After working in the cannabis industry for five years, Heather Smyth knows firsthand the pitfalls of operating in a cash business. She recalls how a former employer was paid by clients in money orders, Visa gift cards or cash.
Now as director of marketing at Wurk, a workforce management company that serves the U.S. cannabis industry, Smyth empathizes with the employee populations she helps guide.
Although sanctioned at the state level throughout much of the nation, the sale of marijuana still violates federal law. As a result, there are numerous challenges to overcome from an HR and benefits standpoint.
In 2015 Keegan Peterson made a gutsy move to serve an industry that mainstream payroll providers had snubbed or abandoned because the sale of cannabis complicates financial transactions. A friend on the frontline of this activity revealed to him a dire need for solutions around banking, taxes and compliance for cannabis entrepreneurs.
Banking is the operative word. Without it, these businesses will be hard-pressed to offer much of a benefits package to attract and retain talent, not to mention an uphill climb in other areas. As founder and CEO of Wurk, Peterson applied years of experience with human capital management software to help guide this burgeoning industry.
His Denver-based firm has field reps in Indiana, California and Arizona, as well as clients in every regulated market in the U.S. that hope to thrive in the face of uncertain regulatory environments. An expansion into Canada where recreational use of marijuana was recently legalized is also being considered.
Marijuana is legal in some form across 31 states and the District of Columbia, which shows just how large the industry has grown. While most of those states have approved limited use of medical marijuana, about one-third of them have passed laws allowing for recreational use of the drug. They include Alaska, California, Colorado, D.C., Maine, Massachusetts, Nevada, Oregon, Vermont and Washington. Others, including Louisiana and West Virginia, have legalized only cannabis-infused products such as oils or pills. Final rules are still pending in states where medical marijuana laws were recently passed.
Cutting through red tape
Since many cannabis operators don’t have a dedicated HR executive or compliance officer, they’re in need of a trusted partner to provide a myriad of workforce management solutions, reports Smyth. These areas include HR, benefits, payroll, onboarding and scheduling, as well as ensuring compliance with state laws and paying taxes.
Under Section 280E of the Internal Revenue Code, the cost of goods related to selling cannabis or other drugs that are illegal at the federal level isn’t deductible. As a result, Wurk’s clientele ends up “paying six to seven times more than their neighbor in taxes,” Smyth says, describing the arrangement as archaic.
However, there are ways around this obstacle. For example, she notes that business owners can deduct expenses associated with a bud tender rolling marijuana joints in the back of a house during afternoons vs. actually selling them.
While national or mainstream banks have chosen not to become involved in this industry, Smyth explains that credit unions and state chartered banks have stepped up to support compliant businesses with a cannabis license.
The vetting process to land a bank account is a stringent for cannabis operators, most of whom run cash businesses – a dangerous gamble that can place employees in harm’s way. Wurk has a number of clients that are unbanked, but they’re still able to track employees’ time and consent to cash compensation with attendance and payroll systems that establish a paper trail for government audits.
Other banking avenues for cannabis entrepreneurs include going through a holding company, which involve substantial fees, or dealing with a bank on a don’t-ask-don't-tell basis, according to Kirk Miller, VP of risk management cannabis services at Emergent Risk Insurance Services LLC, a San Francisco-based insurance brokerage that has targeted the cannabis industry for nearly two years.
While it’s not illegal for banks to accept cannabis money, he says the real issue is an unwillingness to devote considerable time and resources to filling out a mountain of paperwork to comply with the law. They also may be fearful of the federal government’s power, he adds.
Gleaning strategic insights
Whatever the financial arrangement is with these businesses, technology certainly plays a huge role in helping assess HR and business strategies. For example, Smyth says cannabis businesses can benefit from software whose data and analytics offer insights into where and why operations are losing money or not properly managing talent.
Wurk’s so-called plant touching clients employ primarily hourly workers within cannabis cultivation, extractions and infusions. For these workforces, benefits usually include basic medical and dental plans, whereas a wider variety of choices are typically offered at businesses focused on technology, insurance or legal aspects of the cannabis industry that aren't involved in plant touching.
From managing paid leave policies to addressing employee drug use, employers can expect to have their hands full this year. But these strategies can help.
A cannabis workforce tends to value access to more than the traditional healthcare arena provides, notes Mignon Strong, VP of employee benefits for Emergent. That includes Eastern medicine or homeopathic options, including acupuncture, yoga, massage therapy and meditation, as well as discuss with their physician the use of cannabis treatment for anxiety or physical conditions without being frightened to do so.
Mindful of the high energy and individualism that drive cannabis businesses, Wurk launched a website in August that features creative and edgy aesthetics teeming with icons and white space. Sponge, a design and branding agency, used cannabis imagery as subtle textures, vibrant colors and different graphic treatments to mark the individuality of various featured entrepreneurs.
The website’s visual treatment, messaging and gestalt reflect Wurk’s mission to help the pioneers in this space “avoid pitfalls and focus on their creativity,” according to Paul Brourman, the firm’s founder and chief creative officer.
The scalable platforms serves as a single portal for all communication and transactional needs that Smyth says business owners and their employees will find easy to navigate. They also have access to the EnjoyWurk Spotify account whose playlists are specially designed for cannabis operators.
With access to a central place for anything from benefit elections and onboarding to payroll deductions, cannabis companies are able to elevate employee self-service and streamline HR processes, Strong says.
As with other industries, professional service organizations will appeal to smaller cannabis operators, she observes, though PEOs becomes pricy as they grow into more substantial businesses. Emergent serves as a second opinion and handy resource for its clients that contract with a PEO from the employee benefits side.
Rethinking drug testing
Like coal mining, trucking or construction, cultivating cannabis comes with its share of hazards. Since most cannabis employees have THC in their bodies, the chemical compound in cannabis that produces a euphoric high, Miller believes there’s a practical need to adjust drug policies. “A lot of companies in this space say ‘we don’t care what you do after work, but don’t get high before you come to work,’” he says.
Otherwise, there could be concern about risks associated with job performance and accidents at work. But a related issue involves whether or not employers must accommodate those who use marijuana to treat glaucoma, pain or other medical treatment. “It is something that people are concerned about,” Miller reports.
Unlike most insurance carriers serving cannabis businesses, which are transactional in nature, he says Emergent prides itself on a holistic risk management approach that boasts a 100% closing ratio. “There’s a need for the services and sophistication that we are bringing to this still stigmatized industry,” he says.
If and when the federal prohibition of cannabis ends, however, Miller predicts mainstream brokerages will happily troll for a new crop of battle-scarred clients. “The Marshes and Aon’s are sharpening their swords right now,” he quips, noting a report estimating cannabis value at more than $80 billion in the U.S. by 2025.
For the nation’s cannabis entrepreneurs, a key objective is maintaining one’s composure on shaky federal ground. By handling HR and benefit strategies for cannabis clients that face steep compliance hurdles, Smyth says Wurk ensures that “they can spend their time focusing on what really matters” in their businesses.
