Yesterday, Trulieve Cannabis Corp. (OTCMKTS: TCNNF) (CNSX: TRUL) announced the release of its second quarter financial results.
Year-over-year, Trulieve’s increased 149% from $23.3 million to $57.9 million. Keeping pace with revenue, operating expenses also rose from $6 million to 14.8 million, representing a 146% increase. Gross profit was $37.6 million, and the gross profit margin was 65%. Adjusted EBITDA was $31.6 million.
A considerable amount of the company’s growth was due to a rise in the number of medical cannabis patients in Florida, which increased by 19%. Driving patient growth was the introduction of cannabis flower to market, which accounted for 50% of total product sales in the state for the second quarter. As of June 30, 2019, there were 181,000 medical cannabis patients in Florida.
During the last quarter, Trulieve expanded its total cultivation capacity to 1.6 million square feet, completed its acquisition of The Healing Corner medical cannabis dispensary, closed a public debt offering of $70 million, and commenced trading on the OTCQX Best Market under the symbol TCNNF.
Additionally, the company’s founders extended a voluntary lock-up agreement of their 65,253,093 shares, or approximately 59% of shares outstanding on an as-converted basis, until July 2020. Trulieve also closed its sale-leaseback transaction with Innovative Industrial Properties, Inc. to provide capital for its Holyoke, Massachusetts cultivation and processing site.
“Our strong financial results for the quarter combined with our operational and foundational evolution illustrates that Trulieve is not just a cannabis company, but an organization that possesses the key fundamentals expected of leading companies across all industries,” said Kim Rivers, CEO of Trulieve. “By continuing to focus on operational efficiencies, maintaining sound financial discipline, and leveraging our strong brand awareness and patient loyalty within current markets and in future expansion initiatives, we expect our efforts to translate to new strong results throughout the remainder of 2019.”
Harvest Health & Recreation, Inc. (CSE: HARV) (OTCQX: HRVSF) has reported its financial results for the second quarter, ending on June 30, 2019. Revenue rose from $19.2 million in the previous quarter to $26.6 million, representing an increase of 39%. If one were to include Harvest Health’s completed and pending acquisitions, quarterly revenue would be $78 million.
The gross profit was $16.9 million, and the gross profit margin was 64%. The company incurred a net loss of $20.6 million, which was attributed to “planned investments in people and infrastructure” meant to support growth initiatives and expansions. Harvest Health currently holds $89.9 million in cash and cash equivalents and has approximately $105.1 million in outstanding debt.
During the second quarter, Harvest Health opened three new retail locations in the state of Florida, closed its pending acquisition of Cannapharmacy, and was awarded a retail dispensary license in Pasadena, California. Following the close of the quarter, the company gained a cultivation license in Utah and opened six dispensaries in Arizona, California, Florida, and North Dakota.
Additionally, the company signed an agreement with the Asian American Trade Associations Council (AATAC) to distribute Harvest Health branded products to over 10,000 retail locations in the AATAC network.
Harvest Health also had some success in raising funds during the last quarter, having recently closed an initially $100 million tranche (out of $500 million) of convertible debentures, as well as signing a term sheet for a secured term loan for up to $225 million from an investment fund managed by Torian Capital.
“During the second quarter, Harvest continued to execute on its strategy by adhering to our four core initiatives: building a world class team, expanding our retail and wholesale footprint across the U.S., building and acquiring brands and distributing them across our footprint and continuing on a path of profitable growth we believe that we can fulfill our objective of becoming the most valuable cannabis company in the world,” said Harvest Health CEO Steve White.
You may not be able to purchase cannabis from your local gas station, but that hasn’t stopped the international convenience store chain Alimentation Couche-Tard (TSX: ATD.A ATD.B) from staking a claim in the industry. Today it was announced that the company would purchase a stake in Fire & Flower Holdings Corp. (TSXV: FAF) $25.9 million.
With over 16,000 stores in 25 countries, Fire & Flower hopes to leverage Couche-Tard’s retail footprint to help aid its own international expansion. This does not mean that company’s cannabis products will be found in a Couche-Tard convenience store anytime soon, but rather that Couche-Tard’s resources will help with growth initiatives like growing and expanding the company’s digital platform Hifyre.
“This strategic investment by Couche-Tard, one of the world’s largest retailers, is transformative for Fire & Flower,” said Fire & Flower CEO, Trevor Fencott. “The support of Couche-Tard’s world-class leadership team, coupled with their impressive international footprint which includes major markets such as the US, Mexico and Europe, provide us with outstanding opportunities for aggressive growth.”
The purchase will be made by an indirect wholly-owned subsidiary of Couche-Tard through a subscription agreement, upon which Fire & Flower will issue 24,289,706 common shares of the company at a price of $1.07 per common Share, representing a 9.9% ownership interest.
Concurrently, Couche-Tard will receive three series of common share purchase warrants. If exercised, Couche-Tard would increase its stake in the Fire & Flower to 50.1%. Couche-Tard will also be granted board nomination rights. Upon closing of the transaction, Fire & Flower will uplist to the TSX.
“Couche-Tard is excited to make this strategic investment in one of the fastest growing cannabis ‘pure-play’ retailers,” said Brian Hannasch, President and CEO of Couche-Tard. “This investment in Fire & Flower, with a path to a controlling stake, will enable us to leverage their leadership, network and advanced digital platform to accelerate our journey in this new and flourishing sector.”
Amplify Investments is getting into the cannabis industry. Today, Amplify ETF’s announced the launch of Amplify Seymour Cannabis ETF (NYSE Arca: CNBS), an actively managed ETF covering the cannabis industry. Tim Seymour, CIO of Seymour Asset Management and CNBC Fast Money co-host, will act as the fund’s portfolio manager.
As one of the world’s most premier financial journalists, Seymour recently served as the headline speaker for the Green Market Summit in Chicago, Illinois. You can watch his fireside chat with Peter Miller, CEO of Slang Worldwide Inc. (SLGWF), about the explosive growth of the cannabis industry here.
“The global legal cannabis industry is still very much in its infancy and presents an attractive growth opportunity for investors looking to capitalize on this emerging frontier,” Seymour said. “Amplify has a track record of offering investors access to disruptive areas of the market via the ETF structure, and the cannabis industry certainly fits this mold.”
As portfolio manager, Seymour will base his decisions off of publicly available data, regulatory filings, third party research, and his evaluations of companies’ financial fundamentals.
The CNBS portfolio will include cannabis companies that are federally legal in the countries in which they operate. Specifically, the portfolio will cover companies that fall into one of three categories: cannabis/hemp plant, support cultivation and retail, and ancillary companies that provide goods and services to the cannabis industry.
“Cannabis and hemp are seeing a new wave of potential use cases across multiple industries, and investors are eager to gain access to this emerging sector,” said Christian Magoon, founder and CEO of Amplify ETFs. “Tim is a recognized voice and active investor in the cannabis space, and we’re excited to harness his investment expertise and specialized insights to navigate and capture the expanding opportunity in the rapidly evolving industry.”
Beth Stavola is a leading cannabis entrepreneur. She was formerly the Chief Operating Officer, President of US Operations, and Board Member of MPX Bioceutical Corporation, and is now the Chief Strategy Officer and Director for iAnthus. Beth is also the founder of the top CBD beauty and wellness brand, CBD For Life, a privately-held company that provides customers with the benefits of cannabinoids while avoiding unwanted psychoactive effects. Previously, Beth worked on Wall Street with Jefferies and Company, rising to the position of Senior Vice President. She is actively involved in organizations that promote women in the cannabis industry and in 2014 was named as one of the leading medical cannabis entrepreneurs by Congresswoman Dina Titus, on the floor of the House of Representatives. In 2017, Cannabis Business Executive named Beth #3 on the “CBE 75 Most Important Women In Cannabis” list.
GMR Executive Spotlight Q&A –
Full birth name: Beth Stavola
Title: Chief Strategy Officer and Director
Company: iAnthus Capital Holdings
Years at current company: <1
Education profile: Beth Stavola holds the esteemed honor of being named as one of the leading medical cannabis expert entrepreneurs on the floor of the House of Representatives in 2014 by Congresswoman Dina Titus. She holds a BS in Finance and Economics from Monmouth University and spent most of her Wall Street career at Jefferies and Company.
Most successful professional accomplishment before cannabis: While I structured and closed many deals during my time in finance, being the #1 producer in my department the most times during a ten-year career at Jefferies is the highlight. I think it shows my determination to succeed professionally no matter the industry. A personal investment in medical cannabis lead me on this incredible journey where I am able to combine my passion and experience to help people. Sometimes opportunities happen where you least expect them and working with people who have different perspectives can open your mind to new ways of thinking and growing your business.
Company Mission: In the high growth environment of the U.S cannabis market, an experienced team, access to capital and an ability to grow through acquisition are the three key drivers of a company’s success. iAnthus was founded by entrepreneurs who bring together market leading experience in operations, capital markets and M&A.
Combining these skills, we are building a cannabis company that will seize the opportunities this emerging industry offers.
Company’s most successful achievement: The transformational Deal with MPX which closed in February 2019 was the first public-to-public U.S. cannabis transaction with an HSR filing to be approved by the Department of Justice. The combined company now has operations in 11 states.
Has the company raised any capital (yes or no): if so, how much?
We have raised 360mm CAD to date.
Any plans on raising capital in the future? I’m unable to comment on future plans.
Most important company 5-year goal: Our biggest goal is to expand our brands into new and diverse markets as they open up in the U.S. and abroad. This will ensure that our customers receive the highest quality products in a timely, efficient and reliable way, as our brands become recognized nationally and internationally under the iAnthus umbrella.
Israeli medical cannabis producer Breath of Life International Ltd. (BOL) cut its valuation for a pending Toronto Stock Exchange initial public offering by about 17%. According to a Canadian regulatory filing on June 14, the company is seeking to list 14% of its shares at a fully allotted valuation of CAD 1.02 billion (USD 827 million), compared to a previous valuation estimate of about $1.19 billion, following its May 23, 2019 prospectus.
Breath of Life produces medical cannabis and cannabis products — including 99%-pure cannabinoids — distributed primarily through pharmacies. The company currently supplies 48 pharmacies from its single facility in the southern Israel kibbutz of Revadim. It is targeting export markets in the E.U., Canada and Australia.
According to the prospectus, BOL showed revenue of $3.5 million in 2018, up from $3 million in 2017, and posted a net loss of $29.3 million, compared with a $6.4 million loss a year earlier. The IPO proceeds will be used to expand operations to Portugal resulting in an annual manufacturing capacity of more than 870,000 kilograms of dried cannabis in Israel and Portugal combined by the end of 2020, the prospectus said.
BOL set a price range of CAD 27-32 per share (USD 20-USD 23.80). Underwriters are BMO Nesbitt Burns Inc., Cowen and Company LLC, and Scotia Capital Inc.
BOL expects to take advantage of recent changes in Israel’s medical cannabis regulatory framework, which went into effect in late April. Under the changes to the country’s long-established medical cannabis program, there is no longer a fixed limit on the number of patients who can be prescribed medical cannabis; the number of physicians allowed to prescribe medical cannabis has been expanded; and, all pharmacies can be certified to distribute medical cannabis.
As a result of the framework changes, BOL forecasts that the number of approved medical cannabis patients in Israel will quadruple to 120,000 by 2022, from 30,000 last year. Earlier in the year, the government approved the export of processed and finished medical cannabis product.
The Israeli government sees a significant economic opportunity in medical cannabis. Various published forecasts peg the sector to be worth from $260 million to as much as $1.1 billion by 2022. In the last year the government committed the equivalent of more than USD $3 million to more than a dozen studies on boosting medical cannabis growing and cultivation.
SOL Global Investments Corp. (CSE: SOL) (OTCQB: SOLCF), the owner of 3 Boys Farms, which holds one of Florida’s original 14 operating and vertically integrated medical marijuana treatment center licenses, has entered into a binding letter of intent with cannabis-focused private equity firm Merida Capital Partners to acquire Merida’s Michigan subsidiary, MCP Wellness, Inc. in a deal valued at $150 million.
The company said that MCP Wellness was a special-purpose vehicle (SPV) created to invest in Michigan cannabis operations and currently holds the rights to acquire two Michigan cultivation licenses, a processing license, and 3 fully licensed cannabis provisioning centers in Michigan with a fourth provisioning center scheduled to open in Ann Arbor in May. MCP Wellness also has plans to open an additional nine municipally-approved provisioning centers by August 2019. Assuming MCP Wellness’ expansion plans are completed as scheduled, SOL Global and Merida expect Michigan gross revenue from the acquired business to generate in excess of $61 million in the calendar year 2019 and more than $121 million in 2020.
“MCP Wellness’s acquisition of the Michigan licenses, once completed, will be the perfect complement to 3 Boys’ operations in Florida, as both states offer tremendous growth potential and this partnership will combine talent, industry-leading genetics and processing, plus cultivation and retail expertise across two of the most coveted and revenue generating markets in the U.S.” said Brady Cobb, CEO of SOL Global. “This acquisition will help ensure that SOL Global, through the MSO, will be able to execute on its visionary vertically integrated cultivation and retail strategies in the United States’ most promising cannabis markets.”
According to the company statement, the deal will consist of $35 million in cash and $115 million in equity consideration in CannCure, resulting in Merida owning approximately 42% of CannCure. With regards to the cash, $9 million will be sourced from cash on hand and $24 million will come from a private placement financing of CannCure equity and/or debt.
“Over the past several years, Michigan has become one of the country’s largest medical cannabis markets, projected at nearly $900 million for 2019, according to New Frontier Data,” said Mitch Baruchowitz, managing partner of Merida Capital Partners. “With adult use coming in 2020, Merida is excited by the opportunity to combine one of Michigan’sleading retail operations with a Florida operator while aggressively pursuing additional acquisition targets across several states that will help create a more diversified company.”
The statement also noted that SOL Global and Merida Capital are in active negotiations on acquisitions for the MSO in additional states. Specifically, SOL Global is finalizing negotiations to acquire an industry leading California cultivator and processor with superior genetics and a chain of prime retail dispensaries in California, and at the conclusion of that transaction, SOL Global intends to pursue a “going public transaction” of the MSO.
New Frontier Lawsuit Against SOL Global
Andy Defrancesco, the Chief Investment Officer of SOL Global, has been sued for defamation, conspiracy to defame and tortious interference in a business relationship by New Frontier Data’s Giadha Aquirre De Carcer. Merida Capital is also an investor in New Frontier Data. Defrancesco has said he is an investor in Prohibition Partners, a research company that had a falling out with New Frontier over a report the two companies agree to create jointly.
When the relationship was terminated, both companies released a report with similar sounding titles within a week of each other. Both companies have accused the other of borrowing intellectual property and threatened lawsuits.
Merida has defended New Frontier and the spat doesn’t seem to be having any effect on the relationship with SOL Global.
Chicago-based Cresco Labs Inc. (CSE: CL) (OTCQX: CRLBF) released its unaudited financial results for the fourth quarter and full year ending December 31, 2018. The fourth quarter revenue was $17.0 million, an increase of 411% over last year for the same time period and up 33% sequentially.
The company trimmed its net losses to $2.6 million versus the net loss of $3.0 million for 2017 fourth quarter. The quarter’s pro forma revenue was $22.5 million.
Full Year Results
Cresco Labs delivered full-year revenue of $43.3 million, which increased 294% from 2017 and the full year pro forma revenue was $75.6 million. The company was profitable for the full year as it delivered a net income of $3.9 million, compared to a net loss of $4.0 million in the prior year. Cresco Labs is now operational in seven U.S. states, with binding transactions pending in New York, Massachusetts, and Florida. On March 25, 2019, it received approval to enter into the State of Michigan
“We completed 2018 with another quarter of positive pre-tax income that reflected continued strong execution across all areas of our operations,” said Charles Bachtell, Co-founder, and CEO of Cresco Labs. “Building on our momentum from 2018, we have already made incredible progress this year in building Cresco Labs’ leadership position in the cannabis industry. The definitive agreement signed with Origin House earlier this month is a transformational deal for Cresco that creates a cannabis industry powerhouse with the premier distribution platform in the United States serving the greatest number of dispensaries in the country. Combined with our recent entrance into the Florida market, Cresco has built the largest and most strategic footprint of any cannabis company in the United States.”
Success In The Capital Markets
Cresco Labs is a relatively young company that has accomplished a great deal very quickly. It only began trading its common shares on the Canadian Securities Exchange on December 3, 2018 under the symbol “CL” following the successful completion of the Company’s reverse takeover of Randsburg International Gold Corp. On March 6, 2019, the company was approved to list on the OTCQX market and its common shares are currently trading under the symbol “CRLBF.” Cresco successfully raised $205 million in growth capital through three capital raises in 2018.
As of December 31, 2018, Cresco had total assets of $318.4 million, including cash and cash equivalents of $131.3 million. In addition to that, it had a working capital position of $172.7 million with zero debt on the balance sheet.
The company gave the following operational updates in its statement:
Construction is underway to expand the Company’s cultivation facility in Lincoln, IL to 170,000 square feet with expected completion during the second quarter of 2019.
Launched an Illinois Opioid Alternative Pilot Program in the Company’s FloraMedex dispensary, which opens up access to medical cannabis across the state and removes certain registration barriers previously imposed on medical marijuana patients.
The Company opened its third dispensary (New Kensington) under its first license in the state.
The Company became the first dispensary in the Pittsburgh market to offer online ordering.
The Company is currently in the process of expanding its Brookville cultivation facility by approximately 85,000 square feet.
On January 16, 2019, the Company made the first legal sale of medical marijuana in Ohio, the second consecutive state in which Cresco Labs was first to market (following similar success in Pennsylvania).
Hope Heal Health, one of the companies with which Cresco entered into a definitive merger agreement, opened a medical cannabis dispensary in Fall River, Bristol County, Massachusetts. This acquisition is pending regulatory approval.
The Company will be launching a wholesale distribution of more than 50 products under the Cresco brand during the second quarter of 2019.
The Company’s new processing facility in Mendota, CA is scheduled to open during the second quarter of 2019. This will enable the Company to distribute its full suite of brands across the state.
Mindy’s Edibles are now carried in 62 out of 67 dispensaries in Nevada and have three of the top 10 selling edibles in the state, including the top-selling edible, according to Headset Inc., a cannabis data intelligence company.
The company still delivered a net loss of $71.1 million for the quarter which included a non-recurring, non-cash fair value charge of $50.7 million associated with convertible debt that was converted to equity during the year. The gross profit, excluding the impact of biological assets, was $7.2 million, an increase of 342%, up from $1.6 million in Q4 2017.
“2018 continued to set records for Harvest’s growth and momentum across the United States,” said Chief Executive Officer Steve White. “Three key initiatives dictated our decisions throughout the year and will continue to be our focus in 2019: aggressively expanding our retail and wholesale footprint across the U.S., building, acquiring and expanding our suite of brands across our footprint and continuing to operate in a financially disciplined way, while also fueling the revenue growth of the company.”
HHR made a splash recently when it announced it was acquiring Verano Holdings in a deal valued at $850 million. Verano is one of the largest privately held multi-state, vertically integrated licensed operators of cannabis facilities. Upon completion of the acquisition, it is expected to add licenses throughout the Midwest and East Coast. As of December 31, 2018, HHR operated ten retail locations in four states. The company said that significant expansion of cultivation, manufacturing and retail locations will occur throughout 2019.
For the full year for 2018, HHR reported total revenue of $47.0 million, an increase of 106%, compared to $22.8 million for 2017. The net loss was $67.5 million which included a non-recurring, non-cash fair value charge of $50.7 million associated with convertible debt that was converted to equity during the year.
The gross profit, excluding the impact of biological assets, was $24.6 million, an increase of 135% compared to $10.5 million for 2017. The gross profit margin, excluding the impact of biological assets, was 52% for 2018, compared to 46% in the same period the prior year. The adjusted EBITDA totaled $10.3 million for the 12 months ended December 31, 2018, compared to $6.0 million for the same period in 2017.
Cash On Hand
As of December 31, 2018, HHR had $191.9 million of cash and cash equivalents and $30.9 million of debt outstanding. The company has raised nearly $300 million in 2018: approximately $50 million of convertible equity notes, which converted into common stock when Harvest completed the RTO, approximately $20 million of senior debt, and over $218 million of equity issuances.
In February 2019 the company announced the pending acquisition of Falcon International Corp, a California vertically-integrated operator currently serving more than 80% of the legal dispensaries in California. It is expected to serve as a beachhead in California, providing cultivation, manufacturing, and distribution, wholesale opportunities, is expected to add well-regarded brands like Cru and High Garden to its portfolio and is expected to add key personnel to our team.
Editors Note: This is republished with approval from A Biz In A Box author Jordan Zoot.
Choosing Cannabis Tax Advisors – is one of the most important decisions that the owners of a legal commercial cannabis business must make. We are consistently disappointed by the lack of consideration owners invest in making their selections and abhor the misformation and in some instances criminal conduct by a small number of “tax advisors”. This piece is NOT about our practice, it’s about the selection process. We readily acknowledge that we are not the only skilled and qualified tax advisors out there, they do exist and our goal is to assist everyone in finding one. We have been very careful to divide the piece into distinct parts, the first part is comprised solely of factual information where the source of information will be hyperlinked, or a citation provided. The second part is going to reflect our opinions on the topic, and we certainly accept that “opinions are like a**holes”, everybody has one. The California Board of Accountancy [“CBA”] maintains a Cannabis Industry Information page on its website which highlights its unique status.
Critical Criteria – FACTUAL INFORMATION
The U.S. Treasury – Internal Revenue Service [“IRS”]
The Internal Revenue Service maintains an extensive structure for the oversight, regulation, supervision, and, and if the required discipline of individuals and firms that are involved with Federal taxes. The oversight is divided into several broad groupings and you need to understand the differences between them. They are:
Office of Professional Responsibility [“OPR”] – OPR’s vision, mission, strategic goals, and objectives support effective tax administration by ensuring all tax practitioners, tax preparers, and other third parties in the tax system adhere to professional standards and follow the law. OPR’s goals include the following: (1) Increase awareness and understanding of Circular 230 and OPR through outreach activities, (2) Apply the principles of due process to the investigation, analysis, enforcement, and litigation of Circular 230 cases and (3) Build, train and motivate a cohesive OPR team.
Return Preparer Office [“RPO”] – is a community of professional tax practitioners working with the IRS to improve tax administration with the strategic goals to register and promote a qualified tax rofessional community,improve the compliance and accuracy of tax returns prepared by tax preparers and engage stakeholders to create an environment that fosters compliance and program improvement
Treasury Inspector General for Tax Administration [“TIGTA”] – audits, investigations, and inspections and evaluations protect and promote the fair administration of the Federal tax system and work to ensure that the Internal Revenue Service (IRS) is properly doing its job. TIGTA reports directly to the Secretary of the Treasury and has oversight and review responsibility that extends to the IRS Office of Chief Counsel, the IRS Oversight Board, and the Taxpayer Advocate Service maintains a highly skilled, proactive, and diverse Inspector General organization dedicated to working in a collaborative environment with key stakeholders to foster and promote fair tax administration. TIGTA reports directly to the Secretary of the Treasury and has oversight and review responsibility that extends to the IRS Office of Chief Counsel, the IRS Oversight Board, and the Taxpayer Advocate Service. A maintains a highly skilled, proactive, and diverse Inspector General organization dedicated to working in a collaborative environment with key stakeholders to foster and promote fair tax administration.
OPR is responsible for the top tier of tax “professionals” – attorneys, certified public accountants and enrolled agents who are subject to the provisions of Circular 230 [“Circ. 230”] – Regulations Governing Practice before the Internal Revenue Service.
Certified Public Accountant [“CPA”] Verification – The tools available to perform that task include cpaverify.org a CPA lookup tool populated by official state regulatory data sent from Boards of Accountancy to a central database. The website represents the first ever single-source national database of licensed ‘ and CPA firms. Determine a CPA or CPA firm’s credentials without having to search each of the 55 Boards of Accountancy website individually. The California Board of Accountancy [“CBA”] licensee search is located here.
Enrolled Agent [“EA”] Verification – An enrolled agent is a person who has earned the privilege of representing taxpayers before the Internal Revenue Service by either passing a three-part comprehensive IRS test covering individual and business tax returns or through experience as a former IRS employee. Enrolled agent status is the highest credential the IRS awards. Individuals who obtain this elite status must adhere to ethical standards and complete 72 hours of continuing education courses every three years. Enrolled agents, like attorneys and certified public accountants (CPAs), have unlimited practice rights. This means they are unrestricted as to which taxpayers they can represent, what types of tax matters they can handle, and which IRS offices they can represent clients before. An Enrolled Agent’s credentials can be verified here.
Return Preparer Verification [make sure you understand how they differ from Circular 230 Practitioners]
Registered Tax Return Preparer [“RTRP”] – Program suspended due to IRS loss in litigation read here.
California Tax Education Council [California Registration Only] – Verify a Tax Return Preparer here [Circ. 230 Practitioner are Exempt]
Annual Filing Season Program [“AFSP”] aims to recognize the efforts of non-credentialed return preparers who aspire to a higher level of professionalism. Those who choose to participate can meet the requirements by obtaining 18 hours of continuing education, including a six-hour federal tax law refresher course with a test. The return preparer must also renew their preparer tax identification number (PTIN) for the upcoming year and consent to adhere to the obligations in Circular 230, Subpart B and section 10.51.
Preparer Tax Identification Number [“PTIN”] – anyone who prepares or assists in preparing federal tax returns for compensation must have a valid 2019 PTIN before preparing returns. All enrolled agents must also have a valid PTIN. The PTIN Directory is located here.
Authorized eFile Provider –the “Authorized IRS e-file Provider” database is a nationwide listing of all businesses which have been accepted to participate in the electronic filing (IRS e-file) program.
Circ. 230 Practitioners are the ONLY group of tax advisors that are permitted to sign extensions of time to file, and represent a taxpayer before the IRS and state tax agencies for the Examination, Appeals and Collection functions Does it make sense to select a tax advisor that isn’t permitted to defend the positions claimed in your tax return, particularly if they prepare the return?
Certified Public Accountants [“CPAs”] are the only tax advisors that may* be permitted to certify financial statements, review or compile financial statements. Enrolled Agents [“EA’s”] are not permitted to provide certification, review or compilations of financial statements. The IRS is prohibited from hiring EA’s as Revenue Agents [the entry-level position for “auditing” tax return unless that possess a CPA Certificate or have completed thirty hours of accounting courses at the college level. The IRS is limited to hiring EA’s that don’t meet the criteria as mail or file clerks.
Enrolled Agents [“EAs”] often state that “EAs are the only federally licensed tax professionals who also have unlimited rights to represent taxpayers before the IRS”. The statement is factually untrue as CPA”s and attorneys have the same rights and obligations when representing taxpayers before the IRS. There are some additional distinctions which need to be made at the state level.
California is one of seven states that requires registration of tax return preparers [Circ. 230 Tax Practitioners are EXEMPT from the requirement. The registration is accomplished through the California Tax Education Council [“CTEC”] and requires continuing tax education and a $5,000 surety bond.
CPA’s may either complete a process known as “reciprocity” and obtain a license in a state other than their state of primary licensure, or they may utilize the procedures developed under the National Association of State Boards of Accountancy [“NASBA”] CPA Mobility Project to obtain a “limited practice privilege“. Once a CPA have completed either of the two steps above they have rights to represent a taxpayer in any location which is the same as an EA.
* – the California Board of Accountancy issues two types of licenses, A and G.
Type A – “Authorized” means the CBA has determined that the CPA completed a minimum of 500 hours of the experience required for licensure in attest work. The 500-hour minimum standard ensures entry-level exposure to attest engagements.
Type G – “Qualified” means that regardless of whether a CPA has met the minimum steps to be authorized to sign reports on attest engagements, they comply with applicable professional standards, which requires the CPA to undertake only those professional services that can be reasonably completed with professional competence, including achieving a level of competence that will assure that the quality of service meets the high level of professionalism required. It is the responsibility of the CPA to evaluate whether their specific education, experience, and judgment are adequate to perform the services being requested. As a result, it important to ask the CPA about their number of years and level of experience, continuing education, and recent peer review, if any.
California CPA’s and CPA Firms that provide attest services are required to undergo a quality control process known as “peer review“.
CPA’s that certify financial statements or provide SSARS-21 attest services for a client are strictly prohibited by “independence rules which can be found under both state accountancy statutes and professional standards from providing bookkeeping or technology services, such as accounting software or POS systems for the same client.
Choosing Cannabis Tax Advisors
Our Recommendations – Opinion
We believe that the optimal combination of tax advisors for a cannabis business would be to have BOTH a CPA with a graduate degree [a Masters in Taxation or “MST”] and a tax attorney with a graduate law degree [an “LLM – Taxation”]. Our rationale for the collaboration of both is detailed in “Legal Cannabis Support – Clarion Call“. You can learn more about the importance of having access to both sets of skills in “CPA Becomes A Cannibal” and “Kovel Accountants Cannabis Industry“
Where your tax advisor went to school is important, and we believe continues to be relevant without regard to the number of years since they graduated. I personally have an undergraduate degree in accountancy from the University of Illinois – Urbana, and an MST from the University of Texas – Austin. Both programs have been ranked no lower than #3 in the United States for the past FORTY years.
Listings of top undergraduate and graduate accountancy and tax programs can found here for undergraduate and here for graduate and LLM – Tax are here.
Experience with a Big 4 Accounting Firm is important. The level of experience is probably of greater importance – the usual progression is Staff Accountant [“Analyst”], Senior Accountant [“Associate”], Manager [“Director”], Senior Manager [“Director”], and Partner [“Managing Director”]. Big 4 experience at the Partner level is the “gold standard” with fewer than one in thirty Big 4 firm hires becoming partners.
Additional Recommendations – Opinion
Professional Memberships are important, with increased value ascribed to participation in the organization’s Technical Committees increasing their value
State Society Membership – provides development of local relationships and is a stepping stone to AICPA Committee appointed membership. CalCPAcan be found here, and the other state societies here.
AICPA Private Companies Practice Section [“PCPS”] for firms – The AICPA’s
Private Companies Practice Section (PCPS) supports CPA firms in the everyday intricacies of running a practice. PCPS partners with firms of all sizes, creating targeted and customizable practice management resources, networking opportunities and is a strong, collective voice within the CPA profession. PCPS provides content designed to sharpen technical proficiency to best practices in firm practice management.
Locate the Firm’s website and explore it, and investigate the firm’s presence on social media. You are welcome to explore our firm’s digital presence here.
We hope this piece provides insight into the process of selecting a professional tax advisor and welcome your comments, you can email us at firstname.lastname@example.org.
The Green Market Report focuses on the financial news of the rapidly growing cannabis industry. Our target approach filters out the daily noise and does a deep dive into the financial, business and economic side of the cannabis industry. Our team is cultivating the industry’s critical news into one source and providing open source insights and data analysis