Preparing to work indirectly with the cannabis industry.

• Author: Crisler, Michael W.

Accountants are, by temperament and training, ethical people. Being able to demonstrate a clear understanding of where the line is between ethical and unethical behavior goes with the job, and clients want to have confidence that their professional advisers have the knowledge and judgment to help them stay on the right side of that line. Unsurprisingly, then, many accountants are uncomfortable or uncertain about providing services related to the cannabis industry. Since many industry business operations are clearly illegal under federal law and are illegal or have an ambiguous legal status in many states, the subject no doubt leaves many accountants feeling ethically adrift (at least with respect to the lack of established, acceptable standards of practice).

Doubtless, many practitioners will choose not to engage with clients who are involved directly with the cannabis industry. Their reasoning is understandable; there is risk, uncertainty, and a potential social or professional stigma for those working with clients who sell marijuana. However, practitioners should be aware that even if they do not want to work directly with new cannabis industry clients, some of their existing clients may not have the same hesitancy, and this can present the practitioner with the same ethical concerns that would be encountered with a new client. Consider the following:

Example 1: A longtime client has had his commercial warehouse sit vacant for an extended period. One morning, the practitioner gets a call from the client saying that he has found a long-term tenant that is willing to pay above-market rent and one year in advance. The only catch is the tenant wants to grow and process cannabis in the warehouse. The client wants to know the tax consequences of the transaction, along with the practitioner's other pertinent thoughts. Example 2: A business client sells and installs heating, ventilation, and air conditioning (HVAC) systems. The company has been one of the practitioner's best clients, requiring annual review, tax, and consulting engagements for many years. The company has been increasing its net profits and expanding for the last several years. During a recent meeting with the practitioner, the company's owners mentioned that 35% of its growth has been due to cannabis industry clients requiring HVAC systems in their warehouses. The owners would like the practitioner's firm to change the company's review engagement to an audit so it can get...