Few industries have a more interesting or infamous background than cannabis. And from a management accountant’s perspective, it’s a story straight out of the wild west of business. Simone Cimiluca-Radzins, joins us to discuss her journey from Big 4 CPA to bringing accounting and finance order to untamed business territory through the CBM Network.

Connect with Simone: https://www.linkedin.com/in/bizwithsimone/
Simone's Podcast: https://cannabisradio.com/podcasts/cannabis-business-minds/
CBM Network: https://www.cbmnetwork.com/courses/startup

Full Episode Transcript:
Adam:

Welcome back to Count Me In the podcast that brings you inside the fascinating world of management accounting. Few industries have more interesting or infamous background than cannabis. From a management accountant's perspective, it's the story straight out of the wild west of business. Joining me today is Simone Cimiluca-Radzins, a leading consultant in the cannabis industry. We discuss our unique journey from a big four CPA to bringing accounting and finance order to attain businesses in cannabis country. Let's start the conversation.

Adam:

Simone, thank you so much for coming on the podcast today. I'm really excited to be talking about cannabis and cannabis and accounting and accounting in the cannabis industry. But to start off, I wanna find out how did you get into this industry and what's your story?

Simone:

I'm so excited to also be on. Thank you so much for the opportunity. You know, I am an accountant by nature. I grew up in a family where my dad is an accountant, a controller, you know, did the whole kind of accounting route and it just was the thing that just made sense going up in college. I was like, oh, accounting's easy. Let me go do this. And then got recruited pretty young in university to be part of PWC. And then it almost felt like my career path was kind of just set, maybe luck, maybe opportunity, you know, the combination of all of that. And I did, I did a few different corporate accounting type of jobs. Got to travel the entire world, which was amazing. Doing internal audit for one of the large studios down in Los Angeles and then moving to Paris for a few years and being able to do international consulting.

Simone:

I've always focused on accounting, right? So internal control development, processes, you know, process improvement. But it was nice because at that point, at the very end of my corporate tenure, I guess we could say it was an opportunity to really see how I could truly be an advisor and truly implement things instead of just telling people, Hey, you know what, you've got all of these control problems and see you later. Here's your audit report. And so that was a really nice kind of end towards my corporate tenure. And yeah, I think you probably hear it often that some people just get burned out and doing international consulting. That's how I felt like it was, you know, and it's funny saying it cuz it was such a dream when it was there, but then at the very end, it was like two weeks in Paris, two weeks somewhere else in the world.

Simone:

And you're battling jet lag. You're, you know, I'm in my mid twenties at this point, almost like late twenties I guess. And you're kinda like, well, hold on, I wanna hang out with people. I wanna have friends. Like, this is so fun. But at the same time, I feel like there's something more. And, you know, I decided to quit my job and I lost my visa living in Europe. I lost my visa and I went back to the US and started freelancing from one of my, you know, previous jobs. So it was a really great freelance gig and that started to get me into freelance and understanding, well, okay, this is really cool. Like, I have to do my deliverables and I can kind of just maybe build something on my own.

Simone:

And that's when I think the entrepreneurial bug started where I was like, Hmm, you know, I think that there's something more, but I didn't know what that more is. And in the end, I think I'm just getting there, right? And so that's like, oh, this is a while. So I guess to any listener who's feeling that it's okay to feel like you might not really know exactly what you want, but that there is something more. And freelancing, it was just a great opportunity. I can make great better money than I was making in my corporate gig. And I had just moved to LA and so I got a subscription to magazines. I don't know if if if people still get that, but when you move into a new place, you can get all these, these magazines. And I got this one.

Simone:

There was on the front cover, women in the marijuana industry. And I was like, what? Now I'd been in Europe, I'd been in finance I hadn't thought about, and it was marijuana then I call it cannabis now. It's, you know, the real term that you wanna use. I hadn't thought about weed, cannabis, marijuana since I was in high school. And I was like, Hmm, this is interesting. And I started really diving in into what is this industry? And at that time it's 2015. And so if we just roll back, there's not even two states that have legalized adult use and some obviously have, have legalized medical use. But, so it's all brand new. I'm in California, which is the Wild West, which is the biggest market in the entire world. And I just started doing this research about like, what is, I'm an auditor.

Simone:

I was like, okay, let me understand the ecosystem just like I would a business. I was like, okay, let me understand the players, what is happening? Like what is the supply chain and all of that. And I just thought to myself, okay, I think this is the industry that I wanna be in. And before I even got on my own, I thought, okay, but how do you really learn it? You learn it through the numbers. Just like I learned every other business, right? Like, you can understand numbers, you can understand how everything works. So I approached a CPA firm that was very cannabis, like, it was very clear they were working in the cannabis industry, which is not, you know, was not at that time something that you would promote. And I said, Hey, I can help you. I can help you with your sales, I can help you, you know, build, you know, a better process. And I had a year, a little bit less than a year working with them until I felt really confident that I could just go out on my own and start kind of building my own business and start kind of working on different projects in the cannabis space. So that's how I got in.

Adam:

Wow, that's amazing. So when you got in, it was still largely a cash industry, right? So I can only imagine how crazy that was because everything is digital currencies and all that stuff and the world of business today, even in 2015, it still was. And now, and in that time, how did you manage that?

Simone:

Well, so the interesting thing is, so there's twofold. There's, I got 80% of businesses still lack banking today in 2022. So you really have to have a good set of internal controls. And working with those businesses even in 2015, you know, you could just spoil it back to the basics. But what's fascinating is that they're, you know, there's almost something that you could call legacy industry, meaning operators that had been in the business before it was quote, unquote "legal" in that state. Right. So had probably got involved in, you know, if you think about California, there was an ability to truly build a business, even though it was a cooperative model starting in 1996 when there was the first dispensary. But from a federal perspective, and there's still a lot of federal issues, they were not supposed to hold their receipts. They were supposed to erase everything, which is an accountant's worst nightmare.

Adam:

Wow. I can only imagine.

Simone:

Yeah, so it was a lot of education and it still is a lot of education of, and I almost think this is a small business of, hey, we have to save receipts. Now when it's cashed, we don't have the law, we don't have bank statements that can get sucked up into the accounting system to even know what completeness is. No. We had to, you know, you really have to show people like this is very important. So I mean, the process was a lot of education and then system building, but very archaic is the thing that comes to mind. But very simple system building because you know, it's, this small small business owner, well just, I would say like limited business systems with the businesses that we're operating on. So it's just, it's really focused on the simple education, the easy to do type of, Hey, how do you upload these receipts type of thing. But what's interesting, are you aware of IRC § 280E?

Adam:

I've heard it. I'm not aware of it. I'm not aware like the define it. No.

Simone:

So this is one of the most draconian laws you can ever imagine. It was put into place in 1982 because a drug dealer, you know, filed his taxes and he was dealing with like meth, you know, like bigger drugs. And this is like, this is, you know, predating what the cannabis industry is now. But it hasn't changed. And the rule is that if you are trafficking in a controlled substance, the schedule one or two substance. And so cannabis is a one which is really insane because heroin is a one and there just needs to be some push at the CSA and getting this descheduled. But if you're trafficking in a controlled substance, one or two, yeah, you cannot deduct anything. No business deductions. Now there's been higher rate tax law that allows a business to deduct their cost of good sold.

Simone:

So it's actually from the federal level, the only deduction that a business can take is a deduction to gross receipts, which is cost of goods sold. So it's at a state level, it's different. Every state will say, Hey, you know, we allow you to take all the full deductions like any other business. Like that's how a state should do it. So these businesses are really hit hard because of working all in cash. Oh, I'm forgetting to save all my receipts. But at a federal level, they're still struggling because they can't deduct everything, meaning cash flows impacted.

Adam:

Wow. So your cash flow is greatly impacted and you can't take advantage of all the great FinTech that's out there for accountants. And so what are some of the nuances that you have to do? You know, so obviously uploading receipts is a big one to try to get them in there. But then also there's also the stuff that they do on the side. I don't know, there like, there's so many different intricacies in there. How, how can you, as like, how do accountants help? How can accountants help these small businesses as they get in there?

Simone:

Well, I think the first thing is the accountant needs to adopt the mindset that I am a true business advisor here. And I'm an educator. I'm not just doing bookkeeping, I'm not just doing accounting. I'm not going to be reactive. If they haven't sent me something, I'm not gonna do it. It's like a very proactive approach to being a true business advisor and part of the team. So that's like the first thing and that, hey, we're gonna solve the problem. And so I think if you are thinking about building your accountant toolbox, you're like, okay, well I'm aware of these bigger blocks, right? So the IRC § 280E, okay, that's federal taxes. Then really understanding state taxes and then getting them set up immediately on a business system, right? And so a lot of operators that, you know, I don't work as much now with operators in doing accounting.

Simone:

I do a lot of fundraising, but a lot of operators when I was working with them really are even struggling to have like an accounting system in place. So these basic, basic things, so the first thing is understanding the business and then understanding inventory, because inventory is everything and it's how do you manage? So being very, you know, up to date on cost accounting, management accounting. Because if you're working with a cultivator or manufacturer, we've got a lot of different inputs in our inventory, you know, versus a reseller where it's just like, okay, I bought this. If I have to add on maybe some freight, then I'll add on freight to get to an inventory cost. So there's a lot of just the first, the basics and being able to go in, roll up your sleeves, work with the CEO as I consider you a profit advisor and getting, just getting the systems dialed in. And then training is so important, really being able to delegate those roles to the business operators or somebody on the business operations team. Like I've seen accountants that have been like, oh, I'm gonna take on everything. I'm gonna do the invoicing I'm gonna do. No, you can't. You have to make sure that you really are taking the role of a profit advisor if you're just, you know, bookkeeping or doing freelance kind of financial consulting, that you really can almost segregate your duties with somebody else on the team.

Adam:

Yeah. Well that goes back to having setting up good internal control. And I'm sure that those small businesses as they're getting into this industry, especially if they were doing stuff beforehand and then it's suddenly legal and they were like, oh, I'm gonna get a legitimate business. I don't think they had good internal control set up. They probably didn't have very good business practices set up. So it's almost like as a business partner, you're coming in as the CFO, as a financial analyst, as a data analyst, you're coming in as all the roles that an accountant does in an organization that like a management accountant does. And you're having to set all that up for this business. And I can't imagine that's easy at all.

Simone:

It's not easy. And I think the big thing that I learned was like setting boundaries and setting expectations. Setting boundaries. And so, you know, one thing that in the industry specifically, because there's so much innovation, there is something new, there's something changing all of the time. There's new states that are onboarding and there's, you know, there's so much, it's very easy as entrepreneurs in that space to get caught up in all of the shining objects. And so as an accountant, if you kind of follow that suit, you're not really helping the business. And so it's very important to, you know, set the expectations, be nimble, like the, you know, be nimble because you know, there are pivots, it's all of it is the startup culture, but really practicing discernment and having, you know, almost a plan, right? The project plan of, okay, here's where you are. Well this is where we can try to get to you in 12 months. And bit by bit going there with, it's just the focus of really building internal controls. I think that was the coolest thing when I got into the industry. I was like, oh my gosh, this is like all of my corporate tenure. It like all of what I've learned, you can actually apply into this space. So, but for me it really is internal controls.

Adam:

I mean that's great. So IMA, Institute of Management Accountants is one of the core founders of the COSO, which is the Council on Sponsoring Commissions, which came out with that internal control. And so we're big into internal controls here. And so like, I think management accountants could be a huge into this industry. And so what if somebody wanted to get started in this industry, you know, should they go find a small cannabis shop and say, Hey, can I come and be your accountant? Or should they, you know, be an entrepreneur like you? What, what would you recommend?

Simone:

Well, I first recommend getting educated. So making sure that you feel very comfortable about the state taxes, the federal taxes, what systems you would use and kind of your game plan. And then you made a really great point is that within that education, you know, the cannabis industry is quite complex. We're talking agriculture, manufacturer, retailers, right? And so being able to service all of these, well all of these different license types or parts of the supply chain, they have very different viewpoints and they have very different, you know, even accounting, if you think about it like an agricultural business is gonna have very different accounting than a retail business. So first understanding, you know, where do you want to play in this field? And then if they decide to go, you know, the job route, oh my gosh, I always have Indeed. Like I have a RSS feed, Indeed cannabis accounting.

Simone:

There's tons of jobs, you know, there's always tons of jobs. So there's an opportunity to do that. Or if you're thinking about the freelance route, then, you know, finding kind of an approach to reaching out to somebody in your local area. I know there's a lot of remote accountants right now, which is, I mean I'm one, I'm in Portugal at the moment, and yeah. And I think that the coolest thing for me about being in the industry was being able to connect locally with business operators. And because you're really heavily involved if you're in an emerging market, which would be like New York for example, like licensing is about to happen, regulation is passed. Like there's just this environment of like what is happening then you really, if you can, you wanna be there and you wanna be part of it. You wanna go to local events that are organized by community organizations.

Simone:

You want to, what was so cool for me is like getting involved in the politics. Like this is something where you have an ability to, you know, talk to legislators about, you know, do you really like the regulation? Is the regulation set up for success from an accounting perspective? And it's something that I'm even working on even remotely. But I would say if somebody is in a state where there is adult use or medical use, try to find out what's happening locally and just get your feet wet. Just how I did it. You know, be that, be that researcher under ask so many questions because this is like from a business perspective, such a fascinating industry from an accounting perspective, such a fascinating industry. But from a health and a wellness perspective, it is just fantastic of what you can be part of by supporting these businesses that are, you know, helping people with their pain, helping people with their anxiety, helping people, you know, with feeling better. And so there's so much that somebody can do just if they're interested is just get involved locally.

Adam:

That's great. I think that's a great way to get started is just kind of start where you are and then kind of go from there. I mean, that's how everybody gets started really. I mean, you just find people to talk to, get involved in events, find local things that you can, local shops, local conferences that are happening. Cuz I know it's all happening all over the place, which is amazing. And what I was thinking as you were talking, the more good accounting that can get into this industry, that set up a good foundation so that someday I hope when federally they finally say, you know what? We should take this off the schedule one or whatever it is, that there'll be good accounting in place so that way when the federal regulations come into play, the accountants be like, we got this.

Simone:

Exactly. Exactly. Well, not only that, if you think about just small business and some of the statistics, small businesses tend to go out of business within five years. Like I think it's like more than 80%, which is a devastating number. And I believe operating in the cannabis industry, it's even harder because of the punitive taxes, because of, you know, the cash flow issues. And so having good accountants in this space and helping these small businesses withstand the storm of still we're in federal prohibition, right? Federal prohibition to get to in a day, and hopefully it's a year very soon where there is an opportunity where it's completely federally legal would be great for the small business owner, right. To be able to like, be part of this industry and make it all the way to federal legalization. And I believe accountants that are true profit advisors are the ones that can actually do that.

Adam:

Yeah. Well, and it's funny, you're, as an accountant, you're kind of forced to go back to your, your roots of, like you said, like the first things you did when your corporate accounting, even just things like cash flow management, like something as simple, you know, it's a very popular course at IMA cash flow because people still have to remind themselves, okay, like it's crazy. But when you're dealing with cash, cash flow it's actual literally cash in and out.

Simone:

Yeah, yeah. Right. It's cash flow, it's cash management. Like, you know, what are we actually going to do with this money? But then it's also safeguarding assets. Think about it, cannabis businesses, tons of cash, tons of cannabis. Frauds happen to all, we already know, small businesses have a lot of fraud. Yeah. And so imagine if you're in a cannabis industry that has limited cannabis business that has limited internal controls, it's a haven. It stresses me out, honestly, as a as a former auditor. I was like, just like the lack of controls and the opportunity to, to commit fraud. And then what is really interesting and quite negative in the fact of being interesting is that IRC § 280E well what, you cannot deduct anything besides your cost of goods sold. So you cannot deduct losses. So if there's shrinkage, if you have a loss that's not cost of goods sold, that is a loss. And you can't at the federal level actually book that loss. So exactly. So it's, it's, to me it's getting as many accountants educated to help get those businesses profitable to with, you know, to really to make it towards federal legalization.

Adam:

Definitely. Well, and I can only imagine the hardship that that would put on a small business, especially if there's fraud. If there's, I mean, even for individual consumers, if you get wire frauded, the bank says, well, sorry, that's the, that's our little loophole and FDIC, we're not gonna help you because you were wire frauded. There's nothing we can do if we can't get the money back. And so I feel like when fraud happens, there's not much help out there for many people.

Simone:

No, no. And I think that and that is such the very sad part of the equation. And I think the silver lining to that is, well, education and preventative controls and really educating somebody about that. And I think that what happens in small business and in cannabis is all small business and startup, is that people don't wanna prioritize that because it's not sexy. And that's why the accountant have to be proactive with it. And we had to make it fun. And I think just showing people like, Hey, we can work together and I can actually help you save money, meaning more profit for you, that's the big thing.

Adam:

I agree. Anything else you wanna share?

Simone:

Well, I think that you wanna share with every listener just a little bit of a history about the cannabis industry, because that was one of the interesting things when I got involved with it, I really learned a lot, I learned a lot about politics, I learned a lot about health, and I learned actually a lot about myself, which is not the point of the history of cannabis, but you know, it's been federally prohibited for a very long time. And in 1995, there wasn't a single dispensary in the United States like California legalized medical use in 1996. And then from there we have seen like such accelerated growth. And one of the most important things that I've seen with new legislation is that there's a lot of things, you know, a lot of rules or programs in place that really help with what had happened with the war on drugs because minorities, people of color were really impacted by the war on drugs.

Simone:

And, you know, by receiving a federal, like if you are impacted by the war on drugs, what's that mean? You might have had to go to jail just for having a small amount of weed on you. And now that's completely legal in most states, but what happens with that is that if you have gone to prison, you can't vote. So there's a lot of interesting things for that. The cannabis industry and legalization of the cannabis industry is bringing from a political perspective that I just wanted to share with everybody that it's a really cool opportunity to be part of an industry that is a game changing, that is like, the rules haven't been fully written yet, and you have an opportunity if you care about politics or if you care about, you know, making a change in the system. The cannabis is like a very, very cool industry to do that.

Simone:

And from the the health perspective, you know, if you don't know much about the plant, it's much more than just getting you high. Like people have been able to help and cure cancers, you know, just like end their stress and their anxiety. And there's kids with epilepsy that have used cannabis that now don't have seizures. And like the list and list goes on. And what's very cool about the cannabis plant is that research, like there was a bunch of Israeli researchers that in the 1990s discovered in our body the endocannabinoid system, which is similar to like your pulmonary system or your nervous system, like it's a system in your body that has been discovered since the 1990s that helps you build homeostasis in your body. And cannabis, THC being the primary, you know, molecule into cannabis is something that actually, you know, binds to our endocannabinoid system.

Simone:

So what's really cool about this is that, you know, growing up in the finance world and being part of corporate finance, it was a heavily drinking culture. I really didn't open my mind to these other, you know, plants, medicines, and like, what, you know, what are the opportunities? And so I just, you know, if you're curious at all about that, just do some Google research, endocannabinoid system and what are the benefits of cannabis because it's so much more than, you know, eating weed brownies and like stoning out on your couch. Like it's really a plant that can save lives.

Adam:

And I hundred percent agree with that statement. And Simone, thank you so much for coming on this podcast, which it's been very educational and I hope our audience enjoy it as much as I did.

Simone:

Awesome. Thank you so much Adam.

Outro:

This has been Count Me In, IMA's podcast providing you with the latest perspectives of thought leaders from the accounting and finance profession. If you like what you heard and you'd like to be counted in for more relevant accounting and finance education, visit IMA's website at www.imanet.org.