[USA] Why Mainstream Payroll Providers Are Dropping Cannabis Businesses

Established payroll and HR companies appear to be increasingly dropping clients in the cannabis business space, including companies who are only remotely connected to the industry, Benzinga reports.

Provider shut outs are reportedly being experienced beyond dispensaries and growers, by many businesses like medical offices, technology platforms, and pharmaceutical operations that do not sell, grow or transport cannabis.

Adding to growing concerns, cannabis companies can be given as few as 30 days to find and onboard a new provider suitable for their specific needs. This apparent trend puts cannabis companies in precarious positions in the rush to ensure sudden changes in payroll workflow do not disrupt paycheques and tax payments.

Keegan Peterson - the founder and CEO of Wurk, a technology company that creates payroll and HR solutions for the cannabis industry - said, “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.” 

Mr Peterson founded Wurk after discovering that a friend’s company had been shut out by mainstream payroll providers six times.“This issue is another symptom of the disconnect between federal and state legislation around the legality of cannabis,” Mr Peterson said.

Major payroll and HR companies have the backing of national banks who are required to abide by federal laws. Cannabis is still classified as a Schedule I substance. Because they can’t prove that cannabis companies are compliant with state laws, huge obstacles for payroll companies operating in legal states appear when they try to deposit funds into a national bank.

Reporting laws also make it complicated for banks to underwrite a cannabis company. In fact, there remains no federal framework for providing legal cannabis businesses with financial services. Payroll providers and banks can face federal watchdog fines for engaging with the industry.

Instead of dealing with such obstacles, understandably, many large payroll providers refuse to get involved.

Mr Peterson reportedly said the issue tends to play out in one of two ways regarding payroll providers:

Corporate messaging is strict about not supporting the cannabis industry for a big-box company like Automatic Data Processing. Despite this, their salespeople continue selling their products to legal cannabis companies and advising that such companies downplay their involvement in the industry so they can meet sales targets.

When the big banks behind these payroll companies conduct routine audits, they learn about their connections to cannabis businesses and force the providers to sever ties with their cannabis clients.

Smaller payroll and HR companies - who often want to be in the cannabis space but find themselves barred from dealing with them by banking partners - believe the only way to resolve this is by the federal legalization of cannabis. However, is hard to predict when this might occur.

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 says operating in the cannabis industry brings many unique challenges. Ms Newell sought help from Wurk after a call from her organisation’s payroll provider informed her that “We’re not interested in working with your company anymore.”

“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,” she said.

Wurk quickly got its implementation team on board and Green Dragon’s operations were set up, without any disruption to business, within 30 days.

The cannabis industry is rapidly growing, to support various business needs - from payroll and HR management to point-of-sale to staffing and recruiting - cannabis-ancillary technology companies are being created.

Significant progress has been made but the industry does not yet operate by the same standards as other mainstream industries. It will benefit cannabis companies to consider using business services tailored to support the cannabis industry, as they are best suited to handle the complicated and fluctuating regional regulations the market must contend with.

Source: Benzinga