Andrew Hunzicker, founder of Dope CFO in Bend, Ore., joins us to discuss the opportunities for CPAs with regard to the expanding cannabis industry. Among the aspects he covers are the current status of marijuana legalization efforts nationwide and the misconceptions among the general public when it comes to cannabis entrepreneurs. Listen to the podcast and get more information at www.dopecfo.com and on Instagram @dopecfo1.
By: Bill Hayes, Pennsylvania CPA Journal Managing Editor
To be successful in business, it's necessary for CPAs and CPA firms to always have their eyes out for new revenue streams. However, what if that new revenue stream has a past that can be described as checkered? That is the case with a burgeoning industry that potentially could offer major opportunities for CPAs: cannabis. Today, we will be joined by Andrew Hunzicker, founder of Dope CFO. He will talk to us about the current status of marijuana legalization efforts in Pennsylvania and nationwide, misconceptions among CPAs on cannabis entrepreneurs, and more.
Can you give us the current status of marijuana legalization efforts in Pennsylvania and nationwide? What progress has been made?
[Hunzicker] Just leaps and bounds, so it's almost where to start? If I even go back, when I got in in 2014, look, I'm out in Oregon, which is one of the first three legal states. It was basically illegal everywhere for the most part. I kind of accidentally fell into the niche and I started calling around CPA firms in Bend, Oregon, or friends I knew at Price Waterhouse or whatever, couldn't find any information about anything. It was kind of a scary time. I contacted my state board, "Hey, is this okay to serve?" But where we've come in the last five years, we were pretty much mostly Republican administration, the last four to five years. During that time, even when we originally started that administration with Jeff Sessions, who was very, very anti-cannabis, we made leaps and bounds over the last four years.
Where we are today, I'm looking at a map right now where cannabis is fully illegal on the state level, they've only got six states on this map and it changes daily. I know we all saw New York and Virginia just passed in their state legislature, Louisiana came on, Alabama's got another vote coming up. The question is now, "Are the Feds going to legalize it, like what happened with CBD and hemp?” Or are we going to wait for every single state to legalize, and then the feds will finally move? But the interesting thing to me is this isn't a Republican or Democrat issue. The fact is about eight out of ten Americans in all states support medical cannabis. When you have that many Americans agreeing on any topic under the sun, the laws will follow.
Do you think people's opinions on whether marijuana should be legalized can get in the way of their business approach on this issue?
[Hunzicker] Yes, and I get that question a lot about, "Oh, well, I don't want to..." Or even people that want to serve the space, but they're going to keep their separate non-cannabis bookkeeping or tax or whatever practice separate because they don't want their current customers to get mad. There's a real stigma that is really changing quickly. We've seen this over the last four years. This stuff is just everywhere. It's in all the press, we have CBD stores on every corner and we're now finally, after decades, the science is actually catching up on the medical side that, oh, there's lots of major medical problems that our country, as we age face, whether it's pain management, arthritis, sleep, anxiety, PTSD, all kinds of ailments, that it turns out cannabis will help. There's real science supporting that.
As we move that way, I use my mom as a perfect example. Back in Oklahoma, she's almost 85, she's as anti-cannabis as you can get, but now she's taking CBD and she's starting to see that, "Oh yeah. If I could take something that doesn't get me high but is a real medicine, and it could help my arthritis or pain, I'm all for it." So, slowly that stigma and those opinions are going away and we're seeing…and just even looking at the accounting profession five years ago, I couldn't find a three-person firm in Bend, Oregon, that would touch it. Today, other than the Big Four, most of the national firms are in this space. Cohn Reznick, Marcum, and BDO, they've all jumped in. I'm on the AICPA planning committee for their big fall conference in Las Vegas in November. The other committee members are all on big, huge firms. So, it's very interesting to me that things have changed really quickly on the accounting side.
Let's talk about some things CPAs should think about when they consider getting involved in the cannabis industry. What sort of opportunity is there for CPAs? I'm thinking it's an underserved niche right now. If so, why is that?
[Hunzicker] It's definitely an underserved niche and I'm glad to see more and more CPAs finally getting involved, be it our program or elsewhere. I get calls every single day, "Hey Andrew, I'm a CPA in Ohio or wherever and I got a dispensary client. I don't know what to do." It's very important. There's huge opportunities. So, many accounting firms, especially small accounting firms, that are one, two, three people, they've already gotten this idea. If you just back-step a minute about niche, why would I want to pick a niche?
Most firms get it at this point that, oh, if I could pick a niche and become an expert in a niche, one, I'm going to find clients easier, I can spread my net wider, I can look all over the U.S. instead of just my hometown, I'll be able to serve those clients better, I'll get more referrals, they'll pay me more money, and it's way simpler to just do the same thing instead of moving around from nonprofit to retail, etc. Having a niche, in general, is great.
This niche is…why is it such a good opportunity? Well, several reasons why: it's new and massively underserved by CPAs, so there's easier opportunity. If you say you're going to go serve the dentist niche today on your firm on day one, you're going to have a lot of trouble reaching dentists that aren't already served by dental accounting specialists. This niche is massively underserved. It's also the fastest-growing niche in the U.S. and, by the way, we don't even call it a niche anymore. We've moved to industry because it truly is an industry. It's got sub-niches of farming, processing, product manufacturer, labs, distribution, retail, etc.
So, this huge movement is sweeping the U.S. and it's not simple. There's cost accounting involved. We have, just your average mom and pop dispensary or farm is often going to be four to ten legal entities. They're often going to have several of those verticals in one entity, consolidations. It gets pretty complex pretty quickly. All that rolled up together means big opportunity for CPAs and, oh, by the way, your typical mom and pop dispensary or farm is multimillion on day one. They can pay high, often six-figure, fees, whereas, say, your local coffee shop's not going to be able to afford that or your hair salon or whatever. These companies have capital, and they can, and should, and will pay high fees.
You talked to a certain extent about the idea of a client or clients that you have maybe worrying about their CPA firm working in the cannabis industry. Are there misconceptions among CPAs or other business personnel regarding cannabis entrepreneurs? For instance, what sort of profits they're making or the need for accounting personnel? What are the misconceptions?
[Hunzicker] There's a lot. One misconception is, oh, I'm going to lose my CPA license. Generally, I've never heard of someone in the U.S. losing their CPA license for serving a state legal cannabis company. That said, check with your state board, like the Pennsylvania State Board. I'm sure there's many CPAs in Pennsylvania serving cannabis. But other misconceptions, and one is that, oh yeah, this just is the most lucrative, profitable business in the world. We talk a lot about the old Gold Rush, and the people that made all the money were the ones selling shovels. The shovel sellers in this instance could be CPA firms. That's one of the shovels in this industry, and, yeah, CPA firms are killing it in this space, the ones that are in it.
The companies themselves, though, the farms and dispensaries and manufacturers, because of the punitive 280E taxation on the industry, if a cannabis company is, first of all, making any profit, my red flag's going to go off: “Oh, are they doing their accounting actually and tax correctly?” More often than not, they're not. And so, most of the big companies are losing money, hand over fist. That is okay though. Think back to the high-tech boom of the 2000s and companies like Amazon and Facebook and Google that lost millions and billions of dollars for years and years. That's okay.
In high-growth industries, you can be focused on revenue, growth, brand, product, and we'll have big winners. Valuations are right now, and will be in the future, based on the key product brands. Eventually, over time as we move toward legalization, they'll become more profitable. But right now, a key misconception is that they're all making money. Most of them are actually losing money. The key for a business owner in the space, they need to be well-capitalized to suffer those losses for three, four, five years. That said, they still make a great client because most of them are well-capitalized in the millions of dollars. They have money to pay for their labor and accounting and utilities and all of these high costs that they've got.
In particular, do you know what sort of opportunity is there for CPAs entering the cannabis industry in Pennsylvania, and what are the factors affecting it?
[Hunzicker] The medical market's relatively new. The way we teach it in our program, say you decide this is a niche you want to serve, I'm going to tell right off the bat, okay, whatever state you're in, it's in some sort of phase of the cannabis. If you're in California, you're deep into it. If you're in New York, they just legalized, very recently, it's just getting started. Pennsylvania's a little farther along. Most states kind of dip their toe in. They start playing around with the rules and then they're medical, and then you'll have more votes and, sure enough, you'll be fully rec legal. If you go out five years from now, it could be huge in Pennsylvania.
We don't know, but that's my guess, is most states move in that direction, and they just kind of take these baby steps and it's very, very bumpy. Rules change left and right since we have all these politicians. That said, if you're on the East Coast and you're in a newer state like Pennsylvania, yeah, we want you to focus 25, 30% of your efforts on Pennsylvania. First and foremost, we want you getting involved and participating in that. Right now, there are associations in Pennsylvania, there are people pushing the movement, they need your help. You can go volunteer and get involved with this movement.
What happens when you get involved in this movement, just on a volunteer basis, you're going to meet a ton of future and current founders and owners and investors in cannabis companies. You're going to be rubbing elbows with your potential clients and, not only that, you're going to get your name at the top of that list. When the conferences come to Philadelphia or wherever, you can speak there and you can quickly bring clients to you and establish yourself as a leader in your state. That said, go ahead and spend 30, 40% of your time on states that are really hot right now, like Illinois and Massachusetts. Reach out and grab clients there because they're absolutely booming.
We've got many examples of people that aren't even CPAs that have single clients that are in the 200 grand a year range. The opportunity is big, but we like you to spread your wings a little bit, get involved right there in Pennsylvania. If we can jump out five years from now, my guess is cannabis is going to be very big in Pennsylvania. The people that get in early are going to have a huge head start.
Say we are at five years from now, we're federally legal even. And a CPA says, "Oh, okay, I'm going to jump in now." Well, they're going to run into the person who wants to join dentistry now. They're going to find out when they reach out to people like, "Oh, I've already got…Sally CPA is an expert, I've had her for three years already." So, now is the time to get involved and it's pretty easy to get connected with these clients. By the way, we don't have a Zoom link, but you can very easily find a list of like 60 dispensaries in Pennsylvania right now, and their email addresses. Within an hour, you could be emailing dispensaries in Pennsylvania.
You talked a little bit there about the boom going on in Illinois and Massachusetts. In a general sense, what sort of rate is the cannabis industry growing at? What's driving the growth? Obviously the legalization that's going on throughout the country, but what else is there?
[Hunzicker] When you just back away from the accounting and the growth, and it's not just in the U.S., it is a massive global movement right now for both cannabis CBD and hemp. All of us…nobody had even heard of CBD five years ago, and now it's in every gas station across America. It shows you how quickly, and look at CBD hemp, went from illegal to fully legal in 2018. That could happen with cannabis. But several things are pushing the movement. First and foremost is medicine. We have a national opiate crisis in this country. Again, I think of my mom, going back to the 70s and 80s and all of these doctors, prescribing Valium and pain pills for people as they age for whatever disorder it was or pain or arthritis or whatever. We all agree at this point, that's not the answer.
Cannabis appears to be an alternative that is non-addictive, that really can help a lot of these ailments. So, we finally have universities and hospitals and scientists all over the world, studying literally myriad medical benefits from epilepsy, autism, PTSD, pain, cancer, you name it. They're studying and finding uses, our pets even, and now we've found out CBD helps as well. There's other chemicals in the plant that might help. So, far and away, forget recreation, forget all that stuff. Medicine is the big driver, and it's going to continue to be the big driver. What are some of the side benefits? Oh, it provides tons and tons of jobs, which we need in the nation.
What's another effect of that? Taxes. Our cities, our counties, our state, and our federal governments are all broke. They all need money. There are big, big tax dollars from this industry. So, what you're seeing in states like Oklahoma, my home state, which was as anti-cannabis as you could get eight years ago, when they sued the state of Colorado for going legal. They went from going fully illegal, totally against it, they voted it in 2018 legal, and then what happened in COVID? Oklahoma made cannabis essential. You couldn't shut down a dispensary. So, we've gone from illegal to legal to essential. By the way, this industry is recession-proof and COVID-proof on top of that. So, lots and lots of reasons, just economically, jobs, and medicine more than anything. That's why I think most Americans supported this. It makes sense.
You did a blog for PICPA's site, CPA Now, on this topic. And there was an interesting section in there titled “By Becoming an Expert, Clients Will Find You.” You discussed this a little bit a couple of questions ago, but maybe we can go into it a little more. Basically, best to get in at the ground floor because it's growing fast, you don't want to be left behind. Is that a concern you see for CPAs and CPA firms that turn a blind eye to this industry? That it's moving too fast and they're going to get left behind?
[Hunzicker] Yes. If you definitely are looking for a niche, and I counsel a lot of younger people, too – I'm almost 60 – that are coming out of college or whatever. I'm like, this is a once-in-a-lifetime birth of an industry. We'll probably see this once in our life, something this big, and so it is a great opportunity. Backing up to how clients will find you, I talk about this all the time, whether you're a plumber, an electrician, accountant, you work for yourself, you've got two things to do. You have to find clients, which we all hate because all accountants are introverts, or most of you tell me you are. Finding clients, and then once we have them, we have to serve them well. If we can figure out how to find those clients and serve them well, we're going to be successful.
It's pretty simple, but what I call becoming a “VIP” is the secret sauce. If over the next year or two years, you can grow what I call…it's like a balloon, I just keep growing it bigger and bigger until the end of my career. “VIP” is Valuable Expert, Instructor, and Participant. If you can do all three of those things in your niche, it's the secret sauce because over time, instead of finding clients, which we all hate, clients will find us. It's really by participating in this niche, you will find by year two or three, you will not be doing any outreach, more than likely, you'll be turning clients away. They'll find you, and also by growing that VIP balloon bigger and bigger, once you have them, you're going to serve them better because you're not going to be just an expert in accounting and tax and those court cases, you're going to know about the software, the banking issues, the politics, the operations, the medicine, the plants, the genetics. You're going to know everything and anything and your clients are going to really appreciate you.