cpamd’s bryan mcdonald shows clients how to start off on the right foot.
by liz gold
cannabizcpa.pro
how a cannabis company is structured can have huge tax implications – and getting companies set up correctly, from the get-go, is what bryan mcdonald does when he starts working with a cannabis client.
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as he said, “how you form your entity is really key. it is much more difficult to do that later in the life of a cannabis company.”
therefore, his dispensary clients are typically structured as a c corp because they contain larger irs code 280e adjustments, while grow facilities are typically formed as an llc.
“we feel grow facilities are well suited to take advantage of and pass through the research and development credits,” he said, adding there are four qualifying activities for r&d credits and most cannabis companies qualify for all of them.
“if they own their own facilities, we like to take advantage of cost segregation for the buildings. most of these facilities are using light and water, which makes plants grow, so you can classify much of the building with shorter lives, which is helpful for owners. get the depreciation deductions early in the company’s life when you need it because that’s when your company is growing.”
mcdonald is the founder of cpamd, a cpa firm in multiple locations around the united states including chicago, il, los angeles, san francisco, phoenix, bozeman, mt, and las vegas. headquartered in chicago, cpamd provides a variety of services to medical marijuana clients. those services include 280e compliance, corporate and individual tax prep, financial audits and reviews, employee benefit plan audits and consulting services. mcdonald said while he doesn’t help cannabis companies obtain licenses directly (he refers out to attorneys who do that), his firm does perform attestations and audit reviews for cannabis companies, which are part of the application process. the firm’s sweet spot, however, are those larger vertically integrated companies that have a financial structure in place.
ideally, the company has a ceo or a controller who is able to take cpamd’s strategies and implement them into the organization. of the firm’s client base today, 75 percent are cannabis clients; the others are companies across many industries, including manufacturing and distribution, as well as high net worth individuals. the firm started out with a traditional tax and accounting practice but about five years ago that changed when one of mcdonald’s largest clients invested in a cannabis company license in illinois.
“that’s when i really got involved,” he said. “i was reading operating agreements and getting involved in the industry as i researched the possibilities.” he recalled dean guske of guske & company in washington putting a call out to cpas, trying to draw them into the industry to help with the growing demand.
“that was the final linchpin,” he said. “my partners decided it was too much of a conflict for their other accounts – there was a stigma associated with weed. i get that, before i became fully engaged, i went around to talk with high-end clients. i said, ‘this is something i am looking to pursue; do you have an issue with it?’ and even if they did, today for every one call i get for traditional tax and accounting services, i get 10 calls for mmj services.”
before rebranding to cpamd three years ago, the firm operated under a different name serving both medical and adult use markets. but mcdonald has another reason he opted into cannabis – his sons.
“i have three military sons and each one of them told me that mmj was very helpful for veterans who have ptsd,” he said. “so, as a result, that was the final push for me in order to make my decision to enter this market because i believe we need to take care of our veterans.”
mcdonald’s goal is to save his clients money through tax planning and strategy implementation. depending on the time of the year, the firm has between 10 to 13 employees.
“it’s an evolution,” he said. “we don’t have any control over what states are engaged in medical or recreational, so we are a little at their mercy. it’s trial and error to a certain extent. we started getting calls out of arizona and california. montana was the first state that we became fully engaged in and companies were calling us left and right. it’s word of mouth. once a client finds someone they can trust to help them, word travels quickly.”
that said, mcdonald said investors and clients don’t go into the industry with their eyes wide open enough when it comes to the tax laws cannabis companies face. “they try to form a cannabis company like a traditional business and it’s not. it’s a completely different way of being.”
for example, he said, many cannabis companies buy quickbooks online as their accounting software but are often shut down, losing all their financial data.
“many companies don’t want to do business with cannabis companies,” mcdonald said. “you can make some significant money in this industry, but you have to be wise about it.”