$30.6 million in revenue to the state (not counting additional city and county taxes ranging from 0.25 to 4%). However, later published reports (March 2020) indicated that the Marijuana Business Factbook estimates Arizona medical marijuana sales reached $715 to $730 million in 2019, which made it the country’s largest medical cannabis program. The Arizona Department of Health Services (DHS) regulates the Act through its Medical Marijuana Program. In Arizona, DHS is the only agency that has the responsibility to oversee and regulate medical marijuana. According to an Arizona Attorney General Report issued in June 2019, in contrast, Colorado, Nevada and Washington divide the responsibility between two agencies — one to regulate the Arizona’s Burgeoning facilities that produce/sell marijuana and the other to oversee patients Cannabis and Hemp Industry who use medical marijuana. Will Humble discussed his former role at ASCPA Cannabis Special Interest Section Formed the DHS and the challenges he faced. He addressed common inspection and by Josephine Giordano, CPA licensing/application issues. The panelists discussed Arizona legislative updates, including As CPAs, we are accustomed to dealing with challenging clients and new Governor Ducey signing legislation situations. The newly formed Cannabis Special Interest Section was formed that requires dispensaries to have to bring education and information to better serve our clients while protect- all medical marijuana tested by third-party laboratories for potency ing the public in the everchanging cannabis and hemp industry. The Section and contaminants by November kicked off its inaugural meeting on February 11, 2020 with a well-attended 1, 2020 (Marijuana Policy Project 1/3/2020). The new law also makes panel discussion. patient registry cards valid for two years instead of one. Additionally, in May Panel Discussion: Arizona’s Burgeoning Cannabis and Hemp Industry 2019, the Arizona Supreme Court ruled We had an overwhelming response to our invitation to our first panel discussion. that concentrates, edibles and other Our attendance included accounting and legal professionals, as well as bankers and infused products are legal under the state regulators. Our esteemed panelists included Gary Smith, Esq. with Guidant state’s medical marijuana law, ending Law, Will Humble with the Arizona Public Health Association, J.P. Holyoak with a controversy based on an inaccurate Arizona Natural Selections, Ross Dietrich, CPA, with Price Kong, and myself reading of the 2010 voter-backed law. as the moderator. Our panelists interacted and provided valuable information Arizona is considered one of the related to legal and regulatory challenges, dispensary operations and accounting states that could legalize adult-use and tax issues. cannabis this year via ballot measure. Based on information published by Marijuana Business Daily in January 2020, Gary Smith provided an update on the medical marijuana stores sold approximately 165,722 pounds of product in status of the SAFE Banking Act of 2019, 2019, a 36% increase from the 121,916 pounds sold in 2018. Based on retail the proposed legislation regarding prices advertised by major dispensaries in the Phoenix area, the industry took disposition of funds gained through in more than $400 million in revenue for 2018. Active cardholders increased the cannabis industry in the U.S. He 18% to 219,817 from 186,002 in 2018. Based on earlier reported retail prices, it discussed how bankruptcy is not an was estimated that approximately $547 million was generated in 2019. Medical- option for marijuana businesses and marijuana sales are subject to the state’s 5.6% sales tax equating to an estimated MAY/JUNE 2020 AZ CPA 15 the possible options available without challenges faced in the preparation the future. The push for adult-use in recourse to bankruptcy. Smith provided of audited financial statements and Arizona is a matter of time. As CPAs insight into several key court decisions tax returns and recent IRS efforts in and other professionals serving clients and their impact on businesses and the conducting their examinations/audits. in the cannabis and hemp industries, professionals that service them. The panelists also discussed we need to be educated and informed. J.P. Holyoak, a dispensary owner/ Arizona’s hemp program. The Arizona If you are a member of the ASCPA operator, provided valuable insight Department of Agriculture (AZDA) and would like to be part of the regarding challenges faced by businesses oversees the state’s hemp program, Cannabis Special Interest Section or including hiring and employment, which opened up hemp processing have recommendations for upcoming banking, accounting/tax and regulatory in 2019. Under Arizona law, growers, event topics or speakers, we welcome compliance. He discussed merger and nurseries, processors, harvesters and your input. Check us out on the ASCPA’s acquisition activity and a dispensary transporters are required to obtain Connect Cannabis and Hemp Advisory owner/operator’s perspective of the AZDA licenses. Notably, the AZDA site at www.ascpa.com/cannabis.l current state of industry regulation. doesn’t regulate retailers. Like in any Josephine Giordano, CPA, is a Ross Dietrich discussed cannabis other state with regulated hemp, director with BeachFleischman PC and tax compliance matters and IRS Code there are fees, compliance rules and chair of the ASCPA’s Cannabis Special Section 280E and its impact on clients penalties for non-compliance. The Interest Section. Giordano has extensive and CPAs. 280E, “does not allow a level of regulation is not even close to experience as a financial professional, with deduction or credit for any amount what we see for cannabis/marijuana a diversified background that encompasses paid or incurred during a taxable year in (www.cannalawblog.com June 2019). In internal audit, banking, tax, business carrying on any trade or business if such January 2020, the Arizona Marijuana valuation, forensic accounting, bankruptcy trade or business consists of trafficking News reported that 40% of Arizona’s and restructuring, court-appointed in controlled substances (within the hemp crops had to be destroyed due receiverships, court-appointed Special meaning of schedule I and II of the to too much THC (the psychoactive Master and Compliance Monitor, and Controlled Substance Act), which is substance in cannabis). other litigation support services. She can prohibited by Federal Law or the Law of The panelists provided their 2020 be reached at jgiordano@beachfleischman. any State in which such trade or business predictions for the overall industry and com or (602) 792-5981. is conducted.” Dietrich discussed the the impact to the Arizona economy in SOLUTIONS CALCULATED FOR REFERRAL YOUR CLIENTS

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