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Katye Maxson Landis is the owner of Moxy Accounting LLC in Portland, Oregon and is one of few women in the United States actively filing taxes for small cannabis businesses. In this episode, Katye sheds light on the accounting challenges that cannabis businesses face, the advantages that they can bring, and shares stories of her very interesting clients. She also talks about the future of the cannabis industry and her very own educational program for cannabis accountants.
Join Stuart McLeod as he interviews the world's top accounting leaders to understand their story, how they operate, their goals, mission, and top advice to help you run your accounting firm.
Stuart McLeod 00:00:05.759 [music] Hi, I’m Stuart McLeod, CEO and co-founder of Karbon. Welcome to the Accounting Leaders Podcast, the show where I go behind the scenes with the world’s top accounting leaders. This is our last episode in our first season of the Accounting Leaders Podcast. I’ll be taking a few weeks off over the holiday period before coming back next year to bring you more episodes, more conversations with the top leaders in accounting and prizes, of course. I promise I won’t fucking swear. I do hope that you’ve enjoyed learning from our guests as much as I have. I’ve been overwhelmed by the number of you who have been listening - we thought there might only be two, but there’s way more than that - and all of your positive feedback. I can’t wait to see you in 2022. But for now, please enjoy this discussion with Katye Maxson-Landis, the owner of Moxy Accounting out of Portland, Oregon. Katye is one of the very few women in the United States actively filing taxes for small cannabis businesses while educating other accountants in the field. A champion of fiscal literacy and best practices for the cannabis industry, she brings over 20 years of experience in accounting, bookkeeping, and administrative solutions for small business with a variety of structures. It is my pleasure to welcome to the Accounting Leaders Podcast Katye Maxson-Landis. Katye Maxson-Landis, Megan Parrish from Moxy Accounting, welcome the Accounting Leaders Podcast. How are we?
Katye Maxson Landis 00:01:44.186 We are lovely. Thank you.
Megan Parrish 00:01:46.087 [crosstalk].
Stuart McLeod 00:01:46.491 You’re looking lovely. Wonderful to meet you. I don’t think we’ve met in person. Who on the team have you worked with that rings a bell?
Katye Maxson Landis 00:01:53.220 Loughlin and there’s a woman. Kelly, maybe. I can’t remember.
Stuart McLeod 00:01:58.201 There’s many, many, I hope. [laughter]
Katye Maxson Landis 00:02:02.153 Truthfully, I utilize the project product. I’m happy to have the Karbon Software to keep me organized. And I rely on the youth of tomorrow to deal with the technology of today. So someone smarter than me in technology has interacted with you folks for real.
Stuart McLeod 00:02:19.291 Wonderful. Wonderful. And Moxy Accounting has a very unique niche where you’re focused on the accounting in the cannabis industry, right?
Katye Maxson Landis 00:02:30.398 Correct. I’m a small boutique firm in Portland, Oregon. We are currently five. And I have been working with the cannabis industry since 2012, which is a couple of years before we in Oregon adopted the adult-use regulations. We have had a medical program here for quite a number of years since the late ‘90s. And we have a very robust history in growing cannabis in Northern California, Southern Oregon. Really, the pot central of the world I think we can say.
Stuart McLeod 00:03:09.394 Well, excuse me for asking the obvious. How did you get into accounting for cannabis? I can understand why anybody would want to get into cannabis, but the actual accounting side of it is kind of fascinating, right?
Katye Maxson Landis 00:03:23.284 And there’s your answer. It’s kind of fascinating, isn’t it, really? Accounting, in general, I think it’s safe to say, is not a spectacularly robustly interesting business for most. We are special folk. What I would say about accountants and what I like to say to accountants as often as possible in the educational program and cohort that I have is that we are spectacularly poised to be the strong, ethical, reasonable professional in the room for cannabis because it is an industry unlike any other. This is the only industry in as far as I know the world that is currently enjoying such a disconnect from a tax standpoint between the federal and state position that it involves really needing a robust tax professional in the room just to keep the industry alive. In short, because CPAs and tax professionals, I’m assuming, are listening to this, this is a business that’s taxed at gross profit, which is unheard of in that it is not a business that is not allowed for federal purposes to deduct its reasonable standard ordinary operating expenses because the government, the federal government, really wants to tax this industry to death. So the reason that I came to accounting for cannabis is because I’m smart and I’m interested in a solution-driven relationship with my clients. And accountants bring interesting solutions when we can take the tax law we understand and frame a business inside of the legal tax law in ways that will allow them really to remain in operation.
Stuart McLeod 00:05:20.571 So I’m dumb and you’re smart, so--
Katye Maxson Landis 00:05:23.703 You’re not dumb. You’re good. Accounting is hard. You’re not dumb.
Stuart McLeod 00:05:27.425 Explain this for simple people like me. So you’re saying that a perfectly legal operating cannabis grower or dispensary, I don’t know, is the question, cannot on their federal income tax return, their normal expenses for operating their business?
Katye Maxson Landis 00:05:45.854 Correct. So in the United States, federal law always trumps state law. So if there’s a fistfight, federal law gets to win automatically. And most all state tax returns begin their tax position using federal numbers. So we make the federal tax return first because it's the big elephant in the room, the big dragon, and then [inaudible] a state position that follows. So in a simple example, if a client has $1 million of inventory, the cost to make that inventory and other expenses that are includable in what is called cost of goods sold is $500,000, we would normally say, “Hey, you did $500,000 of a really good job of selling your product." Slow clap.
Stuart McLeod 00:06:39.650 Yeah. There's your 50% margin or gross margin going fine.
Katye Maxson Landis 00:06:43.743 Sure. So now we normally do not get taxed at gross profit. We normally go to the bottom line, right? Net income. We’ve got advertising. We have meals and entertainment. We have salaries. We have office supplies. We have podcasts with Karbon. We have software.
Stuart McLeod 00:06:59.416 That's right. [laughter] Yeah.
Katye Maxson Landis 00:07:00.821 So let’s say that $500,000 is diluted by $400,000 of operating expense. And you and I in our normal businesses would get taxed on $100,000. And we would expect our bank account to have a relationship to that $100,000. The cannabis business, even though it has a-- it’s lack of a bank account, it’s safe, has a relationship to that $100000, it’s taxed at $500,000 gross profit because the business of doing business, the SG&A, the standard, the general operating expenses, under federal law are not allowed because the federal government does not want you to have an operating cannabis business. It wants to consider you a drug dealer. So the long and short is in a scenario where at 21%, a $100,000 business would have $21,000. At $500,000, you get to pay $270,000 for that exact same business simply because the government doesn’t like your inventory. Despite the fact that many people in the country--
Stuart McLeod 00:08:16.116 Do. [laughter] That’s right.
Katye Maxson Landis 00:08:17.889 Right. Exactly.
Stuart McLeod 00:08:19.502 Yeah. And especially some congressmen and people like that. Okay. So, well, that makes it unviable because you’re paying $210,000 tax on $100,000 essential profit. So I assume we’re sort of talking growers here. So what do growers do? Do they sort of have these sort of side businesses that they operate to funnel their tax? How do you go about operating a successful growing business in that environment?
Katye Maxson Landis 00:08:47.054 Well, that’s really the complicated conversation. So in order to be able to do that legally one of the easiest ways, and one of the ways-- well, let me back up. For the sake of argument, consider, please, something I often say to everyone I talk to about cannabis, but business owners specifically. Cannabis is built backwards and upside down from regular business and accounting and economic principles. So to answer your question, how does a grower-- and I work with all. Growers, manufacturers, dispensaries, wholesalers, delivery, all of these. How does a grower stay alive per se? Well, by not growing. By not expanding their capacity. By not adding more inventory. By remaining small. By not building their brand. All of the things counter to what we would think of in a normal economy that you would want to do. So manufacturers as well, instead of adding multiple, multiple business lines in and pushing out a ton of advertising and getting a lot of people on deck to be able to do that, well, when you can only sell inside of the state that you are currently operating in, you cannot enjoy economies of scale. You can't have a central headquarter and then 17 different businesses all over the country. You actually have to locate each of those businesses in the exact state under different regulatory schemes in order to be able to go anywhere. So, unfortunately, American Cannabis-- Canadian cannabis is different. Mexican cannabis is different because they've legalized. American cannabis does not, in fact, enjoy the privilege of being able to do business in a reasonable operational way because they are always trying to cut costs to keep things slow. They are, many of these businesses, building their business on tax debt because they either have to accept predatory lenders that know that they can not necessarily make it without a very high return, or they are having to play a long game, which is, again, counter to the normal economy. They're looking for low-interest rates on high-risk debt. The United States normally doesn't work like that. They're looking for friends and family to liquidate their assets in order to be able to support their dream. They can't go lend or they have to sell lots of equity in order to be able to even do what they've been passionate about and trailblazing to do.
Stuart McLeod 00:11:20.171 And so why would anybody do this then in that environment?
Katye Maxson Landis 00:11:23.121 Well, this, quite frankly, is our tech boom. This is one of the newest emerging economy sectors that we've seen since the '90s. And more importantly, especially for the people that I work with, it is their passion. It is something they have trailblazed on. They believe that this is something that helps them. These are not people that believe that the medical benefits of cannabis are just untested or are not real. They have had true conversion experiences. They are people who passionately believe that it is a solution and an opportunity for many people to have a relief from an opioid or an ability to be able to manage their own health in ways that are true and honest. This is a very forthright and generous group of people that aren't just in to make a quick buck, necessarily. And they're not nearly as jaded as a lot of the other larger-- I mean, tech really has had a jaded position when-- how many Amazons and Facebook's and Instagram's-- I mean, how many of those tech businesses really are around? 1 in 1,000? I mean, at cannabis, you can still do what you're passionate about. And should the government get a sensible taxation regime in, you can make a living that's going to be doing something you love and still pay you. And I really believe those early adopters want to see the world of their compatriots have that experience.
Megan Parrish 00:12:51.284 If I can add as well, I think the tax-- we're accountants. We think about this tax all the time. But for these cannabis entrepreneurs, it's kind of this invisible bogeyman where I don't think many folks are actually thinking about it. And a lot of--
Stuart McLeod 00:13:05.271 They don't think about the economics so much as--
Megan Parrish 00:13:08.613 They're not really realizing the kind of really disastrous effects that it can have. And I think it's one of the real value ads that accountants have for people in the industry.
Katye Maxson Landis 00:13:20.726 Well-trained accountants. Accountants that understand that there is a very punitive tax code that they cannot let out of their sights. Code Section 280E really must be applied all the time. It's not a choice, it's the law. And if you want to be a business in an economy that has one foot in legality at the state level and one foot in illegality at the federal level, you have to think about tax twice as much or three times more than you wanted to. And for the regular illicit economy people, that was never-- they are very comfortable not doing that. But there's no benefit in not paying taxes in this country. Yeah, you have money, but you have no credit score. You have no ability to be able to be proud of your business in an overt way. You can't participate in markets in the same way that many businesses can without the opportunity to be able to do-- the opportunity to provide a tax return to someone is really an opportunity to be able to be in business in a lot of ways.
Megan Parrish 00:14:27.665 If we had our druthers, people would be prioritizing the tax issue in the way that they do business. But of course, that's not the way things are. We find that people aren't giving that much consideration.
Katye Maxson Landis 00:14:39.190 Yeah. They do find that prioritization piece eventually because-- I do focus or have in Oregon been focusing on the small, under $5 million business that really has started, maybe in an illicit position or in a medical position, which is pseudo blessed and it's really trying to move to a legality position. And the problem with that is if you have not filed your tax return for a number of years, first, we need to retrospectively forensically reproduce you, which takes time and money. But secondly, you have an overarching tax debt that the government really smacks down on you because it wants you to timely file these returns. And that number can bring some sticker shock to the reality that cannabis is much more expensive to produce in a taxed environment than an untaxed environment.
Stuart McLeod 00:15:33.235 What's the pervasive view of where the tax is going to kind of end up? Do you think that the people will ultimately win and cannabis will be seen as a legitimate business? That it probably should-- well, don't worry about my morality. We're going the wrong way if you worry about my morality in tax law. But are they going to change this, do you think? Is that the long-term view?
Katye Maxson Landis 00:15:58.637 For as much of a pessimist and a little black rain cloud as I am, because I am an accountant and I'm usually the big no and buzzkill in the room at every party--
Stuart McLeod 00:16:07.248 I don't think that's true. Is that true, Megan?
Megan Parrish 00:16:09.559 No, not at all.
Stuart McLeod 00:16:10.519 No. See? That's not true.
Megan Parrish 00:16:11.640 Not at all.
Katye Maxson Landis 00:16:13.360 Cannabis is here to stay. You can't put the genie back in the bottle. I think that overarchingly, the public sentiment in its very rapid shift from believing the garbage of the '50s drug war craze/cannabis craze, I think that as the population becomes more interested in revisiting its own choices in regard to its relationship to cannabis, I think that the government eventually is going to get on deck. The reality is that while I do not believe the government should move as slowly as it does, because it has so much power, it should not be making snap decisions. Business moves much quicker than government ever will. Unfortunately, government is very much reactive to business instead of proactive, which I think is a terrible position but is true. And I do believe that the real-- that cannabis is going to be legalized not soon. I do think that we will have some banking and some financial position relief sooner than that. Sooner than legalization. Because the government needs a real, sensible way to back out of the failed drug war with its ego still intact.
Stuart McLeod 00:17:37.051 Yeah. Yeah. Still face. [laughter] Save face. Yeah.
Katye Maxson Landis 00:17:40.497 Yeah. Exactly. I mean, again, the government, for good or bad, has had to manage a gigantic population of wet cats in this country. I mean, nobody agrees on anything. And really, I don't think that that's new. I think that that's-- I think that's been around for a long time. But I do think that there is a real opportunity for the government to learn from the failure of alcohol prohibition, both prohibiting it and then reintroducing it to the economy. In cannabis, the idea that when the federal government decides to come down from on high and bless legalization, that the illicit market or the untaxed market is going to vanish in lieu of becoming involved in the regular economy is foolish. It's ridiculous. I don't care if you're a nail salon or a lawyer or a dog washing business or own a software company. Everybody chooses to file their tax return or not. And when people see a great amount of profit being able to be made, instead of-- if the federal government is going to continue to tax cannabis to death once it becomes legal, we will not see a large group of people jump on that bandwagon. So sensible, sensible is the word that I use. We may see legalization far in advance of sensibility about legalization in regard to tax law because tax law is so controversial. But what I would like to say is that the government will wake up to the real opportunity and possibility that some, not all - not all, some - of its tax woes can be redeemed by taxing cannabis sensibly. But nothing is going to change if we continue to punitively tax this environment the way we have. This economy the way we have.
Stuart McLeod 00:19:38.253 I'm sure somebody's done the spreadsheet, right? Punitive [crosstalk]--
Katye Maxson Landis 00:19:41.585 Oh, I have so many spreadsheets [crosstalk]--
Stuart McLeod 00:19:42.890 I bet. I bet.
Katye Maxson Landis 00:19:45.827 I've used spreadsheets. We love spreadsheets. We're accountants.
Stuart McLeod 00:19:47.604 I know. I know we do. I know. I know. I know. But-- [laughter]
Katye Maxson Landis 00:19:50.234 Sensible is a problem when you're dealing with something that has such an inflammatory morality position attached to it. Alcohol again had the same problem with its both prohibition and then re-admitting into the economy.
Stuart McLeod 00:20:02.726 I was pretty young back then in the early 20th century. I didn't see a lot of prohibition. [laughter]
Katye Maxson Landis 00:20:07.662 Yeah. I mean, the 13th Amendment came in--
Stuart McLeod 00:20:09.412 That's right.
Katye Maxson Landis 00:20:09.776 --we all were like, “Yeah. Thank God, we can have a drink now.” No. It's not--
Stuart McLeod 00:20:14.220 My memories hazy from that period. [laughter]
Katye Maxson Landis 00:20:16.879 Yeah. Well, I think that the concerns that legalization is going to immediately wipe out cartels, wipe out mafia, wipe out illicit market, wipe out-- that's just not true. It didn't happen, and it hasn't happened any other way. And so I can't imagine that it's going to happen with a product that you can literally grow in your backyard. We can't grow beer in our backyard, or I won't do the work for cigarettes in my backyard, either. So I really think that there is an opportunity to be able to have some coming together about this part of the economy that the government right now is missing. I think the Booker, Wyden, and Schumer bill is a good try and a start, and at least the conversation has been opened. I have a lot of issues with it, but we have to start talking to each other without insulting each other in order to make change.
Stuart McLeod 00:21:05.449 Well, two questions. What the hell is the Booker Schumer Bill, and-- is that what it was called? And then the other one was somebody must have sort of worked out that taxing the industry sensibly should be way more profitable for the federal government than leaving punitive tax in place and essentially deeming the industry illegal?
Katye Maxson Landis 00:21:29.289 Let's take them in reverse order. No is the answer to that. Here's the problem when you've got a at will taxing regiment. So we are required to file a tax return, but there is no government way that we force, force, force you to do that. So we have very much a punitive taxation structure where because the IRS, in my opinion, incorrectly has been defunded for so long, we have an inability to be able to have a compliance regiment on this gigantic country that is proactive. Again, we are very reactive. Reactive in tax means fine, means penalty, means to beat with a stick after the fact, instead of try to reach across an aisle and bring sensibleness to that environment. So I'm sure that-- I am sure that someone has made a spreadsheet at the federal government level that said, "It's always more profitable to tax a business at gross profit if we can catch them then net income if we invite them to the table in the short term." In the short term. In the long-term, if you want a robust, functioning, contributing economy to come from cannabis, you must treat them with the same dignity and respect that other businesses enjoy. They deserve it. We can say what we will about strip clubs or prostitution or any number of other sin environments or businesses that are not taxed at gross profit. And even though we might or might not like the product, they have the respected privilege of being taxed at net income, not at gross profit.
Stuart McLeod 00:23:16.417 Gambling is another one.
Katye Maxson Landis 00:23:18.241 Well, again, it's more profitable to be a prostitute in this country illegally than it is a state-legal cannabis business from a tax standpoint. There's just something downright wrong with that. Again, I am not the person that says that prostitution should be taxed, either. We're adults. Hey, come on. But again, where the government extends its tax courtesy or discourtesy is a lot of importance to me because I am not a finger of the IRS. When I provide your tax return to you, I am your partner. But I must do that in a way that's conservative, consistent, defensible to both my license and to the laws of the country. So it puts the practitioner in a really difficult spot. When I have to hand a 25-year-old kid a half a million-dollar tax bill because he's doing something he loves. I have had this experience where they have tears in their eyes. "How am I going to make it? I got to shut down and go into the illicit market because the government won't give me my due?" I mean, he tried to do it right. He tried to do it right. And I haven't seen him again. But boy, you know what? I have a thing or two to say to the government.
Katye Maxson Landis 00:24:33.382 And the Booker, Schumer, Wyden bill, if we're going to do these questions in reverse, the Booker, Schumer, Wyden bill is the current incarnation of a number of bills that have passed the House or have been introduced in the Senate in the last several years that are trying to create the sensible bridge, or - sensible, maybe, is a bit of a stretch - a bridge between the illicit position that cannabis has sort of been trapped in because of this government failed drug war, in my opinion, and where the population wants to see it come to, which is into the environment as something that is regulated, is tested, is safe, has boundaries. It needs good legal boundaries. There are people making very unsafe products out there and the FDA and the like need to get in there and protect the public interest, without a doubt. Good growers have no fear of that.
Katye Maxson Landis 00:25:30.299 If you have an opportunity to be able to bring the people who really want to make this industry the sparkling gem it can be if you can bring those people into the room with the politic, you're going to be able to get somewhere. But this country can't seem to do anything reasonable in that regard right now. So I don't see the-- I don't know what the roadmap is, but unfortunately, it's going to have some wreckage on it along the way to get where we need to go. But the first thing we need to do is pass something. Much like the Affordable Care Act showed us that once you pass something, it's very hard to take it away. We need to get something passed that protects small business. That dictates that this is an agricultural product. That it needs to have sensible testing and made safe for an uneducated population. I mean, there are real good reasons to partner with the government in that regard.
Stuart McLeod 00:26:22.351 What's the reception? I'm sure there's industry lobby groups and a huge sort of groundswell of support for sensible taxation or sensible embracing by the government. What's the reception? Is there just too much else on the plate of the government to deal with it, or do you think we're making progress?
Katye Maxson Landis 00:26:41.752 Yes and no. We are making progress because bills continue to be introduced, and the conversation is still on people's lips. We are not making progress when giant corporate special interests drive the conversation to try to protect what they potentially will see as their market share in this environment, especially pharmaceutical. Because the small business, the small grower, has been the intellectual property engine powerhouse of this industry, and it is-- it deserved to be-- it deserves to be protected and taken care of. And big [crosstalk]--
Stuart McLeod 00:27:20.885 It's kind of like Etsy for pot. There's sort of a lot of boutique individual growers that make up a huge industry. Yeah.
Katye Maxson Landis 00:27:29.892 Absolutely. And really, the problem with many of the tax regiment schemas that have come out, they are trying to allow big business to dictate the terms under which cannabis can be brought into this economy. And I am and will go to my dying breath as being a champion for the small business. I think that it is the engine of the cannabis economy for sure. Whether or not you want to argue it is for the regular economy is moot. But in the cannabis industry, it has been individuals that have been willing to take this risk to save and honor the growing and use of it. It has been at the individual level and at the patient-grower relationship level where different medical uses have been explored. And I mean, a little girl named Charlotte is part of the reason that we're all here, in that her seizures were relieved by a CBD product with a potential entourage effect of the THC included in that plan. But they provided a real, tangible, "I can point to this little girl and see that it works," story that we can all rally behind. And would it not have been for the valiant continued pushing a rock uphill - like [inaudible] - of that group, looking for solutions for these people to have health benefits be made available to a child we really would not be here. Charlotte's Web is an honor to that client or that child and the people who created it to a journey that cannot be made into some sort of corptocracy ad campaign and pushed down our throats. It's just disrespectful.
Stuart McLeod 00:29:23.821 Give us a couple of stories about clients that you've seen work through this process and that have become successful and probably enjoying what they're doing, as you described their passion, and what some good news stories, good news clients that that come to mind?
Katye Maxson Landis 00:29:40.561 Well, if we strip the tax out of it, almost all of them are good. Again, I think that what I have had the privilege of doing is working with-- well, let me also say most people never want the good stories. They want the horror stories. So I'm impressed--
Stuart McLeod 00:29:55.675 Oh, no, we're a good news podcast here. [laughter]
Katye Maxson Landis 00:29:56.461 --with the question in the first place. But what I have had is-- what I've had is really the privilege of being able to introduce a population of people that either have been dismissive of tax or are afraid of a part of the normal economy to something that can be palatable and can be actually a business-- can help their business in ways than rather than just make a tax bill. So what I have enjoyed about working with this population is that behind every cannabis products someone uses is someone who is excited about being able to walk into there grow every day or extract a product and try different modalities and/or ways to be able to consume to be able to think about the next way to build a strain, to crossbreed things in order to be able to make something that smells differently or has a different terpene profile to it. Those are the parts of this job that I didn't think I'd care about. That I would be so happy to go to some of my growers, especially in January, February, March, because they're under full-spectrum lights. They're getting their vitamin D. They are happy to be here. There's really something about-- I am not a large consumer of cannabis, but there's really something about this plant that can kind of keep you honest. It's not as jaded. The ability to be able to help clients find the smaller places to expand their businesses instead of just add whole facility. Expanded to nine states. That is a real different thought process for CPAs as advisors because we're looking for the micro nuance in things. We're looking for the micro pivot instead of a big macro, "Let's try to take over the whole economy with our one brand." So, I mean, I have hundreds of stories of cannabis people depending upon--
Stuart McLeod 00:32:13.831 No. Let's do it.
Megan Parrish 00:32:15.320 From an accounting perspective, I think a lot of your great stories come from the fact that cannabis has unique challenges when they're taking care of their financials. Cash handling, documentation, and that kind of stuff. And so where that intersects with our office, I think, is where a lot of the interesting stories come from. Well, the classic one that you tell is one of your very early clients who you said, "Bring in your bookkeeping when you come to my office." And this gentleman brought a bag of Post-it Notes. That was his bookkeeping was all of his notes written on Post-its. And if I remember the story correctly, it was color-coded, right? I was not there at this time. Yeah.
Katye Maxson Landis 00:32:56.642 Yes. The very first client that I started working with because I am a bookkeeper and a CPA, and I came from a firm where I audited for several years. In my past, I also ran a number of criminal defense law firms. So I issue spot like a lawyer and I talk like an accountant. And I used to be a bartender and I have a degree in theater, so I'm really funny. So I can make it kind of palatable if I need to. So I had a conversation with a gentleman back in 2012. He said, "I'm going to put a medical dispensary together, and my lawyer - who was a criminal lawyer at the time - said that you would help me." I was also nine months pregnant. And I really chalk up my relationship with cannabis and getting involved with the cannabis industry to just being insane because I was pregnant. And so I said, "Great. Bring me all--" I was a young CPA at the time. I had been doing accounting since 1997, but really, had just gotten my CPA in 2011. I had been in a public firm for seven years and left. And, "Bring your books. Bring me your accounting documentation and I'll do this for you." Well, I sent my assistant at the time because, again, I was nine months pregnant and didn't want to go into a cannabis dispensary thinking that, "God, all they're doing is just smoking a bunch of weed in there or whatever." I mean, I didn't know.
Stuart McLeod 00:34:15.146 Your son or daughter is fine these days. There's no problem. [laughter]
Katye Maxson Landis 00:34:19.235 Yeah. I didn't want to subject my daughter-- I didn't want to subject my daughter to that terrible weed in utero. Which is a myth, by the way, FYI. But I sent my assistant over there. And she came to the house, and she said, "Well, I don't know if you're going to like this." And I said, "What do you mean?" And she held up two two-gallon plastic Ziploc bags that were filled to the brim, stuffed - you couldn't close them - with different colored Post-it notes. Where every seven days they had stuck the Post-it notes together and then just stuck them in the bag. They had the amount of sales that they had done that day and only about half of them had dates, and there were not 365 of them or 360 or however many days this business is open. And there were no expenses. So this was what this gentleman thought was his bookkeeping. And I said, "Oh my God. I don't know if I can do this." And she said, "No, no, no. Let me see if I can make this sensible." I need to go back in my Facebook. I think I have it somewhere. She about two hours later sent me a panoramic picture of her apartment where she had taken down all of the pictures off the wall and she had put all the sticky notes of the same color or date on her panoramic wall. And she said, "This is the accounting."
Stuart McLeod 00:35:49.462 Yeah. Oh. We should all do it that way, maybe? [laughter]
Katye Maxson Landis 00:35:53.663 And then the next picture she sent me was a picture of her hand with a big pot bud and two joints and a baggie that had some weed in it also because--
Stuart McLeod 00:36:05.033 It was in the bottom of the bag.
Katye Maxson Landis 00:36:07.445 It was in the bottom of the bag. Because all the time people in the industry are always like, "Here, try my weed. Try my weed," to see if I can get it in your dispensary. And he had just accepted these samples and sort of stuck it in this bag because it might have just been in his car or something at the time. And she said, "Do I have to give this back to the client?" And so that was my first experience-- my first experience really was, "Wow. These guys don't know what accounting is at its most fundamental level."
Stuart McLeod 00:36:36.109 Maybe it was a deliberate strategy because the government can't tax it.
Katye Maxson Landis 00:36:40.368 No, it was not a deliberate strategy.
Stuart McLeod 00:36:42.422 It wasn't? No. [laughter] Maybe I'm giving them too much credit. Yeah. [laughter]
Katye Maxson Landis 00:36:44.947 I had been in a public accounting firm for seven years where when you ask somebody for their bookkeeping documentation; they show up with a stack of bank statements and their credit card statement and a stack of maybe cash receipts that they paid for out of pocket and maybe their line of credit or what, but they have documents. This guy didn't have a bank account. The very first time I actually went to his dispensary, once I realized that you can't smoke weed in it, I asked him for at the time what I thought was an amazing thousand-dollar retainer. And he was like, "Oh. Sure." And he leaned over to his gun safe that's sitting next to him, and he boo, boo, boo, boop, boop, opened the thing, and there was something like $180,000 in twenties in it. And he just pulled out $1,000 and threw it at me. And I thought to myself, "Okay. I got to [crosstalk]."
Stuart McLeod 00:37:34.448 "I haven't charged enough here." [laughter]
Katye Maxson Landis 00:37:36.314 Like A, where did that money come from, and B, holy shit--
Stuart McLeod 00:37:41.369 Where are all the guns? [laughter]
Katye Maxson Landis 00:37:41.803 --why is there so much money in this thing? But yet here's the next story. The next dispensary that I sat down to have a consultation with was run by a very interesting man about four or eight blocks from the first one. And he had been in business for about three years. And I walked into his office, and his desk was in the center of the office. And around the entire outside of the walls surrounding his office was a stack of paper, probably two and a half feet high. It was every single piece of paper that he had ever-- every transaction, every sale, every vendor he had worked for, in paper form, organized by month and date, around every--
Stuart McLeod 00:38:28.778 He's going to need a bigger office. [laughter]
Katye Maxson Landis 00:38:31.213 He had every single piece of paper that he had ever had, and it was as overwhelming as two bags of Post-it Notes, because where do I start? And, he too, had a safe with a tremendous amount of money in it. I don't remember how much. But it became very clear, very quickly that these guys have a very different set of problems - both accounting, security, cash control, environmental - than I had ever experienced coming out of seven years of auditing assisted living and skilled nursing facilities for financial statement purposes.
Stuart McLeod 00:39:06.487 Yeah. They don't have gun safes full of cash at the old people's home. [laughter]
Katye Maxson Landis 00:39:12.769 Yeah. And so I have gone to growers up in the hills that have acres of weed and 15 dogs and shotguns and problems. I have gone to facilities where you have to put the booties on and the head for the cleanroom and go through that. I mean, I have been in multi-million-dollar facilities and I have been in people's houses where they've gutted the whole inside and the grower is sleeping on a couch and everything's just inside of a home--
Stuart McLeod 00:39:43.672 With a big electricity bill? [laughter]
Katye Maxson Landis 00:39:45.125 Yeah. Because that's how they've been able to make the ends meet or that's where the environment is. So there's lots of very innovative places that can [crosstalk]--
Stuart McLeod 00:39:55.434 Oh, yeah. You've got to innovate in that environment, right? Has the banking improved at all? Can these guys get banked now at least?
Katye Maxson Landis 00:40:02.263 At the local level, often there are three or four different smaller businesses. Mostly credit unions that have chosen to work with cannabis. Big banks, no. There's still a lot of federal money laundering and controls over that they are very concerned about. The problem with banking for cannabis is that, like many other things related to cannabis, there is a very high cannabis tax going on. So your normal bank account, you think, "Oh, it costs me $15 a month or zero dollars a month to have a banking privilege." For most of my cannabis clients, that's $400 or $1,000--
Stuart McLeod 00:40:41.719 Just to have a bank account for your business?
Katye Maxson Landis 00:40:44.119 Just to have a bank account.
Megan Parrish 00:40:45.521 And we've heard it's even more on the East Coast. They charge even more.
Stuart McLeod 00:40:49.274 Really? There's problems at every turn, right? [laughter]
Katye Maxson Landis 00:40:52.163 Yes. Well, and then how do you make your payroll taxes when you're supposed to be using EFPTS? How do you pay for your federal tax obligations when you're unbanked? Where do you pay for your state sales tax? I literally have clients that make appointments with the Oregon Department of Revenue to bring 40, 50, 60 thousand dollars in cash to Salem. I mean, there are real concerns that if the government was actually putting its money where its mouth is and really didn't want there to be organized crime in relationship to cannabis, you'd let them bank. That's the way you protect money. Cash money is very easy to create an organized crime syndicate around, but banking is not as easy. So not to say that there's not white-collar crime, there's a ton of it, but it's just harder. The more that we would have a paper trail - and this is what we really strive for in accounting - is to create that defensible paper trail that's going to allow me to be comfortable enough to say, "I'm not signing a fraudulent tax return. I'm signing a tax return that's consistent, conservative, defensible. Because if you can't tell me where that $100,000 went, sir, you still owned it. You earned that money. But you don't get a tax deduction for it." And that right away will get people really making better documentation down the road. You have to be willing to have difficult conversations with clients about that sort of stuff and educate them in a way that's not insulting. Accounting is very difficult, and it's insulting to me that H&R Block or Intuit says, or Trump, "It's a postcard. It's easy. Anybody can do it." Anybody who's done accounting knows that not anybody can do it, at least not well, in my mind, so.
Stuart McLeod 00:42:39.345 We're coming up on time, Katye and Megan, but we-- I know. It's gone quick, hasn't it? You've got a course or an education program that you help other accountants become educated in accounting for the cannabis industry. Do you want to tell us about that?
Katye Maxson Landis 00:42:53.877 Absolutely. I would love to. So back in 2012, again, here I started this journey into trying to figure out how to be able to work with the industry and be of service to them. And I really began to realize as I looked for professional education-- which is how you create your body of knowledge if you're going to bring in a niche to a practice. I looked for professional education and there really wasn't any out there. I started researching and reading kind of backing into some of the tax court cases that had happened - only about two of them at that time - and realized over the course of one, two, three, four, five years of working that there really wasn't a place I could get good answers. And I was coming up upon very complicated accounting issues I was asking other accountants about and they were reticent to give me advice because they didn't want to advise me on something they didn't understand. So through a lot of research and process in talking with tax attorneys and coming to a decision and reading court cases, in 2020, I finally said, "Okay. I got to do this." I produced a NASBA - so that's the National Accounting Standards Bord - certification program for accountants to be able to take a eight-week course to go from, how to integrate cannabis into your practice or consider making a practice in cannabis, through the pinch points that I had hit with my actual practice with my license, with creating engagement letters and insurance, and all those things, to then finding clients, interviewing clients, finding out the real, deep stories behind those clients so that I didn't engage with somebody that was behaving in a way that I didn't want to get behind. To then being able to say, "How do I educate my clients and myself on the documentation I need and all those sorts of things?" To then move to, what is your tax position based on current tax law? And then how do you finally squeeze 1987 tax code into a 2020 tax program which doesn't like to be overwritten? And we, as accountants, really try not to overwrite our tax program because that's scary for us. So it is the place that I wish I would have had when I got into cannabis to be able to have open conversations. Meghan has really been instrumental in bringing a community to the forefront where people can come - and I'm open office hours - so that you can come to a virtual type water cooler if you get paralyzed about a question and you can ask me or other people that have may be encountered that question for what they did, the facts and circumstances. And it gives you a real-time place to have professional education in a way that normally professional education isn't brought to you. In a dynamic, conversant, always respectful, and moving place.
Megan Parrish 00:45:50.893 One of my favorite things about the cohort - just having just discussed different clients that Katye's had - is that we take a lot of that information and we redact everything. But a lot of the client stories that Katye's had over the years, and we use that in our course for participants to come and say, "Oh. How did this company go through the entity selection process?" And the kinds of like real-world things that have come up. And it helps people really be able to dissect the course material in a way that's very practical. One of the funnest things for me is getting to write those stories and create those stories with Katye to help people better understand tax for cannabis.
Katye Maxson Landis 00:46:30.088 We have to recognize and respect the theory, but the reality is, we're in practice. Practice means we actually have to do the thing that we're talking about. So because my firm has actually done tax work for the last nine years and advisory work and entity work and forensic work and legal support work, we have the ability to be able to speak to many. I'm always surprised at the question that pops up I've never heard before, but we can speak to many of the issues. I love the question that I've never heard before because it, again, reignites my passion for the thought process that goes into what makes accounting for cannabis so interesting.
Stuart McLeod 00:47:10.040 I think the next cohort starts in November, doesn't it? November 16 by the looks if my website capabilities haven't left me yet.
Katye Maxson Landis 00:47:22.047 A-plus. A-plus.
Stuart McLeod 00:47:22.953 Go to the moxyaccountant.com/cohort. Did I get that right?
Katye Maxson Landis 00:47:28.891 Yes. Moxy Accountant or moxyaccounting.com will both get you those places. Or reach out to Megan directly. She's lovely. She does bite.
Stuart McLeod 00:47:37.559 She is lovely. She is lovely now that we've spent the hour together. [laughter] Katye Maxson-Landis and Megan Parrish Price from the Moxy Accountant, thank you so much for spending time together with me and all of us on the Accounting Leaders Podcast.
Katye Maxson Landis 00:47:52.610 Absolute pleasure. Thank you so much. I would love to just say it was not until 2019 that I went paperless. And one of the real impetuses to be able to go paperless in my firm, which, thank God, I did for 2020, was Karbon. And Megan was really part of the-- she did all [crosstalk]--
Stuart McLeod 00:48:12.604 I am the one who researched and shopped for Karbon. So I do take that credit. Yes. [laughter]
Katye Maxson Landis 00:48:18.883 And she did all the research and really brought that to my attention for what practice software could be. And as a lover of paper and a Luddite in technology, I have been reticent. I'm getting better. But I really have had a remarkable experience transitioning to being able to have my practice be sensible to me because of Karbon's way of organizing things and the amount of education, either pushed on me or offered to me, that your backend team has provided. And it's been a real-- it's been lovely to put-- I put two different new staff through it. They've had equally good experiences without having had all the research time that Megan had behind it. And it's been a real pleasure to be able to utilize a product that I really didn't think I needed and now really couldn't do without frankly.
Stuart McLeod 00:49:16.815 Our job is to make your job easier. That's why we exist. So you can get back some time and do whatever it is you feel appropriate with that time. Whether it's work harder or spend it with the family. That's the bit we prefer. We would much rather. [laughter]
Katye Maxson Landis 00:49:32.933 Well, it's been really nice because we do not use a product like Slack or otherwise to be able to communicate with each other inside of the program with the actual piece of information attached to it. There's a lot less telephone as it were. Because I can just tag somebody in a note or we can have a conversation about how to move a project down the road because the content is not divorced from the conversation. So that's been a real value to me in a lot of ways.
Stuart McLeod 00:49:59.408 We spent a lot of time thinking about that and trying to have you meet your client or have you meet your client in the product where the client's going to be, whether that's-- we want to get-- obviously, email is 90% of it. But Zoom integration and calendar integration and text integration. Wherever your client is where we want to help you communicate with them. So there's huge things happening next year, and we would love you guys to do a case study if you haven't done one already. If Lauchie could reach out and do that, that would be wonderful.
Katye Maxson Landis 00:50:35.873 Oh, yeah. I mean, I don't even know what that is, but sure. We'd be happy to do a case study. I mean--
Stuart McLeod 00:50:40.502 We'll come up to Oregon and smoke a few joints and do a case study. How's that?
Katye Maxson Landis 00:50:45.723 Oh gosh. Well, I won't be smoking a few joints with you because I have actually an allergy to THC. But--
Stuart McLeod 00:50:50.351 Oh, there you go. [laughter] [crosstalk]. [laughter]
Katye Maxson Landis 00:50:51.381 --[crosstalk]. I--
Stuart McLeod 00:50:54.512 That's like being a vet with cat allergies. [laughter]
Katye Maxson Landis 00:50:58.983 It really is. It's funny.
Megan Parrish 00:51:01.815 I know. Someone called Katye Cannabis Katye not long ago. And I just thought Cannabis Katye was hilarious, but the irony there is that poor Katye never smokes cannabis.
Katye Maxson Landis 00:51:12.417 Nope. I'm one of the few people that's actually poisoned myself with CBD. I'm actually a delicate flower despite my loud grandioseness. I love me a microdose, but give me 1 milligram, not-- that's where we can go with all this. So it's very, very small. But I appreciate the plant and its people, so I have become an unintentional advocate, as it were.
Stuart McLeod 00:51:36.361 That's great. That's a wonderful story, and thank you so much for sharing that with us. And--
Katye Maxson Landis 00:51:41.978 Oh, I appreciate you [having the time?].
Stuart McLeod 00:51:44.695 Let's chat some more over the over the coming months and years. And I'm sure you'll grow your business. And if there's anything we can ever do to help, please don't hesitate to reach out.
Katye Maxson Landis 00:51:56.251 Absolutely. I mean, I can talk about cannabis for 100 hours, so it's all good. Any time you want to talk.
Stuart McLeod 00:52:00.534 Megan says it's true.
Megan Parrish 00:52:02.204 It's true. Don't get her started. Yeah. [laughter]
Stuart McLeod 00:52:11.143 Thanks for listening to this episode. If you found this discussion interesting, fun, you'll find lots more to help you run a successful accounting firm at Karbon Magazine. There are more than 1,000 free resources there, including guides, articles, templates, webinars, and more. Just head to karbonhq.com/resources. I'd also love it if you could leave us a five-star review wherever you listen to this podcast. Let us know you liked this session and we'll be able to keep bringing you more guests for you to learn from and get inspired by. Thanks for joining and see you in the next episode of the Accounting Leader's Podcast.