How To Start A Cannabis Business with EXPERT cannabis accounting!
Go ahead and hit record and. First. I want to thank everybody for showing, up to the summit but and especially. You, Andrew. This, is Andrew, Hunziker, I am super, excited to have him here because one thing that people sometimes. Completely, overlook is the need for a. Specific. Type of accountant, when you're going into this this, business and Andrew. Is a. Founder. And partner, of dope CFO, with. Broad experience, providing. Executive. Leadership, and business counsel, to companies across industries, including, retail, manufacturing. Engineering. Or I'm sorry energy, medical. Bio and tech Andrew, co-founded, dope CFO and has built up a National, cannabis accounting, bookkeeping, training. Program to help students in over 25 states unlock. A new world of clients. Andrew was runner-up for Portland Business Journal's, CFO, of the year in 2017, making. Him the first cannabis, CFO, to ever be nominated he's, an expert, in cannabis, startups CFO, services, turnaround. And high growth strategies, capital. Sourcing, mergers, exits, and wealth, protection so, we have someone, here who is in a, powerhouse. And I'm super excited I'm, so glad that you took the time out today to share. With us with everything, going on in your day because I know it's crazy for you earlier. Thank. You so much for being here well. Thank you very much and be. Great to talk about CBD, where there's. A lot of confusion, and we have actually, our sewed up CFO we teach accountants, around the u.s. CPAs, and MBAs, we have almost 200 down our group in 40 states. Including. Tax. Experts, our better, experts, even than me so we discuss, these things daily and CBD is always a hot topic because. There's. Just still a lot of unknowns, yeah and one thing that I do always, point out in doing these interviews, is that this, industry, changes, day by day minute, by minute you, know and so it's always, great. To double-check you know what you're hearing and what you're reading because what may. Have been true two weeks ago it may, not be true today it might have been completely, different now. So what. And this is one thing that I I've seen a lot of people who especially bootstrappers. They go oh you know what I don't need I don't need an accountant Elenita CPA I've got QuickBooks, or I'm gonna do it myself so what, are some advantages of hiring a, specific. Accountant. Or CPA is specifically, at Mis industry, as opposed to relying on software, or doing, it yourself, yeah. So my my strong. Opinion and, I by the way been like. You said involved in many exits, I only, think five exits, over 20 million and - and the hundred million dollar range I know. One, so, when an exit occurs which, many in the CBD and hemp industry are looking at an exit later you. Need to be thinking about that on day one and a, huge piece of that of course is your product, whether you're an oil and gas or cannabis or CBD your. Product and operations, a brand is important, but, I can guarantee you if, your accounting, house is not in order from day one when they come in to do due diligence they, will they. Usually knock ten to twenty percent off the price in due diligence, from, not having good records and policies and procedures, and so, we promote. From day one whether your THC. Or CBD. Get. Your records, in order upfront, so if you have a good qualified, accountant, that knows your niche well knows. Whether, CBD, legal or not you. Still need. Good farm. Accounting, which is its own complex, accounting cost accounting, absorption, accounting how, do you account for a plant, that grows in a pot or in a field and how. Do you turn that into oil it's very complex, accounting, you can't just hope. To enter it into QuickBooks, and think it's okay so that's M we. Consider that very important, we also set up a perpetual, data room for all of our clients so, that's. Basically, all of your records organized, from day one to day exit, and whether, you're dealing with a lender an auditor. Your investors, the IRS, whoever, you, never know when they're gonna show up and which year they're gonna look at so. We we. Say we want that stuff ready anytime all the time so. If someone shows up on my doorstep today and, they want to look at my client in 2012. That's fine we just give them a folder, I give, it to them in two minutes it's every organization, doctor, release every, bank, statement, every credit card every accounting entry every cost accounting.
Template. And whatnot so you. Really want those good records in place and then you. Really can't do it yourself QuickBooks, is not set up to do this at all and so we've had to build our own chart, of accounts and own cost accounting templates to do the cost. Accounting and that kind. Of especially CBD, related, people are like oh it's legal now we. Don't need an caroling the accounting, is basically, exactly, the same for, a farming. Of HEPA. Some, of your deductions, gonna be allowed under 280, or not once. You get to the return some, of those issues are still a little, bit vague depending, where the CBD comes from, I know hemp was legalized, but we. Are still waiting on a lot of answers before we make hard. And fast decisions, and, that's, where a lot of the, confusion comes in so I'm glad you said that because people. Don't, realize, and I think a lot, of people don't realize that there. It has to be different it can't just be you know I'm gonna use QuickBooks, QuickBooks isn't, gonna work. Soft. Word so usually, what we do is we have to cobble together. Software. So you'll probably use QuickBooks, or 0 for accounting. Oftentimes. These entities are set up with more than one entity so we have to do consolidations. We usually do that in Excel, sometimes. There's gonna be a farming, piece of software out there like MJ freeway or whatever and so, some. Of them integrate, with QB but not it's very very clunky and so I don't trust everyone. Every software out there will tell you that they do everything and they integrate, perfectly with everything but, that's not how it works the real world and so the. Smart. And good accountants, reconcile. Every account every month back, to counts, and and, files. The cost can work papers, many. I would say 90% of, the accounts don't do that at all they just make entries in book quickbooks, and they go to the next month, that's. Just crazy to me so speaking, of you know crazy what. Are what are three questions that someone should ask an accountant, before hiring them because you. Know why, of course we have an accountant but, we, had to search high and low to find an accountant, trying to figure it out because we didn't know what to look for so from. The expert what should they what should we be asking so, I would for sure ask, him how long how, long they've been in this industry and, is, this their expertise, this niche which. Could include CBD, and THC exact. Aynd of sister, industries. And they're very similar and, so make sure they've. Been in it a long time but, not like. I qualify. That not so much that they've been in a long time but they've been trained properly so, for example if, they're in the double accounting program, I can guarantee, you that they've been trained properly and they're doing things right there's, actually. And this is where buyer, beware in, this new industry you've got to be very very careful if you're CEO, hiring. One of these people because you actually, some of these CPAs, have been in this for a long time and they're pitching the wrong stuff to clients, we had to immense so many returns and, what, was pitch from early to Colorado days. Two. Or three strategies to beat the IRS none, of them are really working well the, IRS is well aware of all of them and you got to be careful the first pitch was under, 280e, you, can only did that cost of goods sold and, so everyone's, trying to maximize, cost to get sold well, you, can do that with a very very poor accounting, it will not fly and face the IRS people were calling costs to get sold ninety five percent of sales and so. You you. Want to make sure they're doing it right and that they're. Also and, getting.
All The deductions so for example, whether you're whether, 280e. Applies, were not for, a hemp farm or a THC. Farm you're gonna use section four seventy one eleven now, again. I would encourage CEOs, to go read for seventy one eleven that's very readable you, can google it and, but. If there's there's, three types of costs and for 71 eleven the first type are costs that are, deductible, that you can get in inventory and cost of goods sold and they're they, have to be put. In that category things like indirect. Labor and, soil and whatnot and then they're certain costs that can not be put in like selling, and marketing and advertising, and, then there's a third category of, cost that you can put into inventory costs get sold if, and only if you're doing GAAP accounting. In, your quarterly, or monthly financials. Which again most, or not so, I tell CEO, say if you're not doing. For seventy one eleven right you're either, if. You're not doing that gap financials. You're either missing, a big tax deduction, which nobody wants, or, you're. Doing it wrong and your CPAs just taking those deductions anyway, we've, seen that a lot and. They're just unaware of it and so, that's, a question I would, ask your. Accountant right there I would say are. You aware of 471. Eleven and the. Requirements, to use GAAP accounting if they say there's no requirement, to use gap again move, on to the next accountant, and, so. That's definitely a question what. Niche they're in. Also. A list of the. Value-add things that they're going to give to you things like I mentioned this perpetual data room how, do they tie out and reconcile, all your accounts in different systems, every month so if you're in seed. To sell system, a POS the. QuickBooks whatever, their, process is for tying it out every month and and their, processes, for reporting, and, then also and, finally. The, last thing I'd say just looking. Forward, as well do they have things, like cash rolling forecast that could help you manage, your ROI. And manage your cash flow because it's very tight in this business, Wow. Said. That I got interviewed on a podcast in Portland once and the guy we hung up and he called me right back and wanted. To hire us for an. Extract, company, and. I. Mean. There's so much that you don't know to ask which is why I was like okay let. Me get the experts opinion here and, can. You talk a little bit more I know this wasn't one of the questions but can you talk a little bit more about your training program in case someone is thinking of transitioning from you, know mainstream, accounting. Into, the cannabis accounting. Field or the CVD accounting, field because I know that there's, a huge need obviously. So there's so. Worst I spoke in Oklahoma City last week to probably 2000, CEOs, at the fairgrounds, huge, event and that's, what we we. Pitch these CEOs. They're. Everywhere, this is growing, rapidly there, is a humongous. Need for accountants, bookkeepers, tax preparers, there's, very very few compared, to the need out there and most, of big accounting, is still out there they're gonna come very late to the game so it's a great opportunity the. The average revenues, in this niche are very high you can charge really, good fees for doing this right and the, simple, answer is there's very few people who are doing this right and so, I would say if you're considering, this niche get. Information going, read the AICPA, website, they've got a tab. On marijuana, and check. With your state rules most, states, have. Some kind of guidance, on that now check. With dope CFO comm we. Have a webinar right on our homepage that will tell you more about serving, in this niche in our, program, which. Our. Program is just simply someone who's already got their own firm they've. Got. Their and they, decided they want to go into cannabis, or him we're. Just a shortcut so we sell them it's kind of an accelerated. Path to success of things I've already chosen that route we've, definitely got something of value that can get, them there quicker, awesome. I love shortcuts shortcuts are. Exactly. Why I put, this summit together because I'm like I'm so I, want to get people a shortcut so they can, come to one place and a lot.
Of Information and, it's like the the shortcut, is the key word because when I started. This niche five years ago I got I was actually serving clients and I got I landed. Probably, the biggest highest, profile farm. And Oregon, high five farms, and it, was so big that they recruited, me as a full-time CFO, so I ended up leaving my. Practice, I did that for two years and I. Couldn't, find information. Anywhere, I beat. My brains, out and looked. High and low and talked to my friends in Big Four and other, accountants, and attorneys and, I had, to create this stuff from scratch and, then I never, set out to teach other accountants, it was all accidental, about 2016. People started searching me out they found me and they're like how do I do this how do I get a chart of accounts, and I started helping people for free and eventually, that evolved, into a paid. Product. And, that's awesome like that's how serving. Is right you start to help people and you're like wait a minute you, know people I can like package this and give us people to help us to really help them and I'm really grateful that you did that because my goodness you've wealth. Of knowledge, I. Do. Like I still it's. Important me to help people everyday and I try to when. I get up I try to help a couple people everyday, before I start because I think it does you, help others I've been mentored I like to help others but, at the end of the day I got too busy where I was just like I was either gonna help nobody or get paid for it. Naomi. Came along and she helped me package it all up together and. So. Grateful later we got 200 people and it's an awesome network, in our program too we have our own little private community. Group and and we, post daily about you. Wouldn't believe the discussions, that go on around CBD, and. Being. In the industry it's like every. Single day and, I know that in accounting, and in, bookkeeping all, of that there's just it changes. It's got to be all kinds of great conversation, and. I. Know that you'd like to help people I really did I read up on you and I saw that you have even. A volunteer. At nonprofits, to help at-risk. Teens, and I was like man I. Love to give and I am, founded. That so we founded we had a nonprofit touched on youth project, that went for about 18 years and helped over a thousand. Teenagers. And a mentoring program so, we. Close. To my heart I used to teach high, school biology so. So. What, our last question what are some red flags to look for when hiring an. Accountant, I know you gave us some questions to ask you but like you said some some. Accountants, will put it in the wrong category or. Some. Red flags well. First of all if someone, comes to you and tells you that you, should hire them because, they're. Gonna help you, minimize. Your tax I, think you should run because. There there's three and I'll probably tell you specifically, they'll say well setup and, it could be accountant or an attorney will, say well set up a whole maze, of entities and some of them will be non cannabis, and some will be cannabis, and we'll move costs, around to the non cannabis, this has been pitched for years, all over the US including. Oklahoma last, week when I was there people on stage setting. Up multiple entities the other one is look to maximize let's, put everything into, cost of goods sold and pretend everything's cost of goods sold and the third one is having this non, cannabis, division, oh yeah we've got a different company over here that sells coffee cups and t-shirts and. The IRS knows all those strategies there, is some, benefit, a little, bit of using some of these strategies, which we do if you do it exactly correctly. Right and it's, very, hard, to do this right and so most, of the cases coming out IRS, has won every single once in its champs, and it's. Because they're they're trying to do these strategies and they're doing them all wrong and it, takes a massive accounting, effort, to even think about doing this right if you're gonna try those strategy so I would just be super careful on on.
Who You hire and what, they suggest, we, actually tell, 280e. As punitive, whether it applies or not to. Companies. It's a huge tax you're paying tax on gross profit, and so. The. Strategy, we're seeing that's winning right now and even more as 280e goes away is, the company's the CEO, as a focus on market, share brand, their location, they're well funded so they can survive price. Collapses, like happened here in Oregon with too much supply so. They're very well-funded they, vertically, integrate, and they're, just hanging on for, when they do their exit so net incomes not that big of an issue you can actually have net income of zero or net loss and, still, do a huge, exit, on revenues. The. Classic, example that Google, tilray, it's, the most valuable cannabis. Company in North America, they, have a huge, net loss last year one hundred and fifty million but, their CEO as a billionaire, so he's, pissed because, they value these companies, on market, share and growth and so they're they're. Killing, it on market share and revenue growth so, that it's. Kind of the Amazon model and I'm, just like wait how much is. Lost. Money forever and, they're highly. Valuable because they built market share and brand and growth exactly. And they were smart about it so I'm glad you said that so, we tell people that's the strategy and don't the people that pitch the strategy oh let's beat IRS that's a bad strategy because hey it doesn't work be. You're right you can't sleep at night you're gonna be worried the IRS is coming, they're. Gonna come. Check. You out so you better be ready and, they're gonna get their money they, are going to, get their money that's another point you can if you have an LLC structure. You cannot file bankruptcy. Dealing. Trafficking. In pot because it's federally, illegal so like the Alterman, couple, who. Had their little farm in Colorado they got a half million dollar judgment against, them they can't file bankruptcy they. Lost everything they lost their business so it's it's. Pretty important, oh that's scary oh, my goodness I mean even just she's saying that the proper structure I'm talking. To there's. An attorney who's gonna be on this summit as well and that is one of the questions that I have for her is making. Sure you have the proper structure, because when people are starting businesses, you. Haven't, talked to an accountant team you haven't talked to an attorney and so you don't know the proper structure, to set up be, in case something happens so. Be careful, I just had we, have a farm client here and I got an email yesterday from, their attorney proposing. Creating. Six entities out of there one and I was like slow down when. You have six entities you have a lot more accounting, work a lot more tax returns you're gonna have high costs and what. Is the actual benefit, can they quantify, that for you in dollars and is it worth the risk and when. The IRS comes in they're. Not looking at your legal. Flowchart. That may be spidering. All over the place they've, said clearly go read the Harborside case they said we're looking at the economic. Entity so, if you have a hundred legal, entities the Narrows comes in and says huh, it. Just looks like one business, sorry I don't care about all legal you have one business it's, all 280e and, a cannabis, business so you just be careful yeah. That's that yeah, so, that, sounds scary. CEOs. Read these cases Harborside was just out that's a good one to read. So, I, do. Want, to thank you very much for sharing it all of your knowledge and you just like, you just ooze. I. Am passionate about the movement too and I you. Know was, ironic. For me to speak in Oklahoma in front of this huge crab because the, only reason I'm in cannabis, my son was 14, years old in 2014. And he and, got. Arrested for. Smoking. Cannabis in Oklahoma, at, a skate park and he. Proceeded to have most of his high school, just. In and out of trouble with the law and Oakland. Was very, very harsh on this movement and my son he's, actually a very good kid he has he's a great good as does. Great now's 22, and I. Helped, him set up his CBD, company, and he has another job but he's passionate about the movement and I am too it's this, stuff CBD, and THC both. Have medical, benefits exactly. Who autistic. Nephews that are severe. Autism, adults. And this. Shows promise, with autism and epilepsy and, it's it's. Yeah, this should be legal I agree. I mean I'm that's again how I got in the industry, was because. We got pooled, for writing about the benefits, of cannabis. And about the minute early we just wrote about CBD and got, pulled and so that's how we ended up with the merchant processing company, is because, we. Believe in this industry, we believe in the movement we believe that reefer, madness that, error needs to just go away and because.
It Has benefits, and it does need to be studied we I get it but let us study it let people experience, those benefits, and so I'm, glad that you are just as passionate about it I'm glad that you, were willing to share today and I do want to thank you and OH before we go please, share how people can find out more about you more about dope, CFO. Like that is just to me that is so cool yeah, we have a dope CFO. Facebook. Group or on Instagram, or, our main websites, just dope CFO, calm and we. Can get you a lot of answers and we. Have a lot of valuable videos. They're free as well, awesome. Well, thank you so much, Andrew, I don't know how many times I can say thank you but thank, you thank you thank you and I'm. So glad that you shared and, I look forward to talking. To you again and. Seeing seeing, this alive, on the summit I'll let you know when it's live and so thanks everybody for tuning in and I, hope you have an amazing rest. Of your day.