A troubling trend is emerging in the world of cannabis: established payroll and HR companies are suddenly dropping clients in the space, including many who are very remotely connected to the industry.
Unfortunately, provider shut outs apply not only to dispensaries and growers, but also to many other businesses that don’t necessarily sell, grow or transport weed, such as medical offices, technology platforms, and pharmaceutical operations.
To make matters even worse, cannabis companies are often given as little as 30 days to find and onboard a new provider that can address their specific needs. This concerning trend is putting cannabis companies in precarious positions as they scramble to ensure that paychecks and tax payments aren’t disrupted by sudden changes in payroll workflow.
"I’ve never witnessed anything quite like what’s occurring in the cannabis industry now. Having legitimate companies being dumped by their HR and payroll providers is a hugely overlooked and rampant issue,” says Keegan Peterson, founder and CEO of Wurk, a technology company that creates payroll and HR solutions for the cannabis industry. Peterson was inspired to create Wurk after learning that a friend’s company was dropped six times by mainstream payroll providers.
“This issue is another symptom of the disconnect between federal and state legislation around the legality of cannabis,” Peterson explains.
A Scheduling Problem
Major payroll and HR companies are backed by national banks that must abide by federal laws – which still classify cannabis as a Schedule I substance. This creates substantial obstacles for payroll companies operating in legal states when they try deposit funds into a national bank, because they can’t prove that cannabis companies are compliant with state laws.
To further complicate matters, reporting laws make it complex for banks to underwrite a cannabis company, and there is still no federal framework for providing legal cannabis businesses with financial services. Additionally, both banks and payroll providers can be fined for engaging with the industry by federal watchdogs.
Rather than figuring out a way around these obstacles, many large payroll providers are simply (and understandably) refusing to get involved.
According to Peterson, this dissonance generally plays out in one of two ways when it comes to payroll providers.
For a big-box company like Automatic Data Processing (NASDAQ: ADP), corporate messaging is strict about not supporting the cannabis industry. Notwithstanding, salespeople on the ground are still selling their products to legal cannabis companies and even advising those companies to downplay their involvement in the industry in order to meet sales targets.
As big banks behind these payroll companies conduct routine audits, they inevitably learn about their connections to cannabis businesses and force these payroll providers to cut ties with their marijuana clients.
When it comes to smaller payroll and HR companies, which often want to be in the cannabis space but are also later barred by banking partners from engaging with them, there's only way to resolve this: federal legalization of cannabis.
But the timing of this event is hard to predict.
So, can be done in the meantime?
Stacey Newell, director of HR at Green Dragon, one of the largest cannabis companies in Colorado, has over 20 years of experience in human resources.
She explains that operating in the cannabis industry brings a multitude of unique challenges. And so, Newell turned to Wurk after an unexpected call from her organization’s payroll provider.
“We’re not interested in working with your company anymore,” was all they told her.
She adds: “We were notified out of the blue and completely shocked and unprepared… Our former payroll company gave us only 30 days to find a new provider and set up over 180 employees in their system, I didn't think it would be possible.”
Wurk was able to get irs implementation team on board very quickly and within 30 days, Green Dragon’s operations were set up without any disruption to business systems.
As the cannabis industry grows at a furious pace, cannabis-ancillary technology companies are being created to support various business needs, from point-of-sale to staffing and recruiting to payroll and HR management.
Significant progress has been made in recent years to support cannabis businesses, but the whole ecosystem still is not operating by the same standards as other mainstream industries. That being said, it behooves cannabis companies to consider using business services that are geared specifically to support the cannabis industry, as they are equipped to handle all of the complicated and fluctuating regional regulations that plague the entire market.
It's certainly advantageous to choose a provider that's that is well versed in the issues within the cannabis industry than partnering with an inexperienced company that may initially promise you success but drop you as soon as problems arise.
Facing similar issues with your cannabis business? Do tell us about them.
Photo by Javier Hasse.