The straight dope on the cannabis frontier.
By CPA Trendlines
Mary Jane has been good Jim Marty, CPA. He approached her carefully, slowly, unsure whether the apparent risk meant danger or opportunity. After all, the two tend to go hand in hand.
Actually, it wasn’t Mary Jane, per se, that he was interested in. Rather, he was interested in the industry Mary Jane was in, alias the cannabiz, a.k.a. legalized marijuana.
Why the interest? For that most American of reasons — because that’s there the money is.
Marty was a sole practitioner serving a local market in the Denver-Boulder area in 2009 when President Obama issued the famous Ogden memo establishing that the Department of Justice would not interfere with marijuana businesses in states where dealing in that controlled substance was legal. At about that time he had clients calling him to ask about the tax implications of growing medical marijuana in their warehouse or opening a marijuana dispensary.
His research soon put him in touch with “marijuana lawyers” in Denver, and they told him they had plenty of clients for him for any CPA who learned the ropes. Today, he is widely considered the most prominent independent CPA in the business.
“That sounded good in the middle of a great recession,” Marty told CPA Trendlines. “But I was still reluctant, so I flew out to Oakland, California, to meet with some of the top marijuana lawyers and accountants. One, Hank Levy, who is now my partner, said, ‘In the 17 years we’ve had legal medical marijuana in California, no CPAs have been sanctioned for helping this industry.’”
After a little more due diligence, Marty went back to the marijuana lawyers in Denver and said he’d do it. And his phone, he says, has been ringing ever since. His firm, Bridge West LLC, now has over 100 dispensers and growers and other clients all over Colorado and across the United States.
“It’s a fascinating business,” he says, “and politically, I’ve always believed it should be legal, so I was glad to play my part.”
It was a smart move in the right place at the right time. Denver was the epicenter of legalized marijuana. Overnight it had 500 to 1,000 marijuana businesses up and running. It was almost as if they’d been there all the time!
“In 2010, Colorado got its first integrated model,” Marty says, “meaning that if you had a retail space, you had to grow 70 percent of the product on your own. Whatever the criticism — that it made retailers become farmers and farmers become retailers — it effectively pulled the whole industry into the white market.”
Now Colorado marijuana growers get W-2s and have all the rights and obligations of regular employees. In California, which Marty says has been struggling to organize the marijuana business for 17 years, dispensaries are legal but growing is not. Consequently, half the industry is still operating on the black market.
Marty likes the white market.
“One of the first things I tell my clients is that you have to declare your income,” he says. “We can talk all day long about what’s deductible and what’s not, but at the end of the day, you have to declare your income.”
Marty has helped many clients and practitioners across the country with IRS audits, which are pretty common. He’s been able to form a nationwide network of practitioners who share information, ideas, and experiences. He gets about one new member a week, a rate that is likely to increase as more states “go medical,” as in, recently, New York, Connecticut, and Illinois, or “go recreational,” as in Colorado, Oregon, and Washington.
“The purpose is to share knowledge, share IRS results, best practices, and also ways for CPAs to work in this industry and not get themselves into trouble.”
And there it is: risk, opportunity and CPAs, hand in hand. It’s an exciting time out there on the frontier.