Most valuation disagreements are not caused by mechanical errors. They arise when reasonable-looking assumptions are accepted without enough scrutiny.

That distinction matters because valuation methodologies organize judgment rather than replace it. Forecasts, normalization adjustments, and compensation benchmarks can all be technically supportable while still overstating or understating value. This issue is especially important in closely held businesses where standard valuation inputs can become unreasonable if they are not tested against economic reality.

1. Uncritical Reliance on Management Forecasts

Management projections are often treated as the best available estimate of future performance because management knows the business better than outside parties. That premise is reasonable, but incomplete. Management also has incentives, biases, and strategic objectives that can shape forecasts.

A projection may reflect a plan, a lender presentation, a litigation position, or a transaction narrative rather than a probability-based expectation. Assessing whether a forecast is realistic requires probing its purpose and testing projected performance against historical results, capacity constraints, and required reinvestments.

The valuation consequence is direct. Overstated forecasts inflate expected cash flow. While some practitioners adjust the cost of capital to bring risk and reward back into balance, a cleaner solution is generally to use forecasts that reflect the most likely outcomes. Practitioners should not reject management forecasts by default. They should determine whether the forecast is supported by credible economic assumptions.

2. Assuming Customer Relationships Are Fully Transferable

Historical customer retention can create the appearance of durable enterprise goodwill. In closely held businesses, that conclusion may be premature. Customers may remain because of the owner, not because of the institution.

This distinction matters most when relationships are personal, informal, or concentrated. A business may have stable revenue for years while still depending on a founder’s reputation, technical knowledge, or direct involvement in customer issues.

The valuation issue is transferability. Revenue tied to the enterprise is generally more durable than revenue tied to an individual. If customer loyalty is personal, an ownership transition may introduce risk that historical retention rates do not reveal. The consequence is often overstated earnings durability and understated risk, affecting projected revenue, discount rates, and the allocation between enterprise goodwill and personal goodwill where relevant.

In one prior engagement, the subject company derived nearly all of its revenue from a related entity under common ownership. To address the risk that an unrelated buyer might not have been able to preserve that relationship after a transaction, an adjustment was incorporated into the cost of capital. Without that adjustment, the valuation would have implicitly assumed the underlying revenue stream was fully transferable and economically durable, despite meaningful uncertainty about whether those cash flows could be maintained in an arm’s-length ownership structure.

Practitioners should examine how customer relationships are maintained. Contractual protections, third-party relationships, and multiple points of customer contact provide stronger evidence of transferable goodwill than retention history alone.

3. Assuming Growth Does Not Require Corresponding Reinvestment

Growth is often treated as a valuation positive, but growth consumes resources. Revenue expansion typically requires some combination of labor, working capital, sales effort, facilities, or equipment.

A common modeling weakness is projecting higher revenue while holding reinvestment needs or margins at levels that reflect the company’s current scale. That may be unrealistic. A business can be efficient at one size and strained at the next. If a company is already operating near capacity, growth may require increased spending to support greater sales volume.

The valuation consequence is overstated cash flow. Revenue growth that requires substantial reinvestment may create less value than revenue growth that can be absorbed by existing infrastructure.

Practitioners should evaluate growth and reinvestment together. When a client conveys expectations for the former, questions surrounding the latter become increasingly relevant.

4. Blind Reliance on Market Compensation Data

Market compensation data can be useful, but it is sometimes applied too mechanically, treating a benchmark as a substitute for analyzing the owner’s actual role and the company’s economic capacity.

Closely-held business owners often perform several functions that do not map cleanly to a single market title. They may act simultaneously as CEO, sales lead, operations manager, technical expert, relationship manager, and final decision-maker. A single benchmark may understate or overstate the cost of replacing that contribution.

Company-specific economics also matter. A compensation level may be supported by a published database but remain unrealistic for the subject company’s size, profitability, geography, or staffing model.

The valuation consequence is distorted normalized earnings. Overstated replacement compensation suppresses value; understated replacement compensation inflates it.

Practitioners should use compensation data as a reference point, not a conclusion. The analysis should consider the comparability of benchmark job descriptions and the economic realism of such data points.  

Economic Credibility Is the Test

These issues share a common problem: accepted inputs are treated as though they validate themselves. A credible valuation does not merely ask whether an assumption is customary or supportable. It asks whether the assumption reflects how the business can realistically be operated, transferred, or scaled.

That is where valuation judgment matters most. Methodology and data provide structure, but economic credibility determines whether the conclusion can withstand scrutiny.

If you have questions about how valuation assumptions affect your business, transaction planning, or litigation support needs, contact HBK CPAs & Consultants to speak with a member of our Valuation Services team.

HBK CPAs & Consultants has earned ClearlyRated’s Best of Accounting® Award for 2026 – a distinction determined entirely by client ratings, with no nominations or judging panels involved. Only the voices of the clients we serve every day.

A Measure of Client Confidence

In this year’s survey, HBK clients gave us satisfaction scores of 9 or 10 out of 10. Our Net Promoter® Score came in at nearly double the industry average, reflecting the trust and confidence our clients place in the professionals who serve them across 20 offices in five states.

“Earning this recognition tells us that our clients feel heard, supported, and well-served. That’s the standard we hold ourselves to, and it’s a credit to every professional across our firm who shows up with that commitment each day.”

– Thomas M. Angelo, Managing Principal and Chief Executive Officer, HBK CPAs & Consultants

What the Best of Accounting Award Means

ClearlyRated’s Best of Accounting® Award recognizes accounting firms that have demonstrated exceptional service quality based exclusively on ratings provided by their clients and employees. The award provides statistically valid and objective service quality benchmarks for the accounting industry, revealing which firms deliver the highest quality client experience. Winners are featured on ClearlyRated.com, an online business directory that helps buyers of professional services identify firms with proven service records.

Industry Recognition

“It’s an honor to introduce the 2026 Best of Accounting award winners,” said Baker Nanduru, CEO of ClearlyRated. “These companies keep client experience front and center, pushing the envelope in innovative service approaches. Their work is shaping the future of accounting, and it’s a privilege to recognize their achievements. Congratulations to all!”

This recognition comes alongside HBK’s third consecutive appearance on USA TODAY and Statista’s list of America’s Most Recommended Tax & Accounting Firms for 2026 – further evidence of the consistency and quality our clients experience.

Looking Ahead

Receiving this recognition is meaningful, but its greater value lies in what it represents: a direct line of feedback from the clients who trust us with their most important business decisions. The insights generated through ClearlyRated’s survey process help us understand where we are excelling and where we can continue to grow. Those insights are already informing how we invest in our teams, enhance our proactive advisory approach, and deepen our industry expertise.

We are grateful to every client who took the time to share their experience, and to the HBK team members whose commitment to service quality makes recognition like this possible.

About ClearlyRated

ClearlyRated is the leading CX platform designed specifically for professional services firms. We help firms leverage the Net Promoter® Score survey methodology to gain deep insights, identify strengths and weaknesses, fuel data-driven action, build reputation, and future-proof their organizations with third-party validation. Learn more at clearlyrated.com/solutions/.

About Best of Accounting

ClearlyRated’s Best of Accounting® Award recognizes accounting firms that have demonstrated exceptional service quality based exclusively on ratings provided by their clients and employees. The award program provides statistically valid and objective service quality benchmarks for the accounting industry, revealing which firms deliver the highest quality client and employee experience. Winners are featured on ClearlyRated.com.

The U.S. Supreme Court recently declined to hear a case that could have reshaped the entire cannabis industry. For cannabis business owners who’ve been watching this legal challenge closely, hoping for clarity on federal prohibition, this decision leaves the regulatory landscape exactly where it’s been—complicated, challenging, and full of operational hurdles.

If you’re running a cannabis business, you’re already familiar with the daily reality of operating in a federally illegal space while complying with state regulations. You’ve likely struggled with banking access, tax disadvantages, and the constant uncertainty about what federal enforcement might look like. This Supreme Court decision doesn’t change those challenges—but it does underscore the importance of having expert guidance to navigate them strategically.

The weight of operating in this gray area isn’t just about compliance. It’s about making sound financial decisions when the rulebook keeps shifting, protecting your business investments when traditional protections don’t apply, and planning for growth when federal policy could change at any moment.

Understanding the Supreme Court Decision

On December 9, 2024, the Supreme Court denied certiorari in Verano Holdings Corp. v. Drug Enforcement Administration, ending a legal challenge brought by several cannabis companies against federal marijuana prohibition. The petitioners—including Verano Holdings, Wiseacre Farm, and Tilt Holdings—had argued that the federal government’s classification of marijuana as a Schedule I controlled substance violated constitutional principles including the Commerce Clause and the Tenth Amendment.

The case had progressed through the First Circuit Court of Appeals, which upheld dismissal of the companies’ claims in April 2024. The appeals court found that the companies lacked standing to challenge the Controlled Substances Act because they couldn’t demonstrate concrete injury from the law itself—their harms stemmed from choosing to violate federal law rather than from the law’s existence.

By declining to hear the case, the Supreme Court let the lower court ruling stand without weighing in on the constitutional questions. This means federal prohibition remains intact, and the rescheduling process currently underway at the DEA continues to be the most viable path toward federal policy reform.

We Understand the Frustration

We work with cannabis business owners every day who are building legitimate, compliant operations while facing obstacles that businesses in other industries never encounter. The hope that a Supreme Court decision might level the playing field was real—and the disappointment of this denial is understandable.

You’re not just managing inventory and employees. You’re navigating 280E tax burdens, limited banking options, interstate commerce restrictions, and the reality that your business model could be upended by federal policy changes at any time. That’s an extraordinary amount of strategic complexity on top of normal business operations.

At HBK CPAs & Consultants, we’ve developed deep expertise in cannabis accounting and business advisory specifically because we recognize how much specialized knowledge this industry requires. Our Cannabis Solutions team has helped cannabis operators across multiple states manage these unique challenges while building sustainable, profitable businesses.

What This Decision Means for Your Operations

Tax Strategy Remains Critical

With federal prohibition still in place, IRC Section 280E continues to prevent cannabis businesses from deducting ordinary business expenses on federal tax returns. This means your tax burden is significantly higher than businesses in other industries—often by hundreds of thousands of dollars annually.

Strategic tax planning becomes essential. Proper cost of goods sold (COGS) calculation, inventory management, and business structure decisions can dramatically impact your bottom line under 280E constraints. Working with advisors who understand the nuances of cannabis taxation isn’t optional—it’s a competitive necessity.

Banking and Financial Services Continue to Be Complex

The decision doesn’t change the banking challenges cannabis businesses face. Most traditional banks remain reluctant to serve cannabis operators due to federal money laundering concerns, leaving many businesses to work with specialized credit unions or cannabis-friendly financial institutions.

This affects everything from daily operations to long-term capital planning. Cash management becomes a security and compliance issue. Access to business loans, lines of credit, and investment capital remains limited compared to other industries. Your financial infrastructure requires careful design and ongoing management.

State Compliance Takes on Greater Importance

With no relief at the federal level, state licensing and compliance become even more critical to your business’s legitimacy and longevity. Each state’s regulatory framework differs significantly—from cultivation limits to testing requirements to retail restrictions.

Maintaining pristine compliance records protects your license and your investment. It also positions you more favorably if and when federal policy does shift, whether through rescheduling or other legislative action. The businesses that will benefit most from future federal reforms are those with strong compliance histories today.

The Rescheduling Process Offers the Most Realistic Path Forward

While the Supreme Court closed one door, another remains open. The DEA proposed rescheduling marijuana from Schedule I to Schedule III in May 2024, following a recommendation from the Department of Health and Human Services. This administrative process could fundamentally change cannabis businesses’ federal tax treatment.

If marijuana moves to Schedule III, 280E would no longer apply, allowing normal business deductions. This would represent the most significant federal policy shift since state-level legalization began. However, the rescheduling process involves public comment periods, scientific review, and potential legal challenges—meaning implementation timelines remain uncertain.

Strategic Planning in an Uncertain Environment

The Supreme Court’s decision reinforces that cannabis business owners must plan for both current reality and future possibilities. This requires a dual approach:

Optimize for today’s rules. Maximize tax efficiency under 280E, build robust compliance systems, develop banking relationships that work within current constraints, and structure operations to withstand regulatory scrutiny.

Position for tomorrow’s opportunities. Monitor rescheduling developments, maintain financial records that would support traditional lending if banking access improves, consider expansion strategies that could activate when interstate commerce becomes viable, and build business models that can scale with regulatory liberalization.

This balancing act requires sophisticated financial planning and industry-specific expertise. The decisions you make about entity structure, accounting methods, expense allocation, and capital deployment have long-term implications that extend well beyond this year’s tax return.

Your Business Deserves More Than Generic Advice

Cannabis businesses face challenges that generic accounting and consulting services simply can’t address effectively. The intersection of federal prohibition, state-level regulation, and complex tax treatment creates a strategic landscape that demands specialized knowledge.

You shouldn’t have to navigate this alone or wonder whether your advisors truly understand the unique pressures your business faces. The most successful cannabis operators we work with are those who recognize early that industry-specific expertise provides a genuine competitive advantage.

Ready to work with advisors who understand exactly what you’re dealing with? Schedule a consultation with HBK’s Cannabis Solutions team to discuss how strategic planning can help your business thrive despite regulatory uncertainty.

What Success Looks Like Despite Federal Prohibition

Cannabis businesses are succeeding right now—not by waiting for federal policy to change, but by building operations that work within today’s framework while remaining agile enough to capitalize on future opportunities.

These successful operators have tax strategies that minimize 280E impact, compliance systems that protect their licenses, financial infrastructure that works despite banking limitations, and growth plans that account for multiple regulatory scenarios. They’re making confident decisions because they have advisors who understand both cannabis industry dynamics and sophisticated business strategy.

Your business can achieve this same clarity and confidence. You can move forward with expansion plans, operational improvements, and strategic investments knowing you’re making informed decisions based on current regulatory reality and realistic future scenarios.

The Supreme Court’s decision doesn’t determine your business’s fate—your strategic planning does.

Amy Dalen and Ben DiGirolamo discuss the significant changes brought about by the One Big Beautiful Bill (OBBB) in relation to individual and business tax provisions. They delve into the major tax updates, such as the permanent extension of the 37% top tax bracket, adjustments to the standard deduction, and the introduction of new credits and deductions. Additionally, the video outlines the implications of these changes for taxpayers and businesses, and offers insights on how HBK’s tax advisory services can assist in navigating these updates effectively.

Recently, Presidential Candidate Kamala Harris proposed a plan to lower housing costs that would be funded primarily with significant changes to the estate tax law and increase the corporate tax rate from 21% to 28%. Harris is calling for creating a $40 billion fund for her housing program. 

Among the proposed changes discussed below is to lower the estate exemption to $3.5 million and increase the estate tax rate to as high as 65%.

Back in 2018, the tax law changed to double the gift, estate and generation skipping exemption to $11.18 million from $5.6 million. Adjusted for inflation, the current exemption is $13.61 million. While the change provided a major opportunity to pass on a substantial amount of wealth tax-free, there is a catch: It is a limited time offer. This increase in the estate tax exemption is set to sunset at the end of 2025, meaning the exemption is scheduled to be cut in half to between $7.0 million to $7.5 million. Now Harris is proposing to further reduce the exemption to $3.5 million.

Currently just 0.2% of U.S. adults are subject to the Federal estate tax according to IRS data. There were 2,570 taxable estate tax returns filed in 2019 collecting $13.2 billion. The Tax Policy Center estimates that just over 7,100 estate tax returns will be filed for people who died in 2023, of which about 4,000 will be taxable. The percentage of U.S. adults subject to the estate tax remains in the 0.2% range.

Today a married couple could pass up to $27.22 million without a Federal estate tax. Under the sunset provision of the 2018 tax law, a married couple could pass about $14 million on to their family without estate tax in 2026 and after. Under Harris’ proposal the amount a married couple could pass to their family without estate tax would be reduced to $7 million. 

The number of individuals who would be subject to the Federal estate tax with a $3.5 million exemption would significantly increase. It could be you.

These are the proposed changes that would apply to estates:

• Increasing the estate tax rate to 55%, 60% and 65% (from the current 40%).
• Reduce the gift, estate and GST exemption to $3.5 million.
• Limit the annual exclusion to $10,000 per donor with any overall cap if $20,000 per donor
• Implement a 10% surtax on estates over $1 billion.
• Require GRATs to have a 10-year life and a remainder interest equal or greater than 10%.
• The deemed owner of grantor trust assets would include those assets in their gross estate; any distribution to a beneficiary during the term of the deemed owner would be treated as a gift and if a grantor trust is turned off and it becomes a non-grantor trust during the deemed owner’s lifetime would be treated as a gift. Existing grantor trusts would be grandfathered.
• Impose the generation skipping transfer tax on transfers to a family member not born as of the date the trust was formed.
• Limit valuation discounts on the transfer of non-business assets.
• A new income tax surcharge on high-income estates and trusts, consisting of a 5% tax on the portion of the modified adjusted gross income (MAGI) that exceeds $200,000, and an additional 3% tax on the portion that exceeds $500,000.

What Should You Do?
The estate planning process starts with understanding your objectives, and those of your family. It considers a wide range of issues and what-ifs, questions that require self-examination, research, and input from a variety of sources. 

There are many issues to consider in designing an estate plan that will transfer your assets. What is the most tax-advantaged way for you and your beneficiaries to transfer your assets? What is included in your will and who are the beneficiaries? Who is replacing you to govern your assets? Who is your trustee, and who would be the successor trustee if the first doesn’t survive you? What is the duration of your trust and what are the instructions for when that trust expires?

Tax planning to mitigate the impact of increases in estate taxes could include:

1. Consider making gifts to family members before 2026 taking advantage of the large exemptions before it may be reduced in 2026 or before.
2. If you are a business owner, consider gifting ownership in the business before 2026 with possible discounts to value for lack of control and marketability.
3. If you are starting a new business, consider having children or grandchildren as part of owners at the time the business is formed.
4. Consider making gifts in trust, possibly multi-generational trusts. There are many types of trusts to consider depending on your personal and family circumstances, including SLATs, GRATs, BDITs, QPRTs, CRTs, CLTs and more.
5. Consider adopting grantor trusts whereby the grantor pays the income tax on the trust income, allowing the trust assets to grow unimpaired by income taxes.
6. Consider more aggressive funding of 529 education plans for children and grandchildren.
7. Consider if you should own more life insurance coverage and evaluate any existing life insurance policies owned.
8. If you own life insurance in a trust now, consider gifting enough in the trust to fund future premiums without having to make additional gifts to the trust in the future.
9. Consider charitable planning in your estate plan.
10. Consider if it makes sense to pay gift taxes now.

The proposed effective date is after the date of enactment. Normally tax legislation passed in the initial year of a new administration occurs in the fall. However, it is possible for changes to the tax law to be effective retroactively to the first day of the year the legislation passes. In the initial year of a new administration we have not seen such sweeping tax law changes being retroactive to the beginning of the year, however it is legally possible. 

We have just over 16 months before January 1, 2026. However, if these proposals do become the law of the land and are effective January 1, 2025, we only have 4 months to plan. 

Let’s get together to evaluate your estate plan and the implications of increased estate tax and how to mitigate the impending storm of increased taxes. We can help.

Additional Sources: https://www.wealthmanagement.com/high-net-worth/american-housing-and-economic-mobility-act-2024-explained