CAN NAB I S I N D USTRYS E RVICE S

Marcum is one of the largest independentaccounting and advisory firms in the country,ranked among the top 15 nationally. Since 1951,Marcum has provided accounting and advisoryservices to thousands of companies in a diversearray of industries, which rely on our nuancedunderstanding of their businesses and therelevant regulatory and reporting frameworks inwhich they operate to help them achieve theirobjectives.

Marcum's Cannabis Services Group is an industry leader recognized by trade andprofessional organizations as a subject matter expert. Team members hold key committeepositions with industry associations and are frequent presenters at cannabis conferences.

Marcum’s Cannabis Services professionals are trusted advisors who enable cannabis clientsin every segment of the industry – from seed to sale – to manage the highly complex tax andaccounting issues that are unique to cannabis.

Marcum LLP was among the first national accounting and advisory firms to establish apractice dedicated to serving the cannabis industry. Marcum’s Cannabis Services Groupprovides support, objectivity and expertise to operating cannabis businesses and thoseplanning to enter and succeed within this emerging industry. We offer a broad spectrum ofaccounting, financial, and consulting services that give investors, owners, and ancillarybusinesses the insight they need to grow and succeed.

CANNABIS SERVICESMarcum’s Cannabis Services Group is established in major markets throughout the country,including numerous states where cannabis has or will become legal for medical and/orrecreational use. Marcum is also licensed to operate in Canada. Services encompass everyaspect of operation and regulation:

n Audit & assurance (both GAAP& IRS)n Business structuren Capitalizationn Cash flows, forecasts & projectionsn Compliance & internal controlsn Forensic & litigation supportn Investigative due diligencen Mergers & acquisitionsn Specialized consultingn Tax & planning under IRC section 280e

n U.S. & Canada public company audits

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Services extend to all ancillary businessessupporting the cannabis industry, including:

n Accessoriesn Cultivators & cultivation suppliersn Delivery providersn Distributorsn Equipmentn Hempn Insurancen Retailingn Securityn Waste Management

WHY CHOOSE MARCUM?

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TOP TAX & ACCOUNTING CHALLENGESFOR CANNABIS OPERATORS

n Accounting Systems - determination ofclassifications and allocations, detailed requirements tomaximize allowable deductions

n Administration of Taxes Other than IncomeTax - sales taxes, excise taxes, cultivation taxes, etc.

n Banking- establishing relationships with financialinstitutions able to transact business within thecannabisindustry

n Cash Flow - best practices for handling cash fromanaccounting and tax perspective, including requiredIRS reporting

n Entity Type - entity choices from a federal and statestandpoint

n Internal Differences - cultivation, manufacturing,distribution, retail/dispensary, other ancillary businesses

n Internal Control Structure - development ofproper internal controls while keeping in mindefficiency and company structure

n Inventory & Sales - proper accounting policies andprocedures

n Legal & Operational Structure - choices tomaximize exibility and to comply with federal, state, andlocal laws,including licensing

n Tax Planning for Business Expenses (IRC§280E) - separate businesses, maximizing cost ofgoods sold

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Issues Unique to the Cannabis Industry

Marcum Group is a family of organizations providing a comprehensive range of professionalservices including accounting andadvisory, technology solutions,wealth management, and executiveand professional recruiting.

These organizations include:

Marcum LLP

www.marcumllp.com

Marcum Technology LLC

www.marcumtechnology.com

Marcum Search LLC

www.marcumsearch.com

Marcum Financial Services LLC

www.marcumfs.com

Marcum Wealth Management LLC

www.marcumwealth.com

Marcum Bernstein & Pinchuk LLP

www.marcumbp.com

Marcum RBK (Ireland) Limitedwww.marcumrbk.com

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In addition to the customary business challenges faced by any company in an emergingindustry, operators in the cannabis industry must contend with the unprecedentedchallenge of conflicting legal parameters at the state and federal levels. The issuesconfronting growers, distributors,retailers/dispensaries and other ancillary services arecomplex and include:

Taxes - Under Internal Revenue Code Section 280E, “No deduction or credit shall beallowed for any amount paid or incurred during the taxable year in carrying on any tradeor business if such trade or business (or the activities which comprise such trade orbusiness) consists of trafficking in controlled substances (within the meaning ofschedule I and II of the Controlled Substances Act) which is prohibited by federal law orthe law of any state in which such trade or business is conducted.” Although limited insize, this section has a dramatic impact on the taxability of net income and the ultimateprofit generated by any entity operating in the cannabis arena.

Security - Companies doing business in the cannabis arena are required to haveextensive security procedures relating to background checks for all current and futureemployees, Board members, and other stakeholders; safeguards against theft; andprocedures to monitor the production and sale of product. Industry operators must beprepared to develop, implement, and annually document all security measures, includingvideo surveillance, record maintenance, and a host of others. The regulations arecomplex and continuously changing, with states promulgating new rules on an ongoingbasis.

Operations - Every state that permits cannabis operators has ultra-strict guidelinesto monitor the operation “from seed to sale” and at each mile marker along the way.Operations require comprehensive systems that allow growers, distributors, retailers, andothers to account for all of their revenues and expenses, in addition to the product itself.Even as the cannabis industry accelerates, there remains tremendous uncertainty in themarketplace and changing rules at every level – state, county, and municipal.

Banking - Under their federal charters, many financial institutions are unable toaccept dollars earned in the cannabis industry, and many of these same banks havebegun closing the accounts of long-time customers that have chosen to get involved inthis new industry.

3 Cash Flow - Including restrictions on the deductibility of expenses under IRS section280E, which can impact cash flow significantly. Items normally standard as cost of goodssold will be subject to IRS scrutiny, such as employee salaries, utilities, marketing &advertising, routine repairs and maintenance, rent, insurance, and payments tocontractors.

2 Capital - Limited sources of capital are available to operators in the cannabis industrybecause many financial institutions’ underwriting requirements preclude investing incannabis.

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1 Anti-Money Laundering - In addition to “Knowing Your Customer,” which isrequired by all financial institutions, any entity doing business in the cannabis space isrequired to meet certain anti-money laundering criteria including, but not limited to,accounting for cash deposits, having a record of customers, tracking mass shipments tosuppliers, and maintaining a record of any red flags which might occur during thebusiness’s normal course of operations.

FOR MORE INFORMATION, PLEASE CONTACT:

David Bukzin, CPANational Leader Cannabis Services212.485.5600David.Bukzin@marcumllp.com