Michigan Marijuana Regulatory Agency (MRA) Annual Financial Statement Insight

Michigan Marijuana Regulatory Agency (MRA) Annual Financial Statement Insight

Now that the January 31, 2021 deadline for the medical Annual Financial Statement reports (AFS) has passed, we have some additional insight for cannabis business operators in Michigan. The requirement per the AFS’s section 701 of the Medical Marihuana Facilities Licensing Act (MMFLA) has made our jobs more challenging but certainly not impossible.

Even as many licensees missed the deadline, the MRA has continued to accept reports without officially granting extensions. As such, while we believe the MRA understands the challenges, we doubt the grace period will extend for another year.

So far, many licensees have received notices regarding their adult-use licenses. They’ve been told that they will need an AFS by June 30, 2021. As the deadline for these filings grows nearer, we’re listing some of the most common deficiencies we’ve observed from the MRA that demand more clarification and/or action below.

Need assistance with your Annual Financial Statement? Contact us today to learn more about how we can help.

What is the Annual Financial Statement (AFS)?

As outlined in the AFS’s section 701, the MMFLA now requires licensees to submit to the Marijuana  Regulatory Agency (MRA) financial statements outlining the licensee’s entire operations per the manner and form outlined by the MRA.

The MRA has developed its annual financial statement form report that licensees must use. The agency will not accept any other report formats. Furthermore, the Annual Financial Statement (AFS) Contact Authorization form will need to be submitted with the AFS.

Here are some links to additional essential resources for filing the Annual Financial Statement in Michigan:

Who Can Prepare the Annual Financial Statement (AFS) Report?

The AFS report must be conducted by an independent certified public accountant (CPA) licensed in Michigan. But does this CPA need to be located in Michigan to prepare the AFS report?

Can an out-of-state CPA firm registered in Michigan prepare the Annual Financial Statement report? Yes, as long as the CPA is licensed in the State of Michigan.

For CPA firms registered in Michigan, the individual CPA handling your report must be licensed in the state. If the CPA is not licensed in Michigan, this person cannot prepare the report on your behalf. This information is under Section 701 of the Medical Marijuana Facilities Licensing Act and MCL 339.722.

Requirements for the Annual Financial Statement (AFS)

Reporting periods and annual requirements are announced by bulletin like the one found here. The bulletin was issued on June 3, 2020, which announced that the Annual Financial Statements requirements for all businesses and individuals with marijuana licenses on or before December 31, 2019 include the following:

  • Licenses obtained prior to October 1, 2019 must deport by October 31, 2020. However, the initial licenses acquired from October 1, 2019 to December 31, 2019 should report by January 31, 2021.
  • Any marijuana licensee who has acquired a license on or before December 31, 2019 needs to file their report for 2020. This report should include information regarding all licenses held at any point during the applicable reporting period.
  • The report outlines an agreed-upon procedures engagement that has to be handled by an independent certified public accountant (CPA).
  • CPAs have to communicate all findings using the report structure created and implemented by the MRA designed explicitly for the marijuana industry. License holders are responsible for filing these reports with the MRA – the agency will not accept other reports.

Without compliance with these reporting requirements, licensees operating in the State of Michigan could be opening themselves up to liability. Filing a late report forwards licensee names to the MRA Enforcement Division, which could result in disciplinary action, such as potential license suspension.

Need assistance with your Annual Financial Statement? Contact us today to have a CPA handle your AFS for you.

Common Annual Financial Statement Deficiencies from the MRA

Preparing a Michigan AFS per the MRA’s demands can be challenging. Here’s a list of the most common deficiencies to consider:

  • Entities structured with multiple licensees and a centralized corporate management function don’t clearly outline their allocation of expenses with each corresponding license tested.
  • Payroll found in the general ledger isn’t reconciled with payroll tax returns.
  • Transactions don’t include properly-maintained supporting documentation.
  • Customers and vendors recorded in the general ledger don’t use the legal entity names.
  • Revenue found in the general ledger was not reconciled with the POS or METRC.
  • Individual sales transactions from METRC do not align with the underlying support observed in the general ledger.
  • Ownership tables are not aligned with the documents offered to the MRA.
  • Lease agreements are matching the information offered to the MRA.
  • Initial licensure dates offered were not accurate, which impacted the reporting periods.

Tips to Prepare for Michigan Marijuana Regulatory Agency Financial Report

As we prepare for the next round of adult-use AFS reports, it’s essential to prepare cannabis companies for the testing. This will involve reviewing and reconciling 2020 record keeping.

Here are some tips to ensure you’re prepared for this testing:

  • Properly identify your ownership structure and make sure it agrees to all underlying agreements on file with the MRA.
  • Maintain the right documentation for your license approval dates.
  • Perform wage reconciliation of the 941s to the general ledger quarterly.
  • Check all of the supporting documentation for revenue and expense transactions to ensure they’re all properly maintained. Include this as a component of your accounting process and controls.
  • Get form W-9 for every vendor and check the information recorded in the general ledger to ensure it includes the full legal entity name vendor. Maintain caregiver numbers and license numbers for all vendors where applicable.
  • Reconcile sales to METRC and, if applicable, to the POS, each month. Make sure to document reasons for any discrepancies.
  • Check all agreements to ensure they’re appropriately executed by all parties and are documented with the MRA. For revisions, regardless of whether written or verbal, must be documented.
  • Check all legal documents, including but not limited to licensing agreements, leases, and other agreements, to ensure they’re all readily available with all transactions in the general ledger properly recorded in accordance with the agreements.

Need an expert CPA to handle your Annual Financial Statement? Contact us today to learn more about how we can help.

 

U.S. Cannabis Legalization: The Past to Present

U.S. Cannabis Legalization: The Past to Present

Cannabis legalization in the United States didn’t begin until the 1990s. Over the years, the legality of cannabis evolved, and the laws continue to change.

In an industry characterized by ever-evolving regulations and compliance restrictions, it’s vital to know how far we’ve come as a whole. From the past to the present, these changes define the industry and the way society views it.

As cannabis is still somewhat taboo in some circles, this is changing with each new law passed. While the plant, its derivatives, and the people participating in this industry become more widely-accepted, we expect the cannabis stigma to continue fading into the past.

Even as the stigma fades, it’s crucial to understand how legality has progressed over the years. So here’s everything you ever may have wanted to know about cannabis’s legality in the United States.

cannabis legalization in the US

 

Timeline of Cannabis Legality in the United States

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Cannabis Legality: Essential Long Before Pandemic Essential

Even though cannabis was deemed essential during the COVID-19 pandemic, this wasn’t the first time the government demanded this plant be accessible; there was a time that American farmers were required to grow hemp.

In 1619, the Virginia Assembly passed legislation that would require all farmers to grow hemp. People could even exchange hemp as legal tender throughout Maryland, Pennsylvania, and Virginia. President George Washington was even known to have cultivated hemp at Mount Vernon.

Hemp production was strongly encouraged by the American government during the 17th century. It was a valuable crop as an essential raw material for producing sails, clothing, rope, and various other products.

After the Civil War, hemp production slowed. Other domestic materials like cotton and paper replaced hemp for use in many products.

Cannabis was also a medicinal product. The United States Pharmacopeia even had it listed as such from 1850 throughout 1937 – until the attitude towards the herb shifted.

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State-Level to Federal-Level Cannabis Prohibition

State-level prohibition of cannabis began in the early 20th century. As racist ideas caught on like wildfire, many started thinking cannabis – and its rumored dangers – were the byproduct of immigrants.

The Pure Food and Drug Act was passed in 1906. This legislation demanded labeling for over-the-counter remedies containing cannabis.

Following the Mexican Revolution of 1910, the U.S. experienced an influx of Mexican immigrants. In turn, recreational cannabis use was introduced to American culture. Once it became associated with these immigrants, fear and prejudice drove the taboo against it. 

Cannabis became known as “marijuana,” the Spanish word for cannabis. Many Americans believed terrible crimes were connected to the drug and the Mexicans who used it recreationally, encouraging mass fear over it. 

Federal limitations on cannabis began in the 1930s. The government started using propaganda and conspiracy to terrify the masses, raising public fear and destroying the positive views of cannabis and its consumers. This was during the Great Depression, a time in which mass unemployment drove public resentment and fear of the Spanish-speaking immigrants.

America’s public and governmental concern over the marijuana issue ignited research to smear its name. The research connected the drug with violence, crime, and other socially problematic behaviors. By 1931, 29 states had made cannabis illegal.

In 1936, the propaganda film “Reefer Madness” was produced and distributed. This is also around the time that the Motion Pictures Association of America began prohibiting the showing of narcotics in films.

Eight years later, in 1944, the New York Academy of Medicine reported an extensive study showing that the previous cannabis research was false. Cannabis use was not inducing violence, sex crimes, or insanity, nor was it leading to addiction or other drug use. Thus, they uncovered that the popular belief was incorrect.

Even in light of this new information, this wasn’t the end of public discrimination against cannabis.

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Legislation & Federal Prohibition

The U.S. government put the Marihuana Tax Act in place in 1937. This prohibited cannabis at the federal level, and even though medical use was still allowed, the new fees and regulatory requirements minimized its consumption.

Stricter sentencing laws were put in place from 1951 throughout 1956 – these set mandatory sentences for drug-related offenses, including cannabis. First-time offense cannabis possession demanded a minimum sentence of 2 to 10 years, as well as fines of as much as $20,000.

But the movement towards federal cannabis prohibition was not accepted by everyone. During the 1960s, changes in the political and cultural environment encouraged more lenience towards cannabis. It became popular throughout the white upper-middle-class, as well.

Presidents Kennedy and Johnson both commissioned reports that found cannabis was not the violence-inducing addiction-encouraging drug others claimed – this was when the policy shifted towards offering treatment along with criminal penalties.

By 1969, Leary v. The United States resulted in the ruling that the Marihuana Tax Act violates the protection that the Fifth Amendment offers against self-incrimination.

The year after, in 1970, The Controlled Substances Act was implemented. This law classified cannabis as a Schedule I drug. Congress also repealed most of the mandatory penalties for drug-related offenses as they didn’t work to eliminate the drug culture and were typically unusually severe.

With this Schedule I categorization, the government ruled that cannabis had a high potential for abuse with no accepted medical value. Thus, federal cannabis prohibition began.

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More Action from Both Sides

President Nixon officially announced drug abuse as “public enemy number one” after declaring a “War on Drugs.” With the rise in recreational drug use during the 1960s, Nixon increased federal funding for drug-control agencies while proposing stricter measures.

The Shafer Commission considered cannabis laws in 1972, determining that personal use should be decriminalized. While Nixon rejected this recommendation, eleven states decriminalized throughout the 1970s, and most others reduced the penalties in place.

The U.S. Drug Enforcement Agency (DEA) was created in 1973. This was a merger between the Bureau of Narcotics and Dangerous Drugs (BNND) and the Office of Drug Abuse Law Enforcement (ODALE). The initial budget was less than $75 million, with 1,470 special agents granted to the DEA.

Within a year of the DEA’s founding, one of the most iconic cannabis publications around, High Times, was founded as well.

It’s crucial to note that years later, during a 1994 interview, John Ehrlichman, President Nixon’s domestic policy chief, suggested that the War on Drugs campaign was mainly promoted to help Nixon maintain his presidency. The Nixon campaign had made antiwar and black people its enemies, with its advocation for drug reform being partially fueled by racism.

According to History, Ehrlichman said:

We knew we couldn’t make it illegal to be either against the war or black, but by getting the public to associate the hippies with marijuana and blacks with heroin, and then criminalizing both heavily, we could disrupt those communities. We could arrest their leaders, raid their homes, break up their meetings, and vilify them night after night on the evening news. Did we know we were lying about the drugs? Of course, we did.

Looking back at 1976, the parents’ movement against marijuana began. This was a nationwide movement involving conservative parents’ groups lobbying to demand stricter regulation for marijuana to prevent teenage use.

Some of the groups gained power fast, acquiring support from the DEA and the National Institute on Drug Abuse (NIDA). These groups shifted public attitudes against cannabis, ultimately contributing to the War on Drugs in the 1980s.

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Radical Prohibitionists Impacting Cannabis Legality

In 1990, the Solomon–Lautenberg amendment was enacted. The federal government threatened to reduce highway funding, causing many states to enact these laws. In turn, at least 30 states, the District of Columbia, and Puerto Rico implemented legislature imposing harsher punishments.

Smoking cannabis became an illicit act that would result in a mandatory six-month driver’s license suspension. But other laws came into existence during this era.

Radical prohibitionists in the federal government wanted to penalize small-scale cannabis offenders further. After decades of small fines and up to six months of prison time for personal use cannabis possession, the tension led to the War on Drugs.

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The War on Drugs

The War on Drugs began with Nixon, but it continued long after he was out of office. Jimmy Carter became president in 1977 following his campaign focused on decriminalizing cannabis. His first year in office had the Senate Judiciary Committee vote to decriminalize up to an ounce.

After President Carter’s step forward, President Ronald Reagan reinforced and expanded upon some of Nixon’s War on Drugs policies in the 1980s. The Washington Post reported that President Reagan pronounced in 1982, “Drugs are bad, and we’re going after them . . . And we’re going to win the war on drugs.”

The “Just Say No” campaign was launched in 1984 by Nancy Reagan to educate people about the dangers of drug use. President Reagan implemented severe penalties for drug offenders, which led to more incarcerations for nonviolent drug crimes.

Congress passed the Anti-Drug Abuse Act in 1986. This brought back the minimum prison sentences for some drug offenses. However, the law received a lot of criticism as it had racist ramifications that targeted African Americans.

President George H.W. Bush also declared a new War on Drugs during a nationally televised speech in 1989. He brandished a bag of crack cocaine and didn’t mention cannabis. However, the federal drug control budget rose from around $5 billion to $12 billion by the time he left office, ultimately impacting cannabis.

Data also showed that people of color were targeted and arrested on suspicion of drug use at higher rates than whites. The policies increased incarcerations for nonviolent drug offenses from 50,000 in 1980 to 400,000 in 1997. By 2014, almost half of the 186,000 federal prisoners in the U.S. were there for drug-related crimes.

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What Could a Democratic-Controlled Senate Do for Cannabis Legalization in 2021

Between Joe Biden’s presidential win and the democratic-controlled Senate, federal cannabis policy change could happen for the 117th Congress. Even though the new president hasn’t embraced recreational legalization, he’s said he’d like to reform cannabis through decriminalization and past record expungement.

The House and Senate Democratic leaders have pledged to push cannabis reform. However, they also might encourage comprehensive changes for cannabis advocates. This, of course, could include the advancement of a federal cannabis descheduling bill that recently cleared the House.

Now that the Democrats have reclaimed control of the chamber, their chances of success advancing cannabis reform have increased. Senate leaders in the 116th Congress did not take the opportunities given to vote on cannabis reform legislation, purposefully excluding cannabis banking language from coronavirus relief legislation. But this Congress could promote positive change for the industry.

Sen. Chuck Schumer (D-NY) is the current top Democrat in the Senate. In October, he said he would put his descheduling bill “on the floor,” and he believes they’ll “have a good chance to pass it.”

Schumer is expected to become majority leader, and he recently said that if he does, a legalization bill will pass with “Democratic and Republican votes.”

However, we’re still waiting to see how the Democratic leader will encourage more moderate members to side with cannabis reform. Voters in some conservative states have approved legalization ballot initiatives, so we know there’s support for the movement.

The House is now in Democratic control. It has already claimed that it’s considering federal cannabis policy change. The question now is, “How much will cannabis policy change under Democratic control?”

Justin Strekal, political director of NORML, explained the situation. “Reform advocates have established over the past two years that we possess both sufficient allies and votes in the House of Representatives to substantively reform America’s failed marijuana laws, specifically to remove the cannabis plant from its Schedule I status under the Controlled Substances Act.”

“Unfortunately, under GOP Senate leadership, these and many other important reform bills were dead on arrival. By contrast, Democratic leaders in the upper chamber have already pledged publicly to debate and advance most all of these important reforms, including legislation to end federal marijuana prohibition via descheduling,” he continued. “We look forward to working with soon-to-be Senate Majority Leader Schumer to advance legislation with haste.”

While it’s probably that cannabis reform will move in the 117th Congress, we still must wait to see what the Biden administration’s role will be in promoting reform. The president has been known for pushing punitive anti-drug legislation while in the Senate. However, he now says this was a mistake.

Biden nominated Judge Merrick Garland to serve as his attorney general. But some advocates have concerns regarding some statements Garland made in a 2013 federal appeals case regarding cannabis scheduling. He said that the science determining cannabis’s federal classification should be deferred to the DEA.

A Democratic Congress seems as though it’s willing to pursue legalization. However, the pressure will be on Biden’s nominee for secretary of health and human services (HHS). Even though the Justice Department will participate in deciding cannabis’s federal scheduling, the HHS’s medical and scientific review will have the most influence on the attorney general’s classification decision.

We also must consider Vice President Kamala Harris’s participation in the legalization movement. While she has been the lead sponsor of the companion Senate version of the MORE Act, she hasn’t spoken out about encouraging Biden to act on the issue.

Who will legalize this year? Find out which states could legalize cannabis in 2021 now.

States That Could Legalize Cannabis in 2021

We know of several states that could legalize cannabis in 2021. While we’ll have to wait to find out which states pass their initiatives, here’s some insight into what we can expect:

NY could legalize cannabis in 2021

New York Cannabis Legalization in 2021

New York Governor Andrew Cuomo spoke about a plan to legalize and tax recreational cannabis in the state’s budget proposal for 2020. This came within weeks of his vow to legalize cannabis during his annual State of the State address. The following month, the governor announced his plans to tour states that have already legalized to supplement his efforts allocated towards New York’s cannabis legalization.

Once the coronavirus pandemic began, these plans were put off. The governor cut the legalization proposal from the budget before the April 1 deadline, explaining that there was “too little time” to handle everything and include marijuana legalization for New York.

During an October interview, Axel Bernabe, Cuomo’s assistant counsel, said that Cuomo plans to renew his efforts to legalize cannabis in New York in 2021. Bernabe explained that Cuomo would likely add the recreational push to New York’s 2021-2022 budget. This is especially important following legalization passing in New Jersey in 2020.

Connecticut could legalize cannabis in 2021

Connecticut Cannabis Legalization 2021

Ned Lamont, governor of Connecticut, introduced a cannabis legalization bill that would have legalized for adults 21 and older. However, the proposal stalled following an immediate halt to the legislative session resulting from the pandemic.

Rev. Tommie Jackson, a pastor at Rehoboth Fellowship Church in Stamford, assisted the governor in drafting the legalization bill. He told WSHU that he believes the bill will pass in 2021, saying it “must be done to ensure the full and fair cooperation of all people, especially people of color.” He was referring to the inequality promoted by the War on Drugs, of course.

Governor Lamont spoke out at a news conference. He said that with New Jersey’s vote in favor of legalizing recreationally and a Democratic majority in both Connecticut’s state House and Senate, he plans to try passing the bill again in 2021.

Pennsylvania could legalize cannabis in 2021

Pennsylvania Cannabis Legalization in 2021

Pennsylvania could legalize cannabis in 2021, especially when considering the effect the pandemic has had on the state’s economy. Governor Tom Wolf has already requested state legislators legalize recreational marijuana. He has a plan involving funding grants for small businesses using some of the revenue obtained from cannabis sales. Fifty percent of this funding would be reserved to aid historically disadvantaged businesses.

Wolf claims that he’d allocate other tax revenue for “restorative justice programs” that would prioritize reparations for crime victims and communities impacted most by marijuana criminalization. However, Wolf isn’t the only one in Pennsylvania who supports legalization.

Lt. Gov. John Fetterman has also spoken about his preference for legalization. Responding to reports of Pennsylvania’s $3.2 billion deficit, Fetterman tweeted, “If only there was a widely-consumed unregulated cash crop, wholly confined to the black market, that could generate billions of dollars + 1000’s of jobs + help PA farms.”

Even with support coming from Pennsylvania’s top officials, we’re unsure whether a cannabis legalization bill would pass due to Pennsylvania’s Republican-led legislature. But we’re hopeful for this progress.

New Mexico cannabis legalization 2021

New Mexico Marijuana Legalization in 2021

During the beginning of 2020, Governor Michelle Lujan Grisham proclaimed support for adult-use cannabis legalization in New Mexico. She explained that it’s “an economic development driver that would create thousands of jobs and hundreds of millions in revenue for needed public services all across the state.”

Furthermore, she proposed the Cannabis Regulation Act, House Bill 160, in the same month. This received approval from the state’s Senate Public Affairs Committee with a 4-3 vote. However, in February, the Senate Judiciary Committee’s vote tabled the bill. This left legalization efforts stagnant until 2021.

After the vote, Democratic Den. Gerald Ortiz y Pino, the bill’s sponsor, highlighted that some proponents of the bill would be up for a vote in 2021.

During a February statement, Grisham explained her disappointment over the committee’s motion to block the legislation’s advance. However, she said legislators plan to continue working to pass the bill.

Virginia cannabis legalization 2021

Virginia Marijuana Legalization in 2021

The governor of Virginia, Ralph Northam, said he plans to introduce legislation that could legalize recreational cannabis in the state. This came during a news conference that followed the completion of a state study highlighting Virginia’s ability to generate $300 million in taxes through legalization. Northam claims he will work with the General Assembly to create legislation.

Northam’s public support of legalization came following the legislature passing a bill in 2020 to decriminalize marijuana possession. Possession of up to one ounce of cannabis was reclassified to a civil penalty.

Members in the House of Delegates claim that legislation to legalize recreational-use cannabis is likely to pass the chamber. However, the state Senate Majority Leader, Dick Saslaw, said he believes these odds are “slightly better than 50-50.”

Texas marijuana legalization 2021

Texas Marijuana Legalization 2021

Texas marijuana legalization has been something on everyone’s minds after Governor Greg Abbott signed House Bill 1325. This legalized production, manufacturing, retail selling, and inspection for industrial hemp crops and products. Texas lawmakers have also pushed several marijuana bills ahead of the 87th Texas Legislative session.

House Bill 447, would permit residents over the age of 21 years old to consume, transport, and grow marijuana. Few limitations would be imposed as the bill would offer guidelines for businesses, licensure, and distribution for the marijuana industry in Texas.

State Senator-elect Roland Gutierrez introduced her bill to authorize cannabis medically and recreationally if passed.

Gutierrez knows that Texans will face severe budgetary challenges. Her bill [SB 140] would create 30,000 new jobs for the state and produce $3.2 billion in new revenue, all without raising taxes for Texans.

Rhode Island cannabis legalization 2021

Rhode Island Cannabis Legalization 2021

The Governor of Rhode Island, Gina Raimondo, has also proposed that legalizing recreational marijuana is the right move. She wants to set up a system of state-controlled dispensaries. However, Senate leaders opposed her proposal, believing it would harm the state’s youth.

After the coronavirus pandemic caused state budget deficits, the idea of the economic benefits became appealing to state lawmakers. Senate leaders claim that they’re now more interested in the proposal being a part of Rhode Island’s 2021 budget plan.

So who else will legalize cannabis in 2021? We’ll have to wait and see. But all in all, this year should be great for the cannabis industry as it continues its expansions into other states interested in becoming a part of the sector.