Deena Vallina, Principal Advisor of Apex Advisors & President of the Nevada Chamber of Cannabis – Interview Series

For over two decades, Principal Advisor of Apex Advisors & President of the Nevada Chamber of Cannabis, Deena Vallina has been providing financial and accounting services to businesses that range greatly in terms of industry and size. Through Apex Advisors, Vallina provides valuable and much needed accounting services to cannabis businesses against the several banking and taxation-related issues that cannabis businesses face due to various federal laws, such as the lack of proper FDIC-insured banking services.

Tell me about your professional background and how you became an accountant. What industries/companies were you an accountant for before going into cannabis?

When I told my father I was majoring in theater he said “Do you want to act or do you want to eat?” At 18, I couldn’t quite identify anything else I was as passionate about. After changing majors and dropping out several times, I returned to finish my degree following a move to Colorado. My employer at the time had brought in a training company to teach accounting to their non-financial managers and that’s when I realized it was the perfect fit.

After finally finishing my degree, I went back to the company that introduced me to accounting. I started as a speaker, trainer, and course designer, really getting my feet wet in the field. From there, I gained a broad range of experience, working with everything from small businesses to Fortune 500 companies. Technology, data processing, and investment banking, from mom-and-pop shops to Wall Street, my accounting expertise has spanned every corner of the business world.

My passion has always been in finance and corporate accounting. I thrived in the dynamic environment of tech startups and also enjoyed the stability of real estate development. But my accounting skills weren’t limited to those sectors – I even tackled the unique challenges of the entertainment industry! That versatility fueled my entrepreneurial spirit, and in 2002, I ventured out to provide accounting services to other small businesses across various sectors.

My diverse background ultimately led me to a fascinating opportunity as a business manager in the adult entertainment industry. It was a valuable experience in applying financial principles to a new and dynamic environment. Although a slightly different approach was required, the core accounting principles and business acumen remained essential.

What in particular made you want to venture into cannabis and offer accounting services to companies in this new and exciting yet somewhat uncharted industry?

My true belief in the industry’s potential came after working in a similarly fringe and often stigmatized industry – adult entertainment. There, I witnessed firsthand how strong financial management could empower businesses to operate successfully and ethically, even within a challenging social climate.

This experience, combined with my natural empathy for the underdog, fueled my move into cannabis accounting. Having always fought for myself in various industries, I see a chance to empower the ‘little guy’ here too. These cannabis businesses, much like those I encountered in adult entertainment, face big corporations and entrenched societal views. I want to give them the tools they need to not only compete but thrive, proving that regardless of the industry, ethical and responsible business practices are the key to success and overcoming stigma.

What are the major current financial/banking issues that fully compliant cannabis businesses still face? I would imagine being banned from just about every FDIC-insured institution would be quite disadvantageous.

It’s a massive challenge. Imagine running a multi-million dollar business but having to deal entirely in cash. That’s the reality for many cannabis businesses, even fully compliant ones. They’re shut out of the traditional banking system because federally, cannabis is still classified as a Schedule I drug, alongside heroin and LSD.

This creates a domino effect of problems. First, it’s a security nightmare. Large amounts of cash on hand make them targets for theft. Second, they can’t access basic financial tools essential for growth. No loans, lines of credit, or even credit card processing – it hinders investment and creates a cash-based system with high fees for armored car services and cash management.

I wanted to talk about Tax Code 280E specifically. Why was this tax code in particular created and how does this one tax code financially hinder the cannabis industry so detrimentally?

That’s a great point. Let’s delve into Section 280E of the tax code. It might seem like a random hurdle, but it dates back to the 1980s. Back then, a convicted cocaine trafficker tried to deduct his business expenses from his tax return. Section 280E was a direct response, essentially saying ‘no tax breaks for drug trafficking.’ The problem is that cannabis is still federally classified as a Schedule I drug, putting it in the same category as heroin. So, even though these businesses are state-legal and completely above board, they get lumped in with illegal drug operations.

This is where it gets financially crippling. Section 280E prevents cannabis businesses from deducting normal business expenses, like rent, employee salaries, or even advertising costs. Imagine running any other business and not being able to deduct those things! It dramatically inflates their taxable income, pushing them into a much higher tax bracket than other industries. This translates to a significant chunk of their profits going straight to the IRS, hindering growth and making it difficult to compete.

With cannabis finally being rescheduled (eventually) how do you see this major reform impacting or changing the laws and prohibitions surrounding FDIC-insured institutions working with cannabis companies?

Rescheduling cannabis could be a game-changer for the industry’s financial landscape. Currently, the federal classification as a Schedule I drug keeps most FDIC-insured banks away. They fear running afoul of federal law, even if the business operates legally at the state level. But if cannabis is rescheduled to a lower classification, like Schedule III, it would provide more federal clarity.

Think of it like this: Schedule III includes medications with accepted medical uses, but that still require a prescription. It removes the association with dangerous drugs like heroin. This change could significantly reduce the risk for banks, making them more comfortable serving cannabis businesses. We might finally see them open their doors to this booming industry, offering much-needed access to traditional banking services.

It’s important to note that rescheduling alone might not be a silver bullet. There could be additional legislative hurdles, but it would be a major step forward. With federal recognition of cannabis’ medicinal properties, the path to safe and secure banking for cannabis businesses seems much brighter.

Whenever the effects of cannabis rescheduling to Schedule III do eventually take place, would the many problems caused by Tax Code 280E still exist or become something of the past?

Rescheduling cannabis to Schedule III would undoubtedly be a financial boon for the industry. Eliminating 280E’s limitations would provide cannabis companies with a much-needed tax advantage. However, it’s important to acknowledge that this positive step might also introduce some unintended effects.

First, the Schedule III classification still presents hurdles. While some medical uses are recognized, companies need rigorous and expensive FDA approval for specific claims, limiting their ability to market products with these benefits. Additionally, even for non-medical products, interstate commerce remains a significant challenge.

Cannabis’ illegality at the federal level creates a complex web of state-by-state regulations. Rescheduling wouldn’t automatically change this. Businesses might face new limitations on transporting cannabis across state lines, potentially encountering border crossing restrictions, tariffs, and other unforeseen excise taxes.

While the good news is that FDA approval wouldn’t be required for products without medical claims, responsible marketing will remain crucial. Companies would be able to freely sell various cannabis products as long as they avoid medical assertions, noting that state-level regulations on testing, labeling, and distribution for adult-use products may still apply. Even with more freedom, companies need to carefully navigate their inclusion of suggestive language that implies medical benefits to avoid FDA scrutiny.

Overall, rescheduling to Schedule III offers significant benefits, particularly in the financial realm. It loosens restrictions on the adult-use market and allows cannabis businesses to operate with greater stability, reinvest profits into growth and research, and compete fairly in a normalized tax environment.

This, in turn, attracts investors and fuels innovation, ultimately weakening the illicit market that thrives on the current financial disadvantages faced by legal cannabis businesses. Recognizing that the path to full normalization might still have some unintended hurdles, careful planning and navigating this complex landscape will be crucial for the industry’s continued success.

Thank you for the great interview, readers who wish to learn more should visit the Nevada Chamber of Cannabis or Apex Advisors.