Ep. 73: Cannabis Investors: Considerations When Determining Entity Structure

As an accountant helping Cannabis companies, you have a big responsibility you may not even be aware of yet: helping set up entity structures.

If you’re not aware of the importance of choosing the right entity structure, let’s pan quickly to the MedMen case. This is a cautionary tale of how a great product and company ended in a dramatic litigious battle due to an accounting and legal team that believed they could beat 280E with multiple-entity structures.

Although you’ll always want a Cannabis attorney on your team, your understanding of how to do accounting for each entity type sets up a path of success from the get-go for your clients and investors. Choosing and helping with operations for the right entity type enables you to properly minimize their tax burden while keeping their company compliant with state and federal regulations.

In this podcast episode, Andrew Hunzicker, CPA breaks down entity structures and considerations to keep in mind as you guide your client through the process.

Topics discussed include:

Your role as an accountant in assisting your clients with entity structures: you may not be a lawyer (although you should have a Cannabis attorney on your team), but your ability to do proper accounting for each entity type is crucial to your client’s long-term success

Investor goals and challenges: as more investors are savvy, we’ll see much higher standards of due diligence and tax compliance. Investors are thinking about exits, so tax returns must be immaculate -- or your clients could lose their license (and investors can lose their investment!)

Tax codes: understanding Cannabis tax codes are critical to setting up entity structures to prevent your clients from trying to "beat" 280E and determining how entity type may affect properly minimizing tax liability and acquiring special tax breaks like 199a

Common entity types/pros and cons of each: we’ll talk about how to analyze your client’s vertical and business model to determine the best entity structure (and we’ll point you in the right direction for helping your clients set up this crucial part of their business)

For more information about DOPE CFO visit DOPECFO.com or download your FREE "Accountants Guide to Managing Your Client's Cannabis Accounting Needs" at bit.ly/2GUnpPr

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