it began with health care.
by liz gold
cannabizcpa.pro
when john pellitteri noticed a significant increase in the cannabis-related questions in the business community, he immediately took ownership of building the consulting team that was missing to help guide those conversations into opportunity.
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pellitteri, the healthcare and cannabis practice leader at grassi & co., headquartered in new york, ny, has spent close to 30 years working with hospitals, physicians and outpatient centers. at the beginning of 2016, he started fielding questions about medical cannabis.
at first, the firm’s clients wanted to understand the changing dynamics that were happening in new york and new jersey in the health care industry and act on their belief that the plant was effective for treatments. they also wanted to know the specifics of practicing with medical cannabis, and if so, what the process was to dispense it for patients and how it would impact them from a tax perspective.
so, the research began.
“medical cannabis was changing in new york and new jersey and as the partner in charge, it was beholden on me to be on top of it,” he said. “i went out to colorado, met some accountants out there. it was important to go where it started. i did my due diligence and came back with a thesis.”
he presented the thesis to grassi’s executive committee and made the case for starting to take on cannabis clients. grassi has a formal, diligent way of approaching any new industry and cannabis was no different. pellitteri and his team put the work in. with this approach, he had to provide the answers to the questions, “does our premise make sense? does this have substance?” it did.
with data organized from countless research calls and further examination, pellitteri presented the findings to the executive committee.
“as i came to them with the underlying data, our cannabis practice was born,” pellitteri said. “two years ago, we went full steam with it.”
now, he’s the cannabis practice leader and the firm is representing clients in seven different states and two countries, with prospects already emerging in other states and countries as well. he said, like any early-stage industry practice in a firm, it’s him and another partner who spend about 85 percent of their time with cannabis clients. they draw from the skills, resources and expertise they have internally, including
- two audit teams that work with financial statements and due diligence projects;
- a tax team involved in tax consulting;
- a cyber team involved in cybersecurity;
- and a technology team that addresses pos systems, erp, business intelligence and back office platforms.
“every group is responsible for doing their own research as the industry is changing,” pellitteri said.
he said because he was able to answer the firm’s existing clients’ questions about medical cannabis, the practice propelled. the group picked up a few clients who already had licenses and that helped them truly understand the complexities of the industry.
“there is so much regulation, so many rules and pitfalls, if someone goes into it not understanding it, you can end up in a precarious situation,” pellitteri said. “and that’s what we are committed to avoiding.”
part of pellitteri’s due diligence was making sure the aicpa and nysscpa were on board and he was in alignment with their guidelines.
“we reached out to them to get their opinion and they said, ‘look, like any other industry, we are not going to interfere as long as you are working with licensed, registered and reputable companies.’ we apply that standard for every client we take on. if they pass our test and are registered and have the right licenses and are operating in compliance, we are ok taking them on.”
late last year grassi & co. was a sponsor at the nysscpa’s 2018 cannabis conference, an all-day online and in-person event that provided sessions on best cannabis practices in legislation and taxation to new technology and strategies on how to get clients. pellitteri was a speaker.
the firm’s first client was a licensed dispensary owner for medical cannabis. pellitteri said the barriers to entering into the medical cannabis industry were high in new york and new jersey because of the need for companies to be vertically integrated – by growing, producing and selling their own product. there were six licensed dispensary owners in new jersey and new york and both are currently expanding their medical program, according to pellitteri. now, in new york, as the industry turns to recreational, cannabis business owners can apply for one of the sectors – cultivation, manufacturing or distribution, which will allow greater access.
while pellitteri works with cannabis businesses who come to them already licensed, they also work with those companies that need guidance through the licensing application process. the firm does traditional audit work and financial statements, entity structuring as well as, of course, taxes.
“we are in a unique position,” he said, explaining that the firm’s work with public companies positions it well for startups. “we can walk them through the unknowns of the market. we positioned ourselves with a suite of services from startup to inception to vision to growth right through public companies.”
aside from the critical tax areas such as 280e and maximizing the cost of goods sold, the firm helps clients with merger and acquisition activity, choosing and managing their pos and seed-to-sale systems, as well as their erp accounting programs, business intelligence, dashboards and cybersecurity.
“a lot of u.s. companies have seen what is going on in canada and are looking to position themselves for the next round that is happening,” he said. “parties are coming together in joint ventures as a strategy for what they see happening ahead of them.”
cybersecurity is a big issue that many cannabusinesses don’t address, according to pellitteri. he pointed to two competing forces that want to go after the industry – the naysayers who think it’s a problem and who will do what they can to put a black eye on the industry, and competitors who are looking for market share. hackers have a tendency to go after those companies that are doing it right – and those who are doing it right have their processes automated. the issue is this – if someone can hack into your grow system, for example, and make some tweaks, you can lose a crop. and, if you are getting roughly four crops a year, that can really have an impact on your business.
“how you administer the water, lighting, climate? that is all regulated by computers,” pellitteri said. “so, if a hacker gets into any one of them, you risk damage or the destruction of a whole crop. that is the vulnerability.”
pellitteri said since working with cannabis clients, he’s been surprised by what he’s observed.
“it is a very sophisticated group in this space,” he said. “really smart people who have histories of building successful companies with an entrepreneurial spirit and collaboration that i haven’t seen in 30 years doing this. we work with other accounting firms now and that is also very unique. dispensary owners are working with other dispensary owners within the space. to me, that is a brilliant move. everybody collaborating early on is only going to raise this so much quicker. we have the opportunity to do this right. from the beginning.”