Bend-based Andrew Hunzicker’s DOPE CFO helps train CPAs and CFOs on the ins and outs of the cannabis industry.
After recreational cannabis became legal in Oregon in 2015, Andrew Hunzicker started making phone calls.
A certified public accountant with more than 30 years in the financial services industry, Hunzicker saw an opportunity to provide services to the new crop of entrepreneurs entering the field. He started contacting fellow accountants, only to find they were rather quiet on the subject.
So in 2018, he launched DOPE CFO, a firm that trains national accounting firms and others — including CPAs, CFOs, bookkeepers and attorneys — on how to provide financial services for the cannabis niche. The company now works with more than 500 CPAs and accountants in every state in the United States. Hunzicker also trains national firms and helps the American Institute of CPAs organize conferences, including the organization’s upcoming cannabis industry conference in Colorado.
Oregon Business spoke with Hunzicker, who is based in Bend, about the state of the industry. This interview has been edited for space and clarity.
What are some of the challenges that this industry has as far as the financial end? The biggest thing, of course, that I can think of is the lack of access to traditional banking, and dealing in cash. What are some of the others?
That's actually a common myth. Just looking at our home state here of Oregon, is banking not allowed? No, it actually is. MAPS Credit Union, which has 14 locations in the state, they bank cannabis all over the state. There are many, many banks and credit unions that serve cannabis clients all over the U.S.
That said, there's a lot of cash in the industry. We still see dispensaries that may have a couple 100 grand laying around, or a farm. So we have to deal with that as accountants. Just like casinos have lots of cash — we can still account for it and control it. But yes, that is one of the issues.
Most companies are not doing correct cost accounting, even today. Oregon's a great example where, after eight years [of legalization], probably seven out of 10 cannabis companies are doing accounting and their tax returns wrong. There’s a big opportunity to come in and actually do it right. But it's not simple.
When you say that they're doing their taxes wrong — and maybe there's not a simple answer to this — what are the biggest mistakes that dispensaries are making?
It’s not just dispensaries; it's farms or product manufacturers or gummy-bear makers or whatever. First and foremost, most of them are not doing cost accounting. Say you have a bookkeeper, and you pay the rents or whatever for your dispensary or your farm. That's $1,000. Most bookkeepers go into QuickBooks or whatever and enter rent expenses and pay $1,000. That's step one. But you need to come back at the end of the month and deal with cost accounting. There’s all kinds of processes. We'll take part of rent and we'll put it in work in process inventory, we'll take another piece of rent, and we'll put it in finished goods inventory, we'll take another piece of rent and put it into cost of goods sold, and then we'll keep the remaining piece of rent as rent. So we need to do that for every single indirect cost.
If we’re not doing that correctly, under federal tax code, we will be doing our tax return basically wrong. We’ll be missing out on some of the costs that we can put in the inventory. It’s a benefit to the farmer or dispensary if they’re doing this right. They’re going to actually lower their taxable income. We find most of them are not doing it right. I’ve personally never ever found a client that was actually doing this accounting right.
The biggest reason this was not done right is there just simply weren't people that were qualified or dove deep into this niche early on. There were people that maybe didn't even know how to do cost accounting. Even if they maybe took that class, maybe they don't have the tools and work papers built to do that. [AICPA is] actually doing a cannabis conference in Denver, on August 8 — it's only their second one. The industry is coming in, but it’s taking them a long time.
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When you were getting into this niche, what was the attitude among other accountants? Were they excited about it? Were they reluctant?
Totally reluctant. So again, back in 2015, I was stuck. I was asking [other accountants], like, "Hey, have you all looked at this issue or that issue?" They were like, “No way, we're not touching cannabis.” I called national firms, and they said, “We don't touch this space. No way."
Where are we today? I talk to at least five to seven accountants a day. Actually, more than 10 if you add in people who message me on Instagram and Facebook and text me, people who want to get in. People are dying to get into the niche for good reason. It's a very lucrative niche. It's growing rapidly. It's underserved.
So many national firms are into cannabis in a big way right now. It’s just completely changed over the last five years.
And on the flip side, what was the attitude in the [cannabis] industry? I suspect you probably were talking to a lot of people who had not really dealt with professional accountants before and did things very informally.
We saw — and we still see it today — either accounting didn't exist or it was horrible. Or it was someone's cousin doing it, or a bookkeeper, and it was all wrong.
They’re realizing now that the IRS is coming. It takes them three, four years to come. But when [the IRS] shows up, [business owners] are paying in a big, big way. The IRS is winning every single case. Even small, single dispensaries or farms are getting huge penalties and interest against them. Not just for doing the taxes wrong, but even accuracy-related penalties.
Our community is tied very deeply into the IRS. We’ve had people working in the IRS or whatever. We have attorneys that are trying cases, and the IRS is ramping up in a big way to come up to this industry. So I tell people: Even if, say, you're in Bend, you got a dispensary, you have a very good chance of getting visited in the next couple of years. And you're going to really pay big if you're not doing accounting and taxes right.
Do you have any data on how often cannabis businesses get audited?
I don't have the actual statistics, but it's ramped up every year. The IRS’s division that deals with cannabis, they've been allocated a ton of money and a ton of new hires. They’ve told the industry they’re coming. If you sit in the IRS’s seat — or the state of Oregon, or state of California — there are big dollars to be collected there. Almost every tax return they look at is wrong, and it's wrong in a way that's underpaying taxes. And what is it our government needs? It needs money. They say, “OK, let's go after the industry that's going to give us the most bang for our buck.” So it makes perfect sense when you look at it from their viewpoint.
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