LITTLE ROCK (KFSM) — Arkansas accountants might have been given the all clear to provide professional services to medical marijuana businesses in the state, but some of the largest accounting firms in Northwest Arkansas and the Fort Smith metro are weighing their options on whether they’ll serve them anytime soon.
On Aug. 18, the Arkansas State Board of Public Accountancy concluded accountants who provide professional services to medical marijuana businesses that are licensed or in the process of being licensed to operate in Arkansas will not be perceived as lacking “good moral character,” and the service provided won’t be “considered an act discreditable to the profession.”
However, the board also said the growth, sale and distribution of marijuana — for medical purposes or otherwise — is still illegal under federal law, and it could still take action against an accountant who is convicted of a crime, whether or not it’s related to the services provided to clients in the medical marijuana industry.
“It’s a risk analysis each CPA is going to have to do,” said Jimmy Corley, executive director for the State Board of Public Accountancy.
Possible action the board could take against an accountant who’s convicted of a crime might range from continuing education courses, fines up to $10,000 per offense, or revocation or suspension of the accountant’s license. Corley was uncertain exactly what action the accountant would face for an offense related to medical marijuana.
Between five and 10 CPAs have inquired into whether they could provide professional services to medical marijuana businesses, he said. Two of the largest CPA firms in Northwest Arkansas and the Fort Smith metro were either uncertain whether they would serve the businesses or don’t plan to serve them. Barbara Hambrick, managing partner for Beall Barclay & Co., said the firm is still discussing whether it will provide professional services to the businesses. Ryan Underwood, managing partner for BKD LLP, said the firm won’t provide services to the businesses because marijuana is still illegal at the federal level. The firm might change its position if the federal law changes, he said.
While not off the table on whether Beall Barclay would serve the businesses, for now, the firm has yet to do so, Hambrick said.
Cal Rose, attorney for Wright Lindsey & Jennings in Rogers, who has provided guidance for entrepreneurs who want into the industry, said the state accountancy board’s order creates some gray area in allowing CPAs to provide service to the businesses, yet still face action from the board if convicted of a federal crime. However, if a CPA’s client were convicted of a federal crime it won’t necessarily mean the CPA would face discipline from the state board, Rose said. Even so, a crime could still be tied back to the CPA if a business were to conduct mail or wire fraud.
“The main one where it usually comes into play is tax evasion,” Rose said. “They pay taxes, and they pay a lot of taxes. It would be extremely difficult if not impossible to evade taxes.”
In November 2016, Arkansas voters approved allowing medical patients in the state to purchase marijuana by prescription. As of Sept. 16, 1,182 applications for medical marijuana cards have been approved by the Arkansas Department of Health since it started accepting applications for them in July. As of Sept. 18, the Medical Marijuana Commission received 224 applications for medical marijuana dispensaries and 98 applications for cultivation facilities, said Scott Hardin, spokesman for the Arkansas Department of Finance and Administration. The commission will allow five cultivation facilities and 32 dispensary locations in eight zones (four per zone) throughout the state.
“There will not be more than 32 dispensaries or five cultivation facilities unless the commission decides to reopen another application process in the future,” Hardin said.
The Arkansas Cannabis Industry Association is one of the prominent statewide groups promoting the use of medical marijuana in Arkansas and has a CPA on its board of directors. Fort Smith accountant Robert Clock, who serves as treasurer on the ACIA board, said he has received approval from his firm to provide professional services to businesses in the medical marijuana industry, but only in his name as a CPA.
“The firm does not want to be recognized publicly yet,” he said. “We still are unsure of the public’s perception.” He noted that 53% of Arkansas voters approved the use of medical marijuana, meaning 47% voted against it. “So there is about a 50/50 chance of having someone support or not support the industry. In time, we feel the industry will be viewed more favorably and become more acceptable by most.”
Clock is licensed as a CPA in California and Arkansas and has lived in Arkansas since 2009. He’s worked in taxation, assisted startups and helped companies with structuring for more than 30 years.
“I recently gave a presentation to over 175 people in Little Rock covering IRC Section 280E, related to taxation, accounting and bookkeeping matters for the medical marijuana industry.”
Another 185 people viewed the seminar, via live stream.
Section 280E of the Internal Revenue Code, restricts businesses from deducting business expenses from gross income related to the “trafficking” of Schedule I or II substances, under the Controlled Substance Act, according to the National Cannabis Industry Association. Because marijuana is a Schedule I substance, the IRS has applied Section 280E to businesses in the industry that operate where states have allowed it.
Jason Martin, who is CEO of Natural State of Kind, a medical marijuana business that has applied to grow and sell medical marijuana in Arkansas, hasn’t had an issue with finding a CPA to work with the business, but said he understands there will be a lot of people who aren’t going to be interested. The investors behind Natural State, which is a Cannabis Partners joint venture, have operations in Colorado, Nevada, Oregon and Washington and industrial hemp operations in Kentucky and North Carolina.
The position taken by the Arkansas State Board of Public Accountancy is “consistent with most states’ public position,” Clock said. California plans to address the concern by the end of the year. The state board in Arkansas is telling accountants that “providing accounting services to the medical marijuana (industry) will alone not be considered an act discreditable to the CPA profession, and a CPA in Arkansas will not face disciplinary actions for that alone.”
But if the accountant were to be convicted of a crime related to medical marijuana, it “must be reported to the state board for review and possible disciplinary actions.” When asked whether CPAs should be leery of doing business with medical marijuana businesses, Clock said they should be very leery because marijuana is still illegal at the federal level.
“It is currently considered a controlled substance and is still on the list of Schedule I drugs, along with heroin, LSD, Ecstasy, (methamphetamine) and peyote. Schedule I drugs are said to have a high potential for abuse and have no acceptable medical use.”
“CPAs that want to service this industry need to educate themselves on the rules and regulations surrounding this industry,” Clock said. “They need to follow the industry as legislation unfolds in Washington, D.C. This is not a four- or eight-hour course you can take and know everything you need to provide accounting services to this industry.”
“CPAs that think this industry is simple to understand and try to provide service need to be ready for the headaches and long hours it takes to fully understand what accounting services the medical marijuana clients are asking for and what services they really need,” he said.
As medical uses and benefits of marijuana are being shown and have been proven, people’s perceptions of the industry are changing, Clock said. Over the next few years, he believes marijuana will be changed to a Schedule III, IV or V controlled substance — still regulated by the federal government but no longer illegal.
“Until then, CPAs need to fully understand IRC Section 280E, and complete their own due diligence for each client or group of clients.” CPAs should focus on all the rules and regulations related to the industry, “not just the (American Institute of Certified Public Accountants) or state board guidelines, regulations and rules. This will help the CPA and the clients better understand and comply with the vast number of regulatory issues they are getting ready to face. This will also help further the legitimacy of the medical marijuana industry.”
For Clock’s clients who work in the industry, they are “heavily screened and vetted,” he said.
“Policies have been set and will continue to be followed for new and existing clients. If the policies are not followed, they will no longer be clients.”