Joyce Cenali, a partner at Big Rocks Partners investment firm.
“We have a federal regulatory scheme that has been now put into place for federally-regulated hemp production in the United States. But the federal government would rather not do the regulating itself. It doesn’t have the resources. It doesn’t have the interest,” said Bush, a lawyer with Hoban Law Group, adding that the U.S. Department of Agriculture’s interim final rule on hemp production has created controversy. (Read Cannabis Wire’s coverage of the rule.)
“What it has done is it creates a system of guidelines, regulatory guidelines, which if states wish to enforce, regulate, administer the federal program, they can do so subject to guidelines,” Bush said. “It is a very controversial program. States are pushing back. They don’t like some of the federal regulations. So that is subject to some modification in the future.”
Conley gave an overview of the Food and Drug Administration’s approach to CBD, which is, essentially: now that the FDA has approved GW Pharmaceuticals’ Epidiolex, which contains CBD extracted from cannabis, CBD can’t be added to food or treated like a dietary supplement. (Read Cannabis Wire’s coverage of the FDA’s current and forthcoming CBD regulations.)
“We’re now at a really interesting crossroads where we’re going to see: how is the FDA going to deal with this? How are they going to deal with this huge CBD market? But then, also, this really clear guidance to them that says, ‘you can’t sell this product as anything but a drug once it’s been approved,’” Conley said.
Colorado Rep. Ed Perlmutter is scheduled to speak when the event continues Tuesday.
