Brett:

I’m excited about our next guest. He’s out of the great, great, great city of Bend, Oregon, and he has a broad experience in providing executive leadership and business counsel to companies across industries, including retail manufacturing, energy, medical biotech, and he founded DOPE CFO and has built a national cannabis accounting, Bookkeeping, and Tax sharing program to help students in all 50 states unlock a new world of clients empowering them to start their own practice and create a stream of wealth for themselves in the newly developed cannabis CBD hemp industry. He was runner up for Portland Business Journal CFO of the Year in 2017, making him the first cannabis CFO to be ever nominated. He also served in Big Four, including Price Waterhouse Coopers as well as the winner in the 1985 Gold Medal Award for the highest score on the CPA exam. This gentleman is really smart, and he’s here as a CPA, please welcome Andrew Hunzicker, Andrew, how are you doing?

Andrew:

Great. Thank you for the very nice intro.

Brett:

Excited to have you on the show. For our listeners to get to know for the first time, would you give us a little bit more about your story and your current focus?

Andrew:

Just real quickly, I was in the 90s. I was in Big Four and Price Waterhouse. I have the turn of the century. I’m from Oklahoma. Like many, I became CFO of one of my clients in the oil and gas space was there for 10 years in Oklahoma City, until 2010. A company I co-founded with my boss, we sold to Chesapeake Energy for almost $100 million. When that happened, I moved to where we vacation, which was Bend Oregon. That happened in 2010, I’m thinking, and then been here ever since fell accidentally into the cannabis space. We were one of the first states to legalize. With that, I just really I the best way to explain it accidentally fell into the space was just doing part-time CFO work for clients. Actually, accountants and CPAs from around the US started reaching out to me and finding me, especially after that CFO ordered and wanting help, how do I do controls? Where do I get a chart of accounts? Where do I get PVC documents? Do I need help in this industry? How do I get it? Can I buy your work papers, and so that’s how the Dope CFO program started. I never would have thought to start this in a million years on my own, but people kind of beat a path to my doorstep and said, We want what you have and we’ll buy it. That’s interesting. We’ll go from there. Love it.

Brett:

That’s really cool background. I can’t wait to dive into all things Cannabis Capital Gains Tax Deferral, and other tax challenges that the cannabis industry is facing and want clarity on. But before we go there, I want to take one other step back, I want to go back perhaps to the university days or the or maybe when you’re taking that first CPA exam and getting the highest score. You know, I believe we’ve all been given certain gifts in this life, and these gifts have been given to us to be a blessing and help to others. Some people call them superpowers. Some people call them strengths. I believe their God-given gifts, and I get to be given to us to be a blessing help to others. What are those one or two gifts, Andrew that you believe you were given? How does that help how you help and bless people today?

Andrew:

I think I’m persistent. Actually, if we want to dive a little quicker into my background, I like to tell people, I got thrown out of school four times starting in second grade. I think the last time was 10th grade. In high school. I never ever got above BS in anything. I was, I think 48 out of 80 people in my high school. I got B’s in college, and I didn’t get straight A’s and accounting until I went back to night school when I was 29 working for $5 an hour in a warehouse. I guess my inspiration is anybody can change. I never scored the highest grade on any test in my whole entire life. When there were only 10 other people competing against me. But when I went by the time I went back, I realized, maybe I can put my head down, work towards a goal and work hard for a couple of years. do my best, I really just wanted to do well and pass the test. It was I was absolutely shocked when I did really well. I tell people together, it’s never too late. I also started my career really my accounting career much later than many people. Actually, that was why my teacher said, Andrew, you’re 29, if you don’t score really high on this, on this test, you will never get into the Big Four, you are not in their, their target at my age. She was right. I got a great score on a test. I got into the big four, and I lost a good career. Hopefully, that will inspire others, it’s never too late to get started.

Brett:

It does answer that’s amazing. Because it’s not your traditional path, and sometimes it, we mature at different ages in different parts, and that persistence, then finding something that you love and wanting to be it had an end goal in mind that, hey, if I can achieve a higher score, then I can get into the big four, which can launch the next you know, 50 years of my career. Is that a fair summary?

Andrew:

Yes, perfect.

Brett:

Now let’s dive right into our topic, cannabis capital gains tax deferral, but even before we go there, more, so just the cannabis industry, and kind of demystifying the tax behind it. Andrew, what’s the biggest, biggest secret, or biggest thing to overcome when it comes to understanding the cannabis industry, and the counting and the tax, and the systems behind it?

Andrew:

It’s a very tricky industry. I was in oil and gas for 10 years, and it’s also a very tricky industry, but almost the opposite, where you have the Big Four, it’s been around for decades, you’ve got the software, we’ve got gap guidance, we’ve got industry guys, we’ve got all these tools, and so it kind of goes from the top-down, cannabis went the other way, and up to even a couple of years ago. You could not find a CPA that would touch it. They’re like no way I’m getting anywhere near that. It’s crazy. It’s illegal. It’s federally illegal, which is still true today, it’s still in schedule one. That said, in just a few short years, we’ve gone from where no one would touch it. Pretty much all the big national firms are in this space at this point, except for the Big Four. All the small firms are in the medium size, and so but still today, yeah, we don’t have all that gap guidance or industry guides, etc, and so we kind of had to learn it from the bottom and layered over the top of that many of the companies in the early states like mine, Colorado, Oregon, California, we’re getting bad advice from attorneys around how to beat the tax code, and your podcast is about tax strategies, and so of course, you can have a legal good, correct tax strategy, and you can also have a tax strategy that was just flat out won’t work, and so they were these kinds of strategies were pitched by a lot of attorneys, etc.

A lot of the early people like harbor sides a good case to go read, they spent 10 years in court and still lost $11 million, and no telling how much in court fees, because the IRS is winning most of the positions. The tax code, in particular, that affects marijuana is 280E. It’s a very easy tax code to learn because it’s only one sentence if you google IRC 280E. It’s only one sentence long and it’s very simple. It says if you traffic if your company traffic’s whatever that means in schedule one drugs which used to be cannabis and CBD and hemp now it’s only cannabis CBD and hemp or off schedule one. But for cannabis, you get it says no deductions and no credits, period. If your traffic and schedule one drug, the tax code doesn’t matter to you because you don’t get any deductions or credits anyway. Now that said 471 comes into play, which is not a deduction or credit, it’s inventory, and whether you sell heroin or cannabis or whatever and file a tax return, you can book cost into inventory, which goes to cost of goods sold and lower your taxable income, and so first and foremost, we want to do 471, especially -11 for our firms in processing and product manufacturers so that we can get a lot of costs in inventory correctly, and so that they will avoid some of that tax issue.

Brett:

Make sure I unpack that a little bit, and this I think, I love the way you use the analogy of the oil and gas industry, or it’s been around for a very long time in industry experts and guidelines, and it’s kind of sad, and of course, it’s for the professionals to interpret each particular business model and set up a business’s entities and different things like that to apply the law. But cannabis is like the reverse order. It’s started and it’s moving its way up. Even the Big Four still don’t have, let’s say aren’t really working on it. It’s more like the midsize small firms, and so it’s kind of the this is still new, and but it’s important to understand that you still have to follow the guidelines. The IRS, codes and has guidelines, and if you’re not doing it properly, they don’t they’re just you’re gonna owe the tax right. I think it’s a CPA tax attorney that I work with he basically says it’s interesting with the IRS and the law and the way it’s written. That essentially, it’s the one thing, especially when it comes to tax, that you’re guilty until proven innocent, right? They show up and maybe talk on this and they say, hey, you owe us a tax prove us prove that you don’t, prove that you had an expense for this, or prove that it actually, it’s a 280E and 471-11 prove that it wasn’t legitimate, the thing that you were doing here, and if not, we owe the tax plus penalties plus interest. explain that concept to folks who may not understand that.

Andrew:

The IRS is pretty much I mean, I think in most industries, the IRS goes after people and they went seven, they lose some, they’re winning every single case and even small mom and pop farmers, they’ll get half a million or more. It’s a very, very punitive tax. Even if you think about it this way, you’re a dispensary that we see everywhere. It’s like most retail, that Keystone markup, you buy your product you sell for double. That’s your gross profit. Well, basically, you’re paying tax on gross profit, and so running a retailer is very hard in any industry. But imagine paying tax to the IRS on gross profit, and on top of that you’re paying other taxes to the state and city, and so it’s very, very difficult, and so really, even if they do this correctly, they can actually on the farming side make a little bit more because they get a lot of costs into inventory.

But for much of the industry, if they do this correctly, they’re more likely than not going to have a tax have ever net loss and have a tax bill and their cash flow is going to be negative. They need to be very well-capitalized. That said, it reminds me a little bit of a high tech industry think of things like Amazon that that operated a loss for years and years, and investors don’t care because they’re growing, they’re building market share brand revenue, they know eventually the profits will come, and cannabis CBD is really a lot like that. If you’re going to start a farm or processing plant, you better have millions of dollars to withstand those tough times. But you can still make a killing even with net income zero or even a tax loss. Because companies are valued pretty highly in this space, and you can even go look at a couple of public companies. tilray is a great example. They’re up in Canada right now, and they’re starting to do some buy into the US but they’re valued, I think, four or $5 billion, and they have just astronomical losses every quarter, and that’s kind of where we are now. There are bills in Congress this second in the Senate to take to do what they did for CBD. Literally, just take it off schedule one and two ads disappear, and so we’ll catch up with that.

Brett:

By the way, you can learn more about Andrew Hunzicker CPA at DopeCFO.com. It’s exactly heard it’s D, O, P, E, CFO.com. Andrew, how’d you come up with that name? Was that does that did you were you though creative one there.

Andrew:

I think we were playing around with it with the website and what names were open dope is I like the name dope because, yes, it does mean weed, but it also means cool cutting edge, and we’d like to think of everything we teach accountants in our program is pretty cutting edge and fun work from anywhere and providing that value to our clients. Lots of ideas, not old school at all on anything we do.

Brett:

I love it. Andrew. I think that’s fantastic. The first thing is understanding that it is a tricky industry. That things are still being set that there’s even stuff in the senate right now that could pass they could change some things. That’s step one, what would be step two, to making sure that you’re properly prepared to report well and not be hit with surprises or fees or penalties when it comes to running your cannabis business.

Andrew:

If you’re a business owner, make sure you’ve got a crack accountant, tax person, hopefully, somebody in our program, because you simply can’t do this without the correct tools and whatnot. First of all, cannabis isn’t just a niche or CBD hemp it’s many it’s farming, its chemical processing, product manufacturer, testing, labs, distribution, and retail. Many times within one organization, they’ll have all the verticals, and so you’ve got to know how to do cost accounting, you’ve got to have tools, you’ve got to deal with state seed to sale compliance requirements. FDA has its own issue. There are lots and lots of rules and compliance and tools needed. You want to get up to speed and this would apply to any industry and make sure you know the products etc, and I’m talking more of the CPA accountant. If you’re a farm owner or a dispensary. You want to make sure you’re doing your accounting and tax correctly because the Worst thing, and we’ve seen this happen is to do it wrong and have the virus come down and beat you up later, it’s gonna devalue your company, most of these companies are looking to do an exit and hit a home run. You’re gonna have due diligence teams do things correctly. You may have to pay some tax you’re going to, but then you got to do it correctly to add value to your company.

Brett:

Hire the brain surgeons are like Andrew’s saying don’t put this out alone. This is not then this isn’t the standard, duplex or the standard, maybe apartment complex that you have that perhaps you can do some of the accounting on your own. Even there. That’s complex stuff. Making sure you do depreciation schedules properly, make sure you’re expensing things properly, CAPEX improvements properly. This is something that is multiple verticals, and you don’t want to get caught. Is that a fair summary? Andrew?

Andrew:

You just didn’t let’s just pick the first vertical in the chain farming. It’s its own industry with, it cost to a plant, you’ve got 10,000 plants in a field, maybe one plant, you just planted the seed in a pot this big, and we’ve got plants over here that have been eight months in the ground, and are flowering and so we have to go through and have a way to evaluate work in process for plants are working process? How do we go through and know the stage for each different strain where they are in the cycle? Then how do we allocate costs and using equivalent units? Pounds? What tools are we using to do that? We can cost accounts, and I know cost accounting is an evil word a lot of CPAs hate and I tell it to bookkeepers like this who don’t understand it, you go to pay rent and you book Rent Expense $1,000 into your QuickBooks or whatever. To do our cost accounting, we got to come back a month in and say wait a minute, part of rent belongs in working process part of rent belongs in finished goods, part of rent belongs in cost of goods sold, and part of rent stays in rent, and we have to have tools and methods to do that every month. The simple fact is nine out of 10 Farms aren’t doing it at all, I love to ask, ask the farmer how much it costs to grow a pound of weed, and they’ll often shoot out an answer, and you can’t know the answer to that without cost accounting. I’ve never talked to a farmer that had any idea what cost accounting even was much less be doing it correctly.

Brett:

This is again, another reason why do you want to get with Andrew and or one of his one of the CPAs that he’s coaching and I think that’s pretty cool that you’ve gone and you’re making an impact in a bigger way, not just everything in house, you’re going and you’re expanding that. What’s the vision for that? How’s it going?

Andrew:

It’s going very well at this point. We have over 800 firms in our program and all 50 states CPAs really have all skill sets. We even have attorneys, we have bookkeeper CFOs Enrolled Agents. Pretty much the whole gamut and people are sharing work with each other and enlightening clients a big part of this niche? Well, it’s we get to experience a birth of a massive, massive industry, which in my book, that’s a once in a lifetime. For any of us in our career, maybe you’ll see two but probably not more than one or two, and coupled with that are the high revenues of these organizations. A typical mom and pop can easily pay, six-figure fees of 150, 200, 250 fees to a firm. We have many, many firms in our program, one or two clients and they can make four or 500 grand a year with two clients instead of the old model having 1015 clients.