3/24/20 By DAN ULLOA
Harry Carpenter is one of the premier accountants and a leader in New Jersey’s marijuana industry. He has been featured at a variety of events on many panels regarding cannabis. For example, he was on a webinar last week about the nuances of the industry.
Carpenter is currently a partner and co-practice leader of the cannabis advisory practice at the accounting firm Citrin Cooperman.
Before getting into cannabis, Carpenter followed the issue as it progressed. But the need for it hit home once.
“My friend’s mother had MS while we lived together, she passed away,” Carpenter explained. “I found out that her husband was scoring cannabis on the black market and that was the only thing that made her feel better with her MS. That really hit me.”
While immersed on the business side, Carpenter realizes the social justice aspect of reform saying, “It’s ridiculous how many people are sitting in jail when the state is about to change the law.”
Getting Into the Field
He entered the marijuana industry when he came across an interesting business lead.
“Someone came to me with an opportunity. A person was looking to start a medical marijuana farm in Jamaica,” Carpenter explained. He said he asked his boss if he could pursue the business and he approved. The deal fell through though after the prospect couldn’t figure out how to get the money back to the United States.
Thus, many people are not fully prepared to get into the industry.
When another prospect approached Carpenter seeking advice, he received approval to seek other cannabis businesses. Soon afterward, he learned others at Citrin Cooperman were forming a cannabis advisory division, were looking for leaders to form it, and thought of him.
“Everyone needs an accountant and an attorney. Certainly, when structuring it and setting it up,” Carpenter said regarding a business’ needs. What’s especially impactful is Section 280-E of the tax code where plant-touching businesses cannot deduct their expenses from their taxes. This adversely impacts their cash flow, partners, and tax liability.
Carpenter had great success in summer 2018 when applicants for medical marijuana (or clinical cannabis) dispensaries realized they needed an accountant.
He has since become a partner in the firm and leads a team in his Livingston office. It includes Neil Pacifico whom he called a great overall business manager and Ray Owens who is exceptional on technical tax issues. In addition to tax returns, they advise businesses on predicting financial forecasts, growth rates, adding partners, and expenses.
Carpenter has a variety of clients including digital marketing firms, hemp farms, CBD processors, retailers, investors, and entrepreneurs, among others.
“Now I get to work in an industry where I really like the people. I feel the appreciation,” Carpenter said.
Succeeding in the Marijuana Industry
He said the best way to get into the marijuana industry is to attend events. He said at the first event he went to when he didn’t know anyone.
“And now I’m happy to see friends and clients,” Carpenter said.
The best route into the marijuana industry Carpenter said is to shift your assets and experience into cannabis. Firms that take on clients can easily pivot to cannabis. For example, a graphic designer can make a logo for a dispensary.
Others have left corporate careers to start own their businesses which can be tough. Starting a business is indeed risky.
“Some business owners do it on the side. But you often need a big bank account to fall back on,” Carpenter noted.
“It’s like any industry that needs proper internal control, managing cash, bookkeeping, budgeting, security, and even a warehouse manager,” Carpenter said regarding the opportunities.
Another way to into cannabis is get involved in a license application. For example, some license participants offer equity for services in lieu of payment. Those who help design retail spaces and types of security are highly valued.
Individuals have offered him equity in dispensary applications. But he has declined multiple times, citing his satisfaction with his current position and the possibility of losing his independence.
One could just invest in a business for a few years and see a return. Or sell the shares after a few years and make even more.
Carpenter explained the most lucrative opportunities are the riskiest. For example, in New Jersey where getting a license is very difficult, you can make great profits, if you get it.
A business might not pay off in the first year due to start-up costs, especially for a dispensary Carpenter noted.
Challenges in Cannabis
The more serious challenges are issues with banking, credit card processing, and lending. Banking has gotten better in at least in New Jersey where two community banks accept cannabis-related accounts. However, credit card processing is still a difficult issue for many, including CBD businesses. And getting a loan is hard for most businesses that would otherwise be qualified.
“Unless you have deep pockets, money is an issue,” Carpenter said.
Misinformation is another challenge Carpenter said. It can be confusing what’s legal, what is allowed in which state, and what the federal government allows. For example, few professionals advised their clients that the 280-E issue applied to sales of CBD in 2018 prior to the implementation of the Farm Bill.
One of the challenges Carpenter said is the over-saturation of the CBD market since so many companies rushed in after its legalization with the 2018 Farm Bill.
Because the marijuana industry is new, there’s a lot of uncertainty. There’s also a higher risk of being audited than in other industries.
A Plan B is good to have in multiple situations that could occur.
“Avoid putting all your eggs in one basket. Then you have flexibility and options,” Carpenter said.
People should take their time and think major issues over, Carpenter said. An individual initially might want to be involved one way and then seek a different avenue.