Avenu Helps Cities Manage Emerging Cannabis Industry

In years past, Cathedral City, a desert community of 52,000 people located between Palm Springs and Rancho Mirage, was more well-known for its golf courses than its cannabis industry. Now, in the wake of the passage of Prop. 64 last November, a new “Green Rush” has the potential to carve a niche in the Coachella Valley landscape, says MuniServices.

“Being proactive in working with our cannabis industry is the key to everyone’s success,” said Kevin Biersack, the accounting services manager with Cathedral City. “I think a lot of cities are waiting to see what happens with the cannabis industry. In our City, we are partnering upfront with our cannabis businesses to ensure compliance with the City’s ordinances.”

As of January 2017, nine medical marijuana dispensaries are open and operating in Cathedral City. An additional 11 dispensaries have submitted applications. By proactively working to help cannabis manufacturers, transporters and retailers comply with tax levies and municipal codes, Cathedral City – in partnership with MuniServices, one of the nation’s leading municipal tax auditors – is helping legitimize the rapidly growing industry to increase their community’s revenue.

“It’s critically important for cities to build good relationships with cannabis dispensaries, and to understand how they operate,” says Chris Wills, an auditor with MuniServices whose previous medical marijuana dispensary audits for municipalities have provided him with unique institutional knowledge on the regulation and taxation of medical marijuana. “This gives us an opportunity to communicate how health and safety codes, distribution regulations and financial accounting apply to their businesses.”

Through this hands-on process, the Cathedral City-MuniServices teams join business owners onsite to understand how they receive and distribute cannabis, and how they track inventory and sales. Along the way, education is provided to identify both positive and risky practices and to advise business owners on how to better report income and manage inventory.

“Our goal is not only to ensure that the City receives the correct amount of revenue from this levy but also to help to ease the burden of audits on local businesses,” says Wills. “Because of the nature of the industry and the disconnect between state and federal laws, many businesses are heavily cash-oriented due to difficulties with banking. This often leads to problems with weak internal controls and inadequate accounting.”

Although new, the relationship-building approach already has yielded positive results. On the first round of site visits, the teams identified and corrected several dispensaries that were off on their tax calculations. Instances like these are considered successes because the City ends up collecting the right amount of taxes each month, and in this case, the dispensaries stay in compliance.

“So far, everyone is happy,” says Wills. “The City keeps residents happy by monitoring industry operators’ compliance with codes and ordinances. And business owners are happy because they understand what they can and can’t do before, during and after an audit.”