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NextGen Magazine

 
 

From Monastery to Marijuana Marketplace: One CPA's Journey

By:
Chris Gaetano
Published Date:
Jul 25, 2017

Todd Arkley wide crop

There’s the typical path to becoming a CPA, and then there’s Todd Arkley’s path.

Unlike many in his field, the Seattle-based CPA did not major in accounting, did not intern at an accounting firm and did not frantically try to balance getting an accounting job with finding time to study for the exam upon graduation. Arkley, in fact, had no business aspirations at all when he was in school and for many years after that.

While today Arkley is one of the foremost experts in the burgeoning legal marijuana industry, with clients drawn almost entirely from that sector, he was first an aspiring Zen Buddhist monk, then a landscaper, then an office manager and then a CFO. He acknowledged that his journey into the profession was a little unconventional.

“In college, I definitely was not, ‘Oh, I want to be an accountant,’ or even go into business school,” he said. His major at Pomona College in Claremont, Calif., was American Studies, with a focus on politics and literature.

Like many young graduates, Arkley left college with a question on his mind: What’s life all about? He thought perhaps he could answer this question through spiritual exploration. He traveled to San Francisco to enroll in the San Francisco Zen Center, which eventually led him to take up residence at a monastery in Carmel Valley.  

“I thought, ‘Well, I’ve got nothing else going on’—it was my early 20s,” he said.

Arkley spent the next two years studying, meditating and doing various chores to earn his keep, including landscaping and farming. Through this experience, he found that he liked working outside with plants. He didn’t take the formal steps of becoming a monk and ultimately left the monastery because he decided that he had gone as far as he could at the time in his spiritual studies, and it was time to move on. He relocated to Seattle, where he leveraged his experience to get a landscaping job. While the work itself was satisfying, he noted that Seattle has extremely dreary winters. It was one of Seattle’s rainiest winters in years, and he began doubting whether this was what he wanted to do with his life. When he brought this up to his supervisor, he was told that the current office manager-accountant was leaving, so Arkley said he would like to do that instead.

“It really lit the spark—this is really interesting—and [I] started taking [accounting] classes at the community college, and that’s where it started,” he said. “[At first I] wanted to get out of the rain, but it really did click, and I said, ‘Yeah, this is something I really like.’”

He worked as the landscaping firm’s accountant for a few years and then, looking for new challenges, found a temp job at a law firm that quickly turned into an office manager job, where he was responsible for all the billing and accounts payable. He learned everything he could there and then moved on to another law firm, where he eventually became CFO. In 2010, while he was CFO, he studied for and took the CPA exam—a process that took up every evening and weekend for more than half a year—and got his license.

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He left the firm in 2013 and planned to take about a year off to figure out what it was he wanted to do. Voters in Washington state had passed a ballot initiative legalizing marijuana for recreational purposes in November 2012, but, because of licensure requirements, there wasn’t yet much of an industry at the time. Arkley realized that this was a great opportunity to get in on the ground floor of an industry he knew would be taking off in a very short time.

“The way it really was, it was one of those cliché things: I was, like, ‘Legal cannabis! They need CPAs!’” he said.

With no background at all in the already-existing medical marijuana industry or in cannabis culture, in general, Arkley set out to learn as much as he could about how the sector works. He went to continuing professional education (CPE) sessions about the industry, attended marijuana industry conferences, contacted local nonprofits and showed up at as many meetings and events as he could that focused on cannabis. By networking at all of these events, he was able to establish his initial client base as well. Arkley noted how important real connections are in that industry—marijuana had, for years, operated in a legal gray zone, even for approved medical purposes, and so the people involved in the industry at that point were a pretty tight-knit group.

“One of the things I assumed was, ‘I’ll just be around, I’ll listen and show up and be myself and try to become friends with people because I know, especially in cannabis, there’s a lot of trust needed,’ and it was just at the beginning where there might be a situation with people coming in as carpetbaggers,” he said.

While word about him spread in the community, Arkley said that it still took a while for business to come in, as the major players were still in the application process. The clients came late in 2014, after they had secured their licenses and began to grow crops.

“There seemed to be this inflection point when everyone was busy getting their applications and licenses, and then once they started growing, they settled down and said, ‘Man, I need an accountant.’ Then it’s just been referrals,” he said. He added that he knew he was doing all right when he stopped running out of business cards because he had all the clients he could conceivably handle.

Since starting his practice, Arkley Accounting Group, Arkley has found that marijuana industry clients are both remarkably similar to and remarkably different from any other type of client. On one hand, despite the stereotypes, they have the same needs and concerns as any other small business client. Arkley said they need to manage payroll, pay taxes, reconcile their books and use accounting software—the “boring” day-to-day matters that come with running a company.

On the other hand, marijuana industry clients are still dealing in a substance that is illegal under federal law. This can make tax planning difficult, especially when accounting for 26 U.S. Code 280E, which forbids making any deductions in connection with the sale of illegal substances. This means that a lot of procedures that would be taken for granted with any other business client become more complicated when it concerns marijuana industry clients.

“I’m always talking about cost of goods sold and how you want to inventory everything, and that would not be my position with any other client. [Clients generally react by saying,]  ‘No, I don’t want to capitalize everything!’ The hard part, as a CPA, is you have to realize 280E is going to distort a lot of your normal business thinking,” he said.

NYSSCPA podium

Last December, Arkley was a panelist at the first-ever Marijuana Symposium presented by the New York State Society of CPAs (NYSSCPA). At the symposium, held in Manhattan, he spoke about these tax planning issues, explaining that because Section 471 of the Tax Code, concerning general rules for inventories, is not affected by the 280E prohibition, he tries to fit as many items into the cost-of-goods-sold category. He also noted that this technique applies only to marijuana manufacturers and processors, not retailers. The NYSSCPA hosted the symposium in order to educate the profession and the public, in recognition of the fact that the marijuana industry is one of the fastest growing industries in the country.

At the time, he acknowledged that circumstances could change under the new administration, particularly the new U.S. attorney general, who, he said, has been using some “real old school drug war language.”

Arkley noted, however, that, so far, there have been no substantive changes to federal law or regulatory policy that would necessitate major action, and he added that many of his clients have been actively cultivating connections with Republican lawmakers to discourage any harmful actions.

It’s important for CPAs looking to get into the marijuana industry to consider whether they are comfortable taking on clients that, by the very nature of their industry, are breaking federal law, Arkley said. It was something that he, himself, had to have a good long think about before opening up his practice.

“Am I willing to help companies violate federal law? It can’t be half yes or half no. It has to be 100 percent in or fully out. So those are the things I tell people—if you’re not comfortable or think it’s too risky or your firm doesn’t want to do it, there’s no point if you can’t commit,” he said.

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Todd Arkley’s top 5 tips for CPAs who want to break into the cannabis industry

1. Have an honest conversation with yourself about whether you are comfortable with breaking federal law. You cannot be halfway engaged with the cause of cannabis legalization; you either need to be 100 percent in or 100 percent out.

2. Study as much as possible about Section 280E of the Tax Code, via source documents and CPE courses, before even beginning to engage with cannabis businesses.

3. Commit to being a Jack or Jill of all trades. Most cannabis businesses are small and need a trusted financial adviser, not just a tax specialist.

4. Attend as many networking events and conferences as you can. Face-to-face time is crucial for establishing trust.

5. Volunteer time with a nonprofit, an organization or an event that promotes reform of the federal drug laws.