The Cannabis Industry Accounting and Appraisal Guide

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The Cannabis Industry Accounting and Appraisal Guide


This book explores everything a cannabis business owner or investor needs to know about choosing a business structure, the basics of accounting and valuation, setting up a cannabis friendly accounting system, tax issues, how to avoid an audit, and building value for the future.

“From the first chapter to the last, the authors lead the reader through the fundamentals of the cannabis industry and proceeds through the myriad of state and federal regulations, legal structures, taxes and accounting.” — Neil Beaton

“This book  is a very good resource that digs deep into the accounting, taxation, regulatory, and valuation issues faced by investors and valuation analysts.  If you are thinking of getting into this business or are already in this business, you need this guide.” — James Hitchner

“Any legal or tax professional representing cannabis clients must have this book as part of his or her reference library.” — James Thorburn



The cannabis industry is undoubtedly the fastest-growing industry in the United States and has created one of the greatest business opportunities of the 21st century. In 2016, sales of legal cannabis reached nearly $6.7 billion. Colorado alone hit the $1.3 billion mark. Arcview Market Research projects sales of legal cannabis products in North America will increase by at a compound annual growth rate of 25%—reaching $20.2 billion—by 2021. , Brenden Kennedy, co-founder of Privateer Holdings, estimates the international market will reach $100 billion in ten years.

Tom Adams of Arcview states:
The only consumer industry categories I’ve seen reach $5 billion in annual spending and then post anything like 25% compound annual growth in the next five years are cable television (19%) in the 1990’s and the broadband internet (29%) in the 2000’s.

It all began with California—the 7th largest economy in the world—when its citizens adopted Proposition 215 in 1996 which permitted the medical use of cannabis in the state. As of mid-2017, 29 states have legalized medical use, and eight states legalized recreational use, bringing the total to 31 states that allow legal use of cannabis. In fact, 95 percent of the U.S. population lives in a state with legal access to some form of cannabis, which includes the thirteen states where cannabinoid (CBD) oil is legal.

With so many states legalizing various aspects of cannabis, it isn’t surprising that an October 2016 Gallup poll shows that 60% of Americans support legalized marijuana. The survey also indicates in the United States 57 percent of adults believe marijuana use should be legal, whereas 37 percent believe it should be illegal. A decade ago, 32 percent of adults favored legalization and 60 percent opposed legalization.

The cannabis industry is booming, not only for the growers, producers, and sellers of cannabis but also for ancillary businesses such as software, lighting, packaging, security, growing products, accessories, and banking. Every type of cannabis business has unique characteristics that accountants and business appraisers should consider. For example, there is a growing amount of scrutiny related to the edibles segment concerning the consistency of portion potency, labeling, and related issues. There is also an increasing focus on the use of pesticides and fertilizers, resulting in the need for independent testing labs in support of the regulatory agencies that oversee license holders.

The cannabis industry is constantly evolving. There are varying and often conflicting rules at the federal, state, city, and county levels. Every state requires a license, but obtaining those licenses can be a very different process, depending on where you are, and the costs can be quite different. The complexities regarding this industry require the use of knowledgeable professionals, who are adequately trained and familiar with industry trends and protocols. As Certified Public Accountants who work regularly with a wide range of business and clients, nothing has come close to the intellectual challenges encountered when addressing issues and concerns in this niche.

The cannabis industry may be outside of the comfort zone for accountants, lawyers, valuation experts, consultants and potential investors, yet it can also open doors to a new client group that up until several years ago didn’t exist. The purpose of the Cannabis Industry Accounting and Appraisal Guide is to provide useful information about the unique financial aspects and intricacies related to businesses operating in the licensed and regulated cannabis industry.

The guide also presents everything a cannabis business owner needs to know about choosing a business structure; basic accounting; setting up an accounting system, taxes, how to avoid an audit, the basics of valuation, and how to build value into your business for the future.

We will supplement this guide on a regular basis on our website providing subscribers with value-added benefits, including updates on the latest developments in cannabis accounting and tax compliance, practical tools and guidance to be used for bookkeeping and accounting. In the medium to long-term, we hope to provide access to proprietary market data on industry transactions unavailable elsewhere. (

In the meantime, enjoy and learn from The Cannabis Industry Accounting and Appraisal Guide and about this exciting, relatively new, and rapidly evolving industry.


Ships July 2018

Table of Contents


The Cannabis Industry Accounting and Appraisal Guide:

Indispensable resources on taxation, financial accounting and the appraisal of cannabis related intellectual property and business interests

Table of Contents

About the Authors


Chapter 1: What is Cannabis?

Chapter 2: History and Regulation of Cannabis

Chapter 3: Why is the Cannabis Industry So Hot Today?

Chapter 4: Your Cannabis Enterprise: Exploring Entity Structure Options

Chapter 5: Cannabis Industry Accounting and Bookkeeping Fundamentals

Chapter 6: The Complicated World of Cannabis Taxation

Chapter 7: The Approaches and Methods of Valuing a Cannabis Business

Chapter 8: Market Multiples in the Cannabis Sector

Chapter 9: How to Interpret a Cannabis Appraisal Report

Chapter 10:  Start-up and Pre-Revenue Valuation in the Cannabis Industry

Chapter 11: Unique Issues in Cannabis Appraisal

Appendix A: Sample Request for Documentation

Appendix B:  Sample Chart of Accounts

Appendix C: Sample Risk Assessment Analysis

Appendix D: Sample Report

Appendix E: “Must See” Documents

Appendix F: Landmark Court Case Summaries

Appendix G:  Finding a Qualified Valuation Analyst

Appendix H: Top Resources for Cannabis Industry Information

Meet The Authors

Brenda M. Clarke, CPA/ABV/CFF, CVA
Brenda is a partner at the firm Seigneur Gustafson LLP, located in Lakewood, Colorado. Brenda is a Certified Public Accountant, as well as a Certified Valuation Analyst (CVA) with the National Association of Certified Valuators and Analysts. She also holds the AICPA specialty designations of Accredited in Business Valuation (ABV) and Certified in Financial Forensics (CFF). Ms. Clarke has over 20 years of professional experience working with professional service firms, restaurant owners and other closely held business clients on taxation, valuation and compliance issues. She is also an adjunct professor at the University of Denver Sturm College of Law where she teaches accounting for small legal practices and accounting for legal administrators.

Ms. Clarke has published numerous articles on taxation and business valuation related subjects and was the Chair of NACVA’s Litigation and Forensics Board. She was also on the AICPA Family Law Task Force as well as a board member of the Colorado Society of CPA’s Educational Foundation. She is a graduate of the University of Colorado Boulder where she earned a Bachelor of Science degree in Business Administration in 1993.

Brenda can be reached at [email protected] or 303-980-1111

Ronald L. Seigneur, CPA/ABV/CFF, CVA, ASA, CGMA
Ron is Managing Partner of Seigneur (pronounced “senior”) Gustafson LLP, based in Lakewood Colorado, where he is responsible for financial forensics, business and intellectual property valuation, practice management consulting and exit & succession planning services. He is a co-author of Financial Valuations: Applications and Models, published by John Wiley & Sons and Reasonable Compensation: Application and Analysis for Appraisal, Tax and Management Purposes, published by Business Valuation Resources.

Ron is an adjunct professor at the University of Denver, College of Law and Daniels College of Business where he teaches law firm leadership and business appraisal classes. He has a BA from Michigan State University and an MBA from the University of Michigan. He is a fellow of the College of Law Practice Management and a frequent speaker and author on professional practice issues including leadership, cannabis industry matters, strategic planning, compensation and related topics. Ron is currently writing a children’s book on the Sayings of our Elders with his daughter, Chelsea.

Ron can be reached at [email protected] or 303-980-1111

Stacey D. Udell, CPA/ABV/CFF, CVA
Stacey is the Director of Valuation and Litigation Services at HBK Valuation Group LLC for the Mid-Atlantic Region. Before focusing full time on valuation, litigation, and forensics work at HBK Valuation Group, she was a partner in a traditional accounting firm where she also provided accounting and tax services for individuals and closely-held businesses.

She is a co-author of Financial Valuations: Applications and Models, 2nd Edition, published by John Wiley & Sons, co-author of The Comprehensive Guide to Economic Damages, 4th Edition, published by Business Valuation Resources, and contributing author to BVR/AHLA Guide to Healthcare Industry Finance and Valuation, published by Business Valuation Resources. Stacey has a BS degree from the University of Delaware and is active in the American Institute of Public Accountants’ forensics and valuation services area.

Stacey can be reached at [email protected] or 856-486-2299 x2823.


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