When I first started working for Moxy Accounting, my interest was definitely piqued when it came to cannabis clients. Honestly, I hadn’t given cannabis much attention even though it was legal in my state (I’m much more of a whiskey on the rocks sort of girl).
When I first started speaking to clients and potential clients on the phone, I imagined a weird amalgam of stoners and serious businessmen. What I learned over time is that the stereotypes are both true and of course, not true at all. Many cannabis clients have come into our office to talk about their finances completely blitzed. That is not particularly uncommon or disruptive per se, but certainly fits the stereotype. Young, white men with ball caps and a certain way of talking that you can call out from a mile away. Then there’s a favorite client of mine, a farmer who has a long hippie ponytail and says “Love you guys!” warmly, and authentically every time he goes out our front door.
But there have also been clients that break the mold. A soft spoken duo of business partners who are incredibly thoughtful and educated in business and cannabis manufacturing. A group of folks from varying previous industries, including a professional athlete. A mom who got her start making salves in her kitchen, and whole families who have come to the business by way of one passionate family member.
I discovered that the cannabis industry in Oregon is wide, varied and full of interesting, but relatively normal folks. However, when it comes to accounting, there is one distinction that is the first we make about a client.
The Two Categories
Moxy Accounting has two buckets that all clients fall into, two types that have a lot to say about their financial fitness and how to approach these clients; we call them Conversion clients, and Creation clients.
A Conversion client is a client who has entered the state-legal cannabis market with an existing business. Yup, they have previously operated in the illicit market. In 2016, when California legalized cannabis, the illicit market was valued at 3.7 billion dollars. That number represents hundreds of small operators of whom many, presumably, began entering the legal market and building legitimate businesses.
The same was true for Oregon. In the early days of legalization, almost all of Moxy Accounting’s clients were Conversion clients. That hippie who had been cultivating his plants for years? He was a Conversion client.
Conversion clients are often quite savvy business people but not in the traditional sense. They are much more likely to need basic accounting education; they’re likely running payroll, issuing 1099’s, doing bookkeeping and paying taxes all for the first time. Being a trusted resource and a financial counselor is a huge value add for a Conversion client.
If you’ve heard our Founder, Katye, you’ll know she is often focused on risk assessment. Making money outside the eye of the law is not for the faint of heart. All Conversion clients are comfortable with some degree of legal and financial exposure. For us, putting a client into the Conversion bucket means we are on alert for the level of risk our client is comfortable with. Being curious about their assets, where their money came from, specifically the existence of untaxed dollars in the business, is paramount. Helping them transition to the legal market is exactly why we are so clear about boundaries; what we will and will not accept from clients to ensure we don’t risk our licensing by aiding and abetting tax evasion.
The group of people from different backgrounds starting a cannabis business? They were what we call Creation clients. The person who came to our office for the initial meeting was the CFO, none of the other partners came to that meeting. They were still figuring out their roles in the business, and their structure was a bit cumbersome. They had a lot of money, and knew a lot about business but were working out the kinks for the cannabis side. Creation clients often bring assumptions from their experiences in traditional business that don’t fit in the upside down world of cannabis. Helping educate them about 280E, how cannabis is different for banking, cash handling and tax is the places where they need the most help.
Anyone who wants to become a client of ours must do a paid initial consultation with our firm. That initial consultation serves many purposes for us and the client both. One of the major things we’re looking for in that meeting is to discover which of those two categories they fall into. Once we know what type of client they were, we can better predict the things we need from them and what to look out for.
We’ve had all kinds of clients, some who’s paperwork was absolutely impregnated with the smell of weed, and some who you would see on the street and never in a million years guess that they handle a Schedule I, illegal drug day in, day out. Ultimately, being able to identify a Conversion or Creation client is very effective in predicting how to approach the relationship.
These labels - Conversion and Creation clients, are just one of the ways The Moxy Accountant brings clarity to cannabis accounting that is thoughtful and effective. It comes from our years of experience in the industry. If you want to learn more, join the Moxy Cohort, our 8-week course that walks you through adding cannabis accounting to your practice - start to finish.