Clarifying Confusing Cannabis Tax Codes with Christine Gervais (Cultivate Consulting)

Episode Description

Christine Gervais has been a licensed CPA since 2010 using her skills to help small businesses grow and achieve their fullest potential.

With a Master’s degree in accounting, in addition to years of experience both in public accounting as well as serving as the CFO for large private organizations, Christine has the knowledge base to provide comprehensive accounting and consulting services to Cultivate’s clients.

Christine shares her insights into the importance of having a cannabis specific accountant who can advise you on rules and regulations in the ever changing industry. She also unpacks what cannabis retailers need to know about 280e and 471 tax codes.

Find out more about Christine and Cultivate Consulting:

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Episode Transcript

Tom Mulhern: When it comes to running a cannabis business, trying to know the tax rules and the legislation and how to handle 280e and 471, all of these different codes and operating expenses and what you can claim, what you can't it just becomes so confusing.

So today on the show we have a conversation with Christine Gervais from Cultivate Consulting. Cultivate Consulting is a cannabis specific accounting agency that is there to help you stay compliant and make sense of your inventory, make sense of your taxes, all of that.

And, had a great conversation with Christine and she really had a lot to share about how dispensaries can work with accountants that know what they're talking about in the cannabis industry to make sure that everything they're doing is above board on the books.

And so let's jump right into the show.

Tom Mulhern: Christine has been a licensed CPA since 2010, using her skills to help small businesses grow and achieve their fullest potential with Master's degree in accounting. In addition to years of experience, both in public accounting as well as serving as the CFO of the largest private organizations, Christine has the knowledge base to provide comprehensive accounting and consulting services to cultivates clients.

Most notably Christine is nationally recognized speaker and 280e expert providing cannabis tax education not only to her clients, but to other accountants. Cultivate Consulting company provides cannabis businesses with specialty accounting solutions, income tax services, and business system implementation. Filling a clear void in the fast-paced, evolving industry from grow operations to seed to sale businesses, to dispensaries and beyond. They help cannabis operations achieve success driven management while working within the stringent regulatory environ. Christine, welcome to the Kaya Cast podcast.

It's good to see you again.

Christine Gervais: Tom. Good to see you too. It's really great to be here.

we met in Maine, and as I was saying before the show, I think I fell in love with the Maine and the waterfront and all the people. Everyone was so nice there. Is that the

Christine Gervais: case?

So, it's so hard not to love it here. It's just, it's an absolutely area, so I'm glad to hear that you'll be back soon.

Tom Mulhern: Yeah.and it felt like, I mean, I live in Canada and it felt like Canada, where like you say hello to people and they're like, Oh, hey, how's it going? And everyone is so nice. So there you go. You live in a beautiful place.

Christine Gervais: you. Well, you're welcome. Anytime.

Tom Mulhern: Okay, we'll definitely be back for the lobster and the people. So let's jump right in.

Tell me a bit about your background in accounting and kind of how you got started in cannabis.

Christine Gervais: so the cannabis credit definitely has to go to my business partner. I mean, if I go way Back to how I got started in accounting, I was actually a marketing major originally in college, and I took my first accounting class and I. It just clicked. And it's one of those things where like you either love it or you hate it.

Like accounting, it sounds silly, but like it's either your calling or it's not. And so it was definitely mine and I switched to becoming an accounting major. And then, you know, here we are about 20 something years later, um, of me doing this going into, I think it's like my 16th tax season coming up now.

. And the cannabis thing evolved. I had started my own practice back in 2016, traditional accounting practice, doing tax and accounting services for, uh, all different types of small business owners, and it was my business partner. Who really at The time said, Hey, maybe we need to look at this opportunity.

We had a real estate client at the time who was doing real estate development, who got involved with a small grow and came to us and said, You know, really know how to deal with the accountings for this of, and I don't either. Uh, I was really nervous because I actually went to the, like, I knew nothing about cannabis at the time other than there was all of these like weird rules that you needed to, to deal with.

And I went to the State Board of Accountancy that manages my CPA license, and I asked them directly, is there any issue with me as a licensed CPA providing accounting services to clients who are operating in this space? And they wrote back to me and they actually said, We don't know. We are not gonna say that there's an issue per se, but we're not gonna say there's no issue either.

So that was like a big like risk hurdle for us to, to get over. But there was nobody else in the area that was serving this industry at the time. You know, so like I said, it was my business partner who really said, this is something that we need to do because we pride ourselves on serving small business owners, and this is a huge small business community that's getting no service at all.

Tom Mulhern: Does that, uncertainty keep a lot of people out of the, cannabis industry when it comes to accounting like that? That's not a very, like, solid answer to receive. Like, we're not sure.

Christine Gervais: Um, a lot Of states were doing that at the time. I mean, this was years ago now. So I think that that stigma has started to break down. I think we've seen, as and more states have changed their laws to legalize cannabis in some form or another. We've started to see that stigma break down. But this was definitely back before there were as many states on the map as there are now.

I mean, we've watched probably a dozen states come online in terms of legalization in the years that we've been working in the industry. it's a little bit better now. I'm finding more CPAs are willing to be open to the opportunity, but we're very risk averse by nature. The, that is our personality type.

So I think it's just a lot of the fear of the unknown, right? There's a lot of gray area in this space. Accountants like things to be black and white. It's hard. It's really challenging to find people that aren't afraid to kind of take the bull by the horns in this industry and willing to take on the risk to learn it, and then to advise their clients well.

Tom Mulhern: And are you guys all in cannabis or do you still advise other. Customers or like how did the, how does that work?

Christine Gervais: We are totally devoted to the cannabis industry. We were really adamant that if we were gonna do this, it was super important that that was our business model. Because it's just so unique and the laws are really unlike any other industry. That is out there right now and they're changing very quickly.

So as stuff evolves in terms of compliance and what you can and can't do, you have to be on top of it. And it's just really impossible to be truly good at what we do if we're not entirely devoted to just focusing on this industry right now.

Tom Mulhern: For a retail business out there. Why should they go to someone like you that is only cannabis? Like, why not just go to their, you know, local h and r block or whatever and have they do accounting? I think that's the only one that came to mind. Uh, but Why should they find someone that knows, cannabis specific accounting?

Christine Gervais: Yeah, so the things that make cannabis super challenging, a lot of people are familiar with 280e, um, everybody kind of, it's very, you know, buzzwordy in the cannabis game, talking about 280e and what it is and what it means and how it affects your business. So 280e is the iRS tax code that specifically says that no deduction will be allowed for trafficking in a federally controlled substance.

So anytime you're running a business for the sake of selling a federally controlled substance, which unfortunately until cannabis comes off that at that schedule as a schedule one drug, it's going continue to be considered trafficking anytime you have even a legal operating cannabis business at the federal level at least.

What does that mean for a cannabis tax return? Can get really complicated. You know, the IRS tax code is really, really long. In a lot of cases it is cases, its very black and white, and in cases where it's not black and white, you go back and find lawsuits happened and then you can find legal precedent that tells you this is how they would treat this interpretation.

But that's not the case with cannabis. We've had so few. Legal cases actually settled between the IRS and any sort of cannabis business taxpayers that we really don't even have a long list of legal precedent to tell us how we're supposed to interpret these very unusual tax laws. So, You know, I never wanna knock another professional, but because it's so unique and unlike any sort of traditional business and there is no black and white and there really is no roadmap , it's really easy to like step in a pothole, I guess, for lack of a better word just because you don't know what you don't know. So going to someone who isn't intimately familiar with all of that, who isn't following the cases that are being heard in these court systetms, to try and understand where the legal precedent might be going in the future, you're really asking for. A product to come back to you.

That's probably not the best that it could be. And the worst scenario that you can be in as a business owner is a scenario where you got bad financial advice and now it's gonna cost you to try and unravel it.

Tom Mulhern: And the bad financial advice in cannabis can actually result in fines. And if it's so bad, it could result in like legal issues.

Christine Gervais: Yeah, it's really, I mean, with the task code, I mean, so what happens with with cannabis businesses is that really, they're taxed on their gross profit. They can't deduct any of their operating expenses. So you have your gross revenue, that's everything that you've earned. And then they're allowed an adjustment for cost of goods sold.

So that would be any expenses that they incurred in the actual production of their product. But things that get really challenging are things like we're still. Them pay for licensing fees and they're still paying for rent and utilities and payroll and insurance and all these operating expenses. And some of those might be able to be allocated to cost sold, but that requires them to be following really specific accounting rules too.

And again, that's where it's so important that you're talking to someone that knows what those rules are and how to follow them. Because if you're not, you lose out on the opportunity to allocate some of those expenses to cost a good sold, which means that you're paying more taxes than you need. So all of this plays into, at the end of the day, you just, they don't want any higher tax bill than they're already going to be faced with.

You and I running a traditional business where we can deduct all those operating expenses and we're paying taxes on a reasonable amount of money that we need. They're having to outlay cash for all these operating deductions and then not getting the tax benefit of paying for them. So they're paying taxes on a huge amount of money.

getting surprised by that can really crunch a business's cash flow. And that can be unfortunately the make or break for some of these organizations.

Tom Mulhern: So looking at your background with your business partner, Andrew. how like he has a history in the restaurant industry and how did that kind of help shape what you guys have built there with cultivate.

Christine Gervais: I'm so glad you asked because this is one of the things that makes our organization just completely unique. So not only do are we 280e experts and great cannabis accountants, but uh, what I tell everyone is that the thing that makes us different and really makes us such a strong partnership in terms of being able to provide great service and advice to our clients is that he has a completely different background than I do.

he does have 20 years in restaurant management. Which is a lot of very fast moving inventory pieces, right. You know, going right down to like tracking your tomato and how much ketchup goes on your burger and, and things like that, you know. So that's a lot of meticulous detail and inventory tracking, uh, to really understand that nitty gritty nature of what's moving in and out of this organization.

Christine Gervais: And how is too much ketchup on the burger costing the organization money, which is the same thing as like, how is the free pre-roll every single time somebody comes in the door potentially costing this organization too much money? So it's those types of internal operational decisions , that can really affect the numbers.

So the biggest reason that that is so critically important is because that cost of good sold number is the only adjustment that our clients get in terms of calculating their tax liability. So that cost of good sold number becomes the most critically important number on any cannabis businesses, financial statements.

Cause if that's wrong, Now we have a tax problem too. So he combined, his knowledge of the plant as well. I always lovingly say that Andrew comes from the legacy market. So he grew up in an area, that was popular with legacy growing. So he understands the plant and the plant cycles as well, which really gives him the unique ability to go in and look at an operation and say, ok, this is where we're maybe missing the boat on tracking.

Cost or valuing this inventory, or this is where maybe inventory is going missing or not being counted correctly. And so helping these organizations to put really solid standard operating procedures in place to manage that inventory. That's where we get the confidence that, that the confidence that that cost of good number is correct on their financial statement.

And now we have solid financials that we can plan with. So none of our clients are being surprised at their liability, and we can help them build that into their cash flow.

Tom Mulhern: Looking at that like entire, life cycle of the inventory, I mean, that's so key for especially dispensaries, but also, uh, other cannabis businesses. Can we dive into that a little bit like that life cycle? We start with the product arriving and receiving. So, What should the process be for dispensaries when they receive their inventory?

Christine Gervais: Great question. So it starts even before that. In a lot of cases, I mean, different states have different laws, so not every state allows for vertical integration, but in states where there is vertical integration, it's actually starting like with that little seed. You know, coming in the door. So for dispensaries that also have a grow attached to it, that's where we see them actually miss the boat a lot on valuing their inventory, is that they're not counting those in process plants, so they don't count inventory until it's maybe a harvested flower that's ready to go into some other type of process or ready to be sold. But really it starts with that seed. Those seeds have value, your soil has value, your water has value. So starting to understand that full cycle, like you said, it really starts with the seed and it goes all the way to putting the product on the shelf.

So that could be, and that could mean a whole bunch of different things too. It's not necessarily harvested bulk flower that harvested bulk flower might be turned into tincture. So that whole process and making sure that we're tracking the value of each piece of the product throughout that life cycle is really critical and it's hard to do.

You know, most business owners are running. Like, you know, crazed all the time trying to do all the things and be all the things. And so honing in this process, uh, it can be a lot of work. And that's where having somebody With a guide coming in and kinda saying, This is how you put these check boxes in place, is super helpful.

But to answer your question, I think the biggest issue that we see with inventory on the receiving end especially is, uh, breaking product down into weights. So you might receive, let's call it a pound of bulk flower, but you're not gonna turn around in your dispensary store and sell a pound of bulk flower that could be broken out so many different ways.

And it's when it gets broken out that we start to see that maybe the, the control over that inventory starts to loosen up a little and somebody, uh, I mean it can start when it comes in the door too. You know, somebody just miss weights something When it comes in. And so those are the types of things that you have to pay attention to.

And when you start to bring in that inventory and you actually receive it into your store, and you're breaking it down into an h maybe, or you're gonna use some of this bulk flower to turn it into pre-rolls, like that pound is not going to result in a pound of pre-rolls, that weight is going to change, that product is going to change.

And so those conversions and making sure thatfrom this point A to that point B is happening correctly is super critical. You can lose a lot of dollars with a conversion just going awry.

Tom Mulhern: Have you seen that before where that conversion just goes into left field and you're like, how can you account for this pound of weed that came in? Now what now? Where is it?

Christine Gervais: It happens all the time. It happens all the time. One of the things that Andrew does with almost all of our clients. He goes in and he does like a physical observation of a team actually counting their inventory and he starts to find all of the ways that they might miscount just in terms of like these habitual things that we do, right?

Like we all get in the habit of this is how I do this. And so teams will get into the habit of this is how we count inventory. Not realizing that some of those conversions could be going awry or something could be miscounted. Um, so something that's really common, and again, this is part of the receiving process that you just asked about is something might just be stored in an unusual location, you know, so you might get in a box of products, we'll say it's like, you know, edibles, you're gonna get in like a box of lollipops and you have like three different flavors and you're gonna put some of them out.

On the floor in the display case, and then you might store the rest of them in a box out back somewhere until there's room in the display case for you to replenish. Well, if that box doesn't have like a specific location, the next time that you go count inventory, somebody might count what's in the display case and then they don't know the location of that box.

So now all of a sudden you lost a hundred lollipops and nobody has any idea why. And so those little tiny things are the types of things that can. Really screw with your numbers. And so when he goes in and he observes those inventory counts, he teaches our clients how to likepreset themselves and to how to do their inventory the same way every single time.

He teaches them how to count from sheet to shelf, meaning like if you print out a sheet of what you should have for inventory, how to make sure that you're consistently going to the shelf in the same order, the same way every single time to try and avoid those things getting.

Tom Mulhern: Say you put some good inventory control measures in, you know, your, your lollipop example seems like an accounting like math question. Like there's three lollipops in the display case and a hundred. Where did, where did Jim put the other lollipops?

Christine Gervais: Exactly

Tom Mulhern: But, so you've got these, you've got these good things in place.

Who should have access to the inventory? I know it's set up differently for every single dispensary, but in, in your estimation. Who should be even handling that product and doing that?

Christine Gervais: Yeah, like one person. Um, yeah, so we see this a lot too. A lot of these things are the result of too many hands in the cookie jar, right? It's really difficult, like you always have to have a backup, you know? So like in a lot of cases, probably ideally two people, but you really wanna limit that and most stores don't, you know, because the owner can't be there all the time, or the manager can't be there all of the time, or it's just really hard to get great retail staff and so we automatically like loosen those controls. But when too many people have access to either change the count in the system or you have too many people, even just counting, like even just doing an inventory count, you know, you might count the lollipops out front and I might count the lollipops out back, but we're.

Necessarily combining it the right way. say that something's missing and you say that something's missing, but really we're talking about the same product and so when have hands in the cookie jar like that, that's a really great way for mistakes to be. So you really want to have part of your standard operating procedures limit how many people are involved in the process from intake all the way through?

Who's counting, who's entering those counts in the system? Who's the person responsible for going through and looking at the variances and figuring out why they're there. That helps to provide consistency over time, and we're always looking for like at least 90 days of that really tight consistency before we can really say, Okay, your, counts are more accurate.

Tom Mulhern: And I'm sure every retailer that comes to you, they always have accurate counts, right? Like every single one that you've dealt with.


Christine Gervais: time, that's the speech every time. Some of them really do have great systems in place. It's not always the case that, you know, there's a huge issue per se. But I will tell you as the accountant, that even if they have a great inventory procedure in place, it's very rare where we see an organization that has a great inventory control system in place, like meaning we are pretty confident in their accounts and their numbers, and that those numbers are also being reconciled to their accounting software. So your great numbers might consistently live in your point of sales system or whatever you're using for your inventory tracking.

But if that's not translated to your financial state, It's not super helpful. So we see that disconnect happen a lot of times where somebody might truly have a great system place and I'll come, The system doesn't match what's on your balance sheet.

Tom Mulhern: How often should that inventory be reconciled to the software? And should that be done like daily, weekly?

Christine Gervais: Great question. So we reconcile for our clients every single month. So once they've done their hard inventory count, either on the last day of the month or the first day of the month before opening, we take those hard inventory counts and we use them to make sure that it's everything's reconciled to their accounting software.

So that's done monthly. Andrew recommends soft count. During the month though, for clients, which would be not you going in and counting your full inventory, but you might pick like your top five products that either had the largest variances last month, or your top five most valuable products that you really wanna make sure you're keeping an eye on and counting those probably at least a couple times a week.

Tom Mulhern: Okay. And then if there's a discrepancy in. Between, what's in the software or point of sale, what's the standard operating procedure for that? give some advice, you, they've done the count and they're like, This is way off. what should they do?

Christine Gervais: It's hard to answer it super specifically because every point of sale system is different, so it kind of depends on what you're using for a point of sale system. Some of them you can go in and you can make edits too. Um, and depending on the timing of you making those edits, like before you hard close your inventory in the software. That might be completely effective.

There's other softwares where you going in and doing a hard edit in the software might completely screw up your inventory value altogether. So it really depends. In states that report to Metrc, not every state does, like here in Maine, the medical side of cannabis does not have to report to Metrc, but adult use does.

So when you're reporting to metric, uh, you have to be super careful. There's a very small window of time for you to submit your accounts, and after that, it's very difficult to edit them because everything is trace and track. So it really depends on what state we're in and what type of software is being used.

From an internal operations standpoint, you always want to look at those variances and try to see if you can figure out what happened. If there's a huge variance, is it. Our lollipops were out back in a box and we truly just didn't count them. is it because product is being given away and not rung up?

That's a really popular one. Uh, we never wanna just jump to like, well, somebody's taking it off the shelves, which it does happen a lot in cannabis, unfortunately. But, um, a lot of times it's, uh, we talked about like the free pre-rolls. You know, like a lot of dispensaries will do certain giveaways, certain days of the week or if you spend over a certain amount of money, we'll give you such and such for free.

But if you don't ring that in, that's a really great way to create a huge variance in your inventory count, and then not know why.

Tom Mulhern: If they're not reconciling those, those giveaways and stuff, like, then at the end of the month they're, they're like, where did, where did all of this go?

Christine Gervais: Yeah, if I give a pre free pre-roll to everybody that comes in and spends more than a hundred bucks, And I never ring that into the system, even though I'm not charging them for it. The system doesn't know that the pre-roll is left the building. So then all of a sudden at the end of the month, I'm gonna go and count my pre-rolls and I'm gonna be missing 300 pre-rolls.

And now we have a huge dollar value problem. You might be scratching your head going, I don't get it. Like what's going on? And it's something as simple as not ringing in freebies or not properly ringing in discounts.

Tom Mulhern: And does your inventory consulting, does that, how does that impact, like tax planning for dispensaries? Like, do they need to, you know, work with you throughout the year or is this something that like, it's something that they can do at the end of the year or how does that look?

Christine Gervais: Yeah, so that's a hard part. I always feel like I sound like I'm tooting my own horn to like add my services. Like you need this one and you need this one, and you need this one. But they're so interconnected, you know? So that's where we run into, you know, a lot of clients will actually come to us and they'll want tax preparation or tax planning services.

Everybody wants to know, can you tell me how much money I'm gonna owe to the IRS? And I'm like, well, maybe because If I'm calculating that projection off of incorrect numbers, all I'm doing is giving you an incorrect tax projection, and that doesn't help anybody. So a lot of the times we have to tighten up these inventory procedures and get these numbers in line before I can even do a good tax projection, because again, like I said, All of these cannabis businesses are taxed on their growth profit, which is their sales dollars, less their cost of goods sold, and your inventory valuation is directly linked to your cost of goods sold.

So if that is not correct, your cost of goods sold is not correct, which means the dollars that I'm using to calculate your tax viability are not correct. They are super interconnected with each other. if a client comes in and they want tax preparation and they want tax planning services, I will ask a lot of these questions and as soon as I discover, hey, you know, there might be some cleanup work that we can do here.

The nice thing about having my business partner be the expert in providing these services is it's simple for me to pass them off to him and say, You know, we're gonna do 90 days of cleaning up your, your inventory Procedures and getting your counts tightened up, and then I'm really able to provide some value to you because now I can give you really accurate projections, and then we can talk about how do we minimize your liability.

Tom Mulhern: And you mentioned two 80 E, but can you also speak to, I know there's 471-3 and 471-11, so how does that relate to how. Inventories treated and maybe even explain what that is. So, you know, those are just numbers to some people.

Christine Gervais: So that's tax code again. So 471 was actually originally written related to manufacturing organizations. So as a whole, 471 deals with the allocation of certain expenses to cost of goods sold. So now I'm getting back to like managerial 101, if anybody ever took accounting in college. And all of our problems all used to be based off of widgets.

So there's always these examples where like, we're manufacturing widgets and what was the cost of the widget. But that's really what's coming into play here with 471. So what that code section relates to is the ability, like I said, to allocate certain operating expenses to cost of goods sold.

So a really great example, if we could just walk through an illustration would be like rent on a building. So let's say I rent a 3000 square foot building. In 2000 square feet I'm using for indoor grow and a thousand square feet I'm using for my retail space. So my retail space is gonna be sales based.

That's where you get into trafficking and federally controlled substance. So I can't, I can't take any of the deductions related to operating my retail space, but part of the rent that is associated with my growth space out back. Now we're talking about, well, that rent goes into the cost of this widget that I'm producing, right?

Or the electricity for that growth space, or the water for that growth space. Those are things that are starting. They're what we call indirect expenses. So you have these expenses that are happening that are not like, it's not like soil or a seed that's directly related to the plant, but indirectly these costs are being incurred for the production of the product.

So now we can talk about, well, howdo we allocate some of our rent? Some of our utilities, even some of our payroll, because I might not be able to allocate the payroll for the person who's out front actually at the register selling my product. But I could have a budtender out who's responsible for growing and that payroll can be allocated to cost.

So 471 deals with how you can do these allocations, what you can allocate, um, when you can allocate. And the biggest piece to come out of 471, and I see this issue come up a lot with cannabis businesses is that in order to do these cost allocations on your tax return, you are required to do what we call accrual basis accounting.

So 471 requires accrual basis accounting. A lot of businesses follow what we call the cash basis of accounting. And so what that is, it's just like you and I have our bank account. Like I tend to not count my revenue until it's actually deposited to my account, and then I don't ever count anything as an expense until it leaves.

Cash basis means we don't count any of our sales until they are physically in our hands, and then we don't count any of our expenses until they've physically left our hands.

Accrual basis is very much the opposite. Accrual basis says that you count revenue when it's been earned. So for example, let's say I'm wholesaling and I drop off product. But my customer has 30 days to pay my invoice, even though they haven't physically given me the cash yet because I've fulfilled my piece that would be required for me to earn that revenue.

I've dropped off the product. That sale is now revenue to me, whether I ever get paid or not. And then on the expense side, as soon as I receive an invoice for something, even if I have 30 days to pay. And I haven't paid it yet. That's immediately an expense to me. So that can get really tricky if you're not familiar with the accounting roles.

But that is kinda the sticking point for 471, So everybody wants to allocations, right? I allocate of my, That's lower taxability. Doing the actual accrual basis accounting is very complicated and that's another really great reason to make sure that you're working with someone who has that type of accounting experience to make sure that you're actually following a accrual basis accounting

Tom Mulhern: Yeah, you're, as you're explaining it, like it makes sense, but I think if I had to put it into practice, I'd get, you know, 10 minutes into it and be like, Christine, Christine, I need your, Oh, please.

Christine Gervais: Yeah. There's a lot of, there's a lot of things that you just don't,think about, and they're kind of common everyday things like. Insurance is a great example, you know, so you might be paying liability insurance for your business and it might be 500 bucks at the beginning of the year, but that is what we call the prepaid expense.

You paid it in January, let's say, but really 1/12 of that expense has to get spread out over all 12 months of the year. So you have to book what we call an accrued expense to account for the fact that, Hey, I generated this expense this month, but I'm not gonna pay it until the following month. So there's a lot of places to just. Like easily miss those transactions if you don't have oversight from somebody who really is,experienced with accrual basis account.

Tom Mulhern: So that's your public service announcement of find someone that knows what they're talking about, like Christine and really kinda, use that knowledge cuz I'm sure. There's ways that, cannabis retail businesses could be maximizing their deductions. They just don't.

Christine Gervais: They just don't know. Yeah. And these are really great questions to,ask any accounting practice that you're interviewing. If you're working with someone and you're trying to figure out whether or not they have enough experience, you know, obviously asking them how long they've been working in cannabis, how many 280e specific returns they filed last year.

Asking those types of questions. You can always ask for referrals. A lot of the times, confidentiality reasons they may or may not be able to give them to you, but asking questions like, How well versed are you with 471? How well versed are you with accrual basis accounting? Have you worked with cannabis and or manufacturing clients in that you would know how to book entries?

Those are questions where you'll be able to tell whether or not you're talking to somebody who really knows their stuff or not.

Tom Mulhern: What advice would you give for, dispensaries regarding banking? Cause I know banking is such a hard issue in the industry, so any, any advice that you've got there? You've got that long sigh.

Christine Gervais: Yeah, the big si it's been, it's been a, um, particularly painful issue here in Maine now since the beginning of this year actually. So yeah, banking's a big issue and we find a lot of clients putting themselves in that really unfortunate position of, you know, trying to open a bank account and not really telling the bank what they're doing.

They go a while and all of a sudden their bank account is shut down and they're scrambling. And unfortunately, a lot of cannabis businesses have gotten into that loop of just constantly opening and closing new accounts. And that's a terrible place to be. It's super inefficient. It's terrible for your accounting.

It's just, it's exhausting. So the good news is, is that there's a lot of banking options springing up now that are a lot better than they used to be. Um, a lot of them are like virtual based, meaning there's not local branches. And that can be a big hurdle for a lot of people to get over.  But looking at those, the fees tend to be lower.

A lot of them have smart, safe systems where you install one of their safes and you can put their, your cash right into the safe. And the safe will actually count that as being available in your bank account that day. And then you can limit how many armored car pickups you need to have and things like that.

More of those options are springing up. It's just kind of finding the right one that's the best fit for your business. Unfortunately, again, this is one of those spaces where every single state is different. Some states, you know, Colorado is a really mature market, so there is more banking options. Um, New York not so much.

It's a big state with maybe one or two banks that are actually serving the industry. So it's a, challenge.

Tom Mulhern: It's kind of growing and there's hope on the horizon for some of these places, like with Colorado and states like that, that are blazing that trail. Like do you see that there could be a change, a quick change, or.

Christine Gervais: Yeah, I, So we recommend Dama a lot, which is a really great online banking option. They've been around for a really long time. They actually came out of Colorado, so they've been serving the market specifically for a while. With smaller operations, you know, there's always the issue of what is cost prohibitive and what's not.

But they Have a really solid system and there are more coming online. So I do think that like now that there's a business model for others, to follow. Everybody wants a piece of the cannabis game at the end of the day. Everybody thinks it's a gold, mine. It's actually probably one of the hardest working industries I've ever seen.

For us to like make our money and keep food on the table. It's challenging, but we're going to see more competition in that space and then we can just hope and watch that things like the Safe Banking Act actually get pushed through. Unfortunately, things that people don't wanna hear is that we're still a long way off from federal legalization, from actually descheduling cannabis, but I think that we will see things like the Safe Banking Act finally come across sooner, which would at least allow for these business to, to have safe banking.

Tom Mulhern: What are some practical steps that people can do to help, support the Safe Banking Act and some of those things like do they write to their congressman or woman? Like what do they do?

Christine Gervais: Yes, absolutely. Either writing to or making phone calls to and just letting them know that, you know, as a constituent of theirs, that this is really important to you. And the more people it, I know it sounds kind of cliche, people are always like, well, stuff like that doesn't work, but it really does.

These are humongous business is, and when you talk,about the conglomerate, like here in Maine, cannabis became the number one crop last year produced in the state. So we're talking about like over a billion being generated in the state of Maine alone by this industry. So that's definitely going to count for something if we all call our representatives and say, Hey, we need to see you vote for this. And especially being that we're in an election year, those phone calls count more than anything.

Tom Mulhern: So get out there and let your voice be heard like as a cannabis community that's so key.

Christine Gervais: Yeah, absolutely. We're also working on it here in Maine, although a couple of states have already passed it, have actually decoupled from 280e. So that's something exciting to see how many more states might hear things like that on the horizon. Um, so Massachusetts became one of them, I think earlier this year where they actually elected to not follow the federal laws when it comes to 280e, meaning cannabis businesses in that state can actually take their operating deductions on their state returns.

So starting to see those changes happening is going continue to support these businesses as well.

Tom Mulhern: So how would a cannabis, retailer find an accountant like yourself? Like where do they go? Do they just open the phone book and look up cannabis accountants or what sort of resources are there out there for cannabis specific accountants like you?

Christine Gervais: I would like to hope that they would find us on Google if they just typed in cannabis accountant. And I always like to, to be at the top of the list. It's challenging cuz there's not that many of us. But truly, At the end of the day, ask your who are also in the industry, who are you working with? How long have you been working with them? You know, what's your experience with them that then ask for referrals?

The majority of our business still comes to us from referrals, which is just, you know, our clients being happy and knowing that we're experts. And so when someone asks, they recommend us. The best thing you can do, um, Is just really make sure that you ask those interview questions of any accountant that you're talking to.

You know, I don't need a special license to serve the cannabis industry. I just have years of experience of really paying attention to what affects this industry. So that's what you're looking for.

Tom Mulhern: And I know that your experience has paid off. When we were doing that, that event in Maine, you had a lineup of people saying, how do you help me? they were like me, like Christine, and we need your help. if there's people that are in the area, how do they get connected to what you're doing?

And, um, you know, find Out more about cultivate consulting.

Christine Gervais: Yeah, of course we actually service clients across the country, so we work entirely remotely with all of our clients, except for those inventory observations. And if Andrew has to fly to do one of those, he'll fly to do one of those. All of our accounting, bookkeeping, tax work, everything is done entirely remotely.

You can find us on our website, which is, so, but I can be reached same. Um, It's Christine, it's my first name, C H R I S T I N E, at Cultivate Consulting Co. And we're always happy to book what we call as a discovery call and just find out, you know, what are you looking for?

Can we help? If we can't help, I always do my best to try and provide a solid referral.

Tom Mulhern: Oh, that's good to know that you work across the country cuz you know, it's, Maine is beautiful, but it's spread out in one area. if after this conversation people are like, I need help, I'm, I, these are all the, these are all of my pain points. Reach out to Christine and Andrew at Cultivate.

And they're here to help. They're here to help make sense to this confusing landscape. So Christine, thank you so much for being on the

Christine Gervais: Thank you. Thank you for having me. Yeah, it was great.

Coming out of that interview if you have questions, if you are second guessing the current accountant you have, whether or not they know what they're talking about, definitely reach out to our friend Christine. she's there to help with all of those, issues with, inventory control and taxes.

Tom Mulhern: She just has a passion for the industry, for making it better, for helping businesses to be better, for them to grow, for them to scale, and to do it in a compliant framework. So reach out to, Christine and she can connect you. If she's not able to help you, she can connect you to somebody who can really help.

If you have an accountant that you currently have some questions about, make sure that you are asking those questions, whether they have experience in cannabis, and how much experience, because at the end of the day, you've invested so much money, so much time, so much passion into launching this business, and it would be a shame for something to go sideways because your accountant just didn't have the experience to really speak into that situation. Again, thanks for joining us for the show and reach out to Christine at Cultivate Consulting. She'd love to chat. she has a passion for the industry and thank you so much for joining us, at the Kaya Cast. We love hearing feedback from you. So go over to our website, and you can check out some of our past interviews, some of our past episodes, and you can find out what's coming up, with us.

You know, we're Gonna be at some events and we would love to connect with our listeners.

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