Why HR Vendors Are Avoiding Cannabis Companies

Despite there being a growing number of states legalizing marijuna, many HR platforms won’t provide services to the cannabis industry.

marijuana plant
Cannabis companies may struggle finding HR vendors to work with, but they aren't out of luck

Jess Garrant, HR Manager at Massachusetts-based cannabis dispensary, Solar Therapies, had just joined the HR team at a Boston area cannabis dispensary when she was informed they’d need to find a new human resource vendor —  and fast. The dispensary’s HR team had been using ADP to manage payroll, time and attendance, and applicant tracking but would now be forced to source a new company to handle these tasks.

“It was unpleasant to say the least, and difficult to navigate,” said Garrant.

Turns out, Garrant’s experience is far from a singular one. All across the web and in the cannabis and cannabis-ancillary industry are reports of similar shutouts by big name human resource information systems (HRISs) like Bamboo HR, Paylocity, and ADP. Here’s why.

Federal classification makes marijuana a tricky business

While the majority of states have legalized medical marijuana, and several have done the same for recreational use, the plant remains federally illegal under the Controlled Substances Act (CSA) as a Schedule 1 drug, which can make things pretty confusing. In 2013 the Obama administration sought to clarify their philosophy on the matter with the Cole Memorandum, which advised state prosecutors to refrain from prosecuting marijuana operations with 8 exceptions, including to prevent distribution to minors and to prevent revenue from reaching criminal enterprises.

In other words, the Cole Memo suggested that state agencies use common sense when it comes to marijuana. But whatever sense of increased security the Cole Memo conferred was slashed in 2018 when then Attorney General Jeff Sessions repealed it, once again sending the industry into uncertainty.

HR vendors’ banking connections mean murky water for cannabis companies

Complicating the matter for cannabis companies seeking an HR vendor is that big banks often back HRISs in order to process client payroll and handle direct deposit services.

Cannabis companies and the banking industry have long had a fraught relationship, and it’s not hard to understand why. For one, the federal government oversees all United States banking and credit institutions, which means financial institutions could be hit with a money laundering charge for moving money electronically for cannabis companies. Secondly, the Federal government has been very clear that any money resulting from illegal transactions is not FDIC-insured, thus further increasing the risk for banking institutions.

“Cannabis is federally illegal, so there’s a lot of grey area and red tape when it comes to moving money electronically.”

ADP told Garrant’s former employer that the HR vendor would continue to process payroll until they found a replacement service, but checks would have to be live. “They told us absolutely nobody else could have direct deposit because that’s really the area they worry most about, the electronic funds transfer,” said Garrant. “Cannabis is federally illegal, so there’s a lot of grey area and red tape when it comes to moving money electronically. None of these companies want to be on the hook for violating an anti-money laundering law,” she added.

Finding HR vendors with cannabis experience

Facing this magnitude of risk, it’s easy to see why HR vendors are wary to partner with cannabis companies. But why not just never start, rather than shut out cannabis clients with time?

Garrant said she thought the problem was one of a lack of oversight. “Sales guys are just eager to make the sale and meet their numbers, but then when there’s a corporate audit, the executives say, ‘oh no, we absolutely cannot be working with a cannabis company,’ and you can be dropped just like that.”

While building out the HR program in her current role at Solar Therapies, Garrant wasn’t taking any chances. She decided to work with an HR vendor with extensive cannabis experience from day one. “They’re much more forward-thinking and aware of compliance-related issues,” Garrant said. “Even though cannabis laws vary from state-to-state, many of the regulations are based off of similar rules in other states, and it brings peace of mind to know they’re on top of things.”

“Even though cannabis laws vary from state-to-state, many of the regulations are based off of similar rules in other states.”

HR vendors providing services to the cannabis industry

Despite the challenges of working with big names in HR software, cannabis companies are not out of luck. Here are 4 HR vendors reliably providing services to the cannabis industry.

1. Wurk: This platform launched in 2014 to specifically service the then nascent cannabis industry.

  • Offers payroll and HR services, like scheduling and time keeping
  • Allows electronic filing of taxes on federal, state, and local levels
  • Can make direct deposit and generate pay stubs

2. People Guru: This cannabis-friendly, single platform combines multiple HR and payroll services.

  • Offers benefits management and paperless workflows
  • Long-term payroll banking solution is available for cannabis companies

3. Adaptive HR: With extensive cannabis-experience, this platform can help HR managers organize their HR departments

  • Offers benefits and retirement programs and selection
  • Provides a payroll processing tool

4. Zenefits: While not a cannabis-exclusive tool, Zenefits has a long history of supporting the HR and payroll needs of cannabis clients.

  • Clients can access the full range of Zenefits’ web-based platform which includes tools for payroll, benefits, HR, and time and attendance.
  • Zenefits has partnered with Paragon Payroll to handle clients’ payroll needs.
  • Automatic compliance simplifies taxes on the federal, state, and local levels, and is helpful for entrepreneurs in cannabis.

For more small business and HR tips —  inside the cannabis industry and out —  join the 60,000 other small business owners and HR professionals and subscribe to Workest’s weekly digest today.

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