Integrity Wins in Cannabis Accounting

Katye Maxson-Landis: “I have my ethics attorney on speed dial.”

By Liz Gold
CannaBizCPA.pro

If you’re a CPA looking to get into the cannabis space, Katye Maxson-Landis, CPA, welcomes you. And she wants you to do your research.

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“Welcome to the most interesting accounting you’ll ever do. You can’t say that about accounting that often. This is interesting, thoughtful, investigatory accounting. Welcome to problem-solving like you’ve never seen. Get comfortable with being uncomfortable. Start building your professional network now. You need an ethics attorney. I have my ethics attorney on speed dial. I talk to that guy twice a month about clients.”

Maxson-Landis is the founder of Moxy Accounting in Portland, Oregon. She worked in public accounting for seven years as an auditor and staff accountant and as a bookkeeper before that. She has a diverse work history: she earned BAs in Technical Theatre and English Literature and owned an electrical contracting business, worked in currency conversion software support for the roll-out of the Euro and ran several indigent criminal defense firms in Portland. She earned her Post Baccalaureate in Accounting from Portland State University in 2005. She started working with cannabis clients in April 2012 under the name of PDX Bookkeeping, LLC and then rebranded to Moxy Accounting in January 2018.

In the beginning, Maxson-Landis says she was doing a lot of work transferring people from what she calls the legacy market or non-traditional market to the tax market. Basically bringing non-taxed dollars or grey markets into the light of day. It was a lot of addressing bad or back tax return amendments, bookkeeping and quantifying things, she says.

“That has changed as the economy and the businesses that are getting interested in being involved in cannabis are becoming more robust and are more educated themselves,” she says. “I have a self-created two-hour initial consultation that every single cannabis and hemp client I potentially engage with goes through in my office. And that is my accounting bad-ass coming to Jesus conversation. It’s me interviewing the clients. Instead of those days of a free initial consultation and trying to get as many clients as possible, I’m really very cautious about cherry-picking my clients.”

The paid consultation starts with an honest conversation that explores the client’s origin story. If they are not already paying taxes, the conversation makes it clear that this is the beginning of going down the road of getting integrated into the regular economy.

“I don’t expect you to understand or know a ton of that and I expect you to have had foibles and problems in the back of your history,” she says.

“And I don’t expect you to pay taxes on every single dollar because that is not what this industry was being asked to do in its early years. But I do expect you to do it now. I expect you to put on the long pants and to accept that if you want to be in this industry and you want a CPA to sign their name and take the risk at the bottom line for you, that you and I are going to be clear that you’re going to be honest with me.”

That said, the first thing that will get a client fired in Maxson-Landis’ practice is if they lie to her. “You get a two-hour opportunity to put everything on the table,” she says, adding that 99 percent of the clients she sees wants to do business based on integrity and compliance. “I will not judge.”

Transparency and honesty are key. Maxson-Landis describes disengaging with a $23,000 client because they didn’t do what she required them to do. “They were clearly laundering about $250,000 of prior untaxed money into their business, by ‘paying out of pocket’ for a building. Had I not driven to Southern Oregon, got onsite on their property and said, ‘Hey, what’s that building over there? I don’t see it in the books.’ I would have never known. There are very non-traditional things that CPAs in this industry I feel need to do. We need to be very much in the presence of our clients. We cannot remote to our clients. You’ve got to be the person that stands up and says, ‘Where’d you get that money?’”

For Maxson-Landis, this means just taking clients in Oregon because the compliance piece is so complicated. However, she is expanding into other states by developing professional education for other accounting professionals. This includes putting together a conceptual roadmap of how CPAs in their own state look at these clients because cannabis businesses can’t transact outside of the border of their own state if they are dealing with THC. She also says it is safer for CPAs as a service provider if they don’t spread out all over the country.

“I think it should be a CPA working in your state’s environment because every state has a different set of compliance regulations that are so patchwork and complicated,” she says. “CPAs in that state really need the opportunity to be able to dive deep into what they are doing because the federal position is the same. There are all sorts of ways that I think CPAs in their own state – through their state society, Board of Accountancy –  should be receiving professional guidance and education in order to be able to deal with their state’s regulations and their state cannabis population. I think that’s how it remains safe as a service provider if you don’t spread out all over the country.”

Maxson-Landis wants to spread her message and is in the process of creating a series of free introductory webinars, that would be hosted, ideally, through state societies. The webinars would give CPAs and accountants a conceptual roadmap of what it’s like getting into the cannabis space. It would address how to make the decision of taking on cannabis clients, the pitfalls and generally, what you need to know about risk. She also plans to outline her two-hour client consultation to give CPAs an idea of what questions to ask and what to look for when vetting a cannabis business client. In addition, the webinars will include a deep dive into cost of goods sold – how do you take your state’s laws, either medical or recreational, and apply them to bookkeeping and then, one step further, how do you take that bookkeeping and apply it to 280E when you get to the tax return side.

She’s also educating cannabis clients on the importance of bookkeeping and the basics of running a cannabis business, so they are better prepared for working with their CPA.

“I am educating clients about what it looks like to do basic general bookkeeping because if you show up respectfully at an accountant’s firm and you don’t have a set of QuickBooks, but you at least have the documentation that can support them helping you, I think you’re more likely to get that CPA interested in doing the work,” she says.

The most unhelpful accounting advice Maxson-Landis hears from clients is that they can get around 280E. “You don’t,” she says. “You manage your business in a way that is thoughtful and respectful.”

Cannabis is interesting, she says, because the population’s relationship to accounting is next to zero. This is an industry that has been terrified of accounting and taught not to keep books and records. “I fix a lot of bad accounting, fraudulent accounting, where a CPA or EA or a licensed tax preparer is willing to take a tax position that would not stand up under tax law and does not help the industry or their client going forward.”

“One of the reasons I work in cannabis is because I feel my ethics are strong and I can steer people, clients, and other CPAs down a road that looks fraught with peril but if you apply ethic and integrity to the situation you are going to have an outcome that is positive.”

Posted on September 12, 2019