tax maven michael harlow leverages firm’s real-estate prowess to build a new national niche.
by liz gold
cannabizcpa.pro
as the tax lead for cohnreznick’s cannabis practice, michael harlow, says the biggest barrier to entry for cannabis businesses on the east coast is finding the right real estate for their endeavor.
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“the biggest barrier to entry for east coast cannabis businesses is finding the appropriate real estate for their endeavor,” says harlow, cpa and national tax leader for cohnreznick’s cannabis practice.
for example, cannabis owners may have won their state’s license application, received the green light from their municipality, and raised enough capital to build a state-of-the-art facility (which can run upwards of $30 million), yet they still must find the right property with the appropriate zoning, and a cannabis-friendly landlord.
however, once they can clear those obstacles, according to harlow, the facilities they can build are impressive.
“west coast operators think they are superior due to their length of operation and historical knowledge, but the size and sophistication of what we are seeing on the east coast is a whole different level,” harlow says. he adds, “many have four-story commercial warehouse buildings, with grows on two to three levels. the bulk of cultivators on the east coast have created large, expensive, and sophisticated indoor facilities with state-of-the-art air conditioning and climate control systems.”
harlow says that his firm’s leadership initially struggled – as many firms have – with the unique aspects of the cannabis industry.
“we had existing real estate clients interested in partnering or leasing to cannabis operators or those who actually applied for or participated in licensing applications of their own,” he says. “as the cannabis markets continued to develop, and we saw existing clients get licenses and raise money, we reconsidered the opportunity, seeing it as a way for us to provide a more integrated suite of services to both existing and new clients.” since then, the practice has grown exponentially.
today cohnreznick is emerging as an industry leader, participating prominently in many industry events throughout the country and in local and national associations, as well as providing thought leadership. the firm is featured biweekly in the new frontier data blog, helping cannabis readers understand the complex issues facing the industry today.
cohnreznick is a leading accounting firm in the u.s., with headquarters in new york and global subsidiaries with locations throughout the country. cohnreznick provides its cannabis clients with a full suite of services, the same services it provides to its non-cannabis clients. among these services are assurance, tax compliance, advisory, and technology consulting. the firm also provides services in entity formation, capital sourcing, and transaction support.
“unlike a lot of firms, cohnreznick is not a cannabis-themed or cannabis-focused firm,” harlow says. “we are a national accounting firm with a complete suite of services, including a cannabis- industry focus. in my view, a lot of operators in the space have been underserved because they have been dealing with service providers who focus only on cannabis. that ignores all of the other activities that occur within the cannabis industry, and in which cohnreznick has experience and knowledge.”
for instance, harlow says, it’s one thing to work with a tax accountant who thoroughly understands irs code section 280e, but there are other issues like real estate investment trusts, partnership structures, and inventory costing methods that must be taken into account.
“there are many accounting and tax issues that we commonly see in other industries, which we can bring to bear in cannabis,” he says. “i think the cannabis industry is tired of being told that it’s has special and unique needs.”
harlow says many of the firm’s cannabis clients are companies with more complex tax and accounting issues. those tend to be multistate operators and large single-state cultivators.
“we provide added value because we can help clients on the manufacturing, processing, and cultivation side,” he says.
“stand-alone dispensaries have more challenges,” he says. “their margins are thin; their 280e tax problem is significant. nonetheless, we believe it is important that we work with operators at all levels of the supply chain.”
harlow says he enjoys working with entrepreneurs who seek to develop the next big thing. however, he also said that those goals need to be tempered with reality.
“some cannabis businesses have been so focused on moving forward with product and branding that they have skipped some of the nuts and bolts of building a back-office function,” he says.
“this could be one of the differentiators with the coming wave of consolidation – who has the best product, the best management team, and the best systems in place; who can report inventory at any point in time. i’ve been surprised to learn how some businesses have minimally built out their infrastructures. you’d be amazed at how sophisticated businesses can be on one hand, yet can neglect a basic accounting function on the other.”