Importance of reliable payroll provider highlighted by vendor aversion to marijuana clients
- Mainstream payroll providers are reluctant to service cannabis companies due to banking issues and complexity, as marijuana remains illegal under federal law.Cannabis-specific payroll companies have experience with cannabis regulations and documentation, which is crucial in a highly regulated industry.Non-cannabis payroll providers might not understand the ins and outs of receiving licenses and meeting regulatory requirements, making it difficult for them to serve cannabis businesses.The transition from one payroll company to another for cannabis companies involves comprehensive auditing of documents and records, as well as training employees on new platforms and systems.
(This story is part of the cover package in the September issue of MJBizMagazine.)
Nichole Upshaw, the chief retail and people officer at Florida-based Jushi Holdings, vividly remembers June 24, 2019, her first day working for the multistate operator now active in seven states.
“On my first day, the HR employee that was here before I arrived said, ‘If (payroll-services provider) Paychex calls, don’t pick up the phone. They’re trying to kick us off.’”
At the time, Jushi had roughly 60 employees, but it was about three weeks from acquiring Beyond Hello, a Pennsylvania-based retail chain.
Upshaw decided that Jushi needed to find another payroll company – and fast.
She first queried payroll-services company Namely, which initially said yes but then said no.
She eventually hired Würk and has used the Denver-based company ever since.
Upshaw’s lesson learned? A cannabis company’s payroll provider should specialize in cannabis.
“I would never want to be with a payroll company that was not focused on cannabis,” Upshaw said.
“There is no perfect payroll or HR system. But what I will say about Würk is the comfort and the confidence I have that I’m never going to get a call saying, ‘Sorry, Jushi.’”
That lesson was reinforced in March, when Paychex sent a memo to its cannabis clients saying the company would no longer process direct deposits or offer other services as of May 1.
One of those companies was PTS Corp., a vertically integrated business operating in four states with about 500 employees. Chicago-based PTS had been with Paychex since early 2022.
“We had some fear and panic among our employees because they were concerned about receiving their pay. We had to reassure them that everyone was going to get paid. Even if we had to do it manually, everybody was going to get paid,” PTS Human Resources Director Misti Robinson said.
Robinson started looking for a new payroll-services company and eventually signed up with Green Leaf Business Services, a cannabis-specific payroll company in San Diego founded by former Paychex employees.
Robinson went with Green Leaf “because it specifically stated that they were cannabis-driven. They’re really servicing cannabis. And after what happened with Paychex, I was not willing to go with a company that didn’t highlight cannabis on their website,” Robinson said.
Why are “mainstream” payroll providers reluctant to service cannabis companies?
The reasons come down to banking and complexity – as well as the fact that marijuana remains illegal under federal law.
Payroll’s banking problem
Paying employer and employee taxes to federal and state governments is “highly complex,” said Marc Rodriguez, CEO and co-founder of Green Leaf.
“There’s a lot of technology and automation involved. … But when you deal with cash, like many cannabis companies (do), you can’t use automation. You have to do these one-off processes for all of the cannabis companies. So, it represents a significant operational undertaking to own and operate a payroll company that’s geared toward the cannabis industry,” Rodriguez said.
Not having a physical bank also means not being able to use the Automated Clearing House (ACH) – an electronic U.S. financial network used for processing money transfers and payments such as taxes and payroll.
“If there is no automation, then payments must be collected in cash,” Rodriguez said.
But banks are resistant to handling cash from plant-touching marijuana companies.
“I, as the payroll company, have to figure out a solution. … That’s why a lot of payroll companies stay away from cannabis, because it’s an entirely different challenge. When you have to circumvent automation and use people instead, that’s an additional expense.”
Another problem is that non-cannabis payroll companies are reluctant to serve marijuana businesses because they worry about putting their non-marijuana clients’ money at risk, Upshaw said.
“That’s the benefit of being with a payroll company. They have access to your accounts, and they do all this stuff on your behalf. From an efficiency standpoint, they’re experts at it. They’re fast, and you can have slimmer teams,” Upshaw said.
Cannabis-specific payroll companies don’t have to worry about mixing money from marijuana and mainstream businesses.
Cannabis experience and documentation
Another important factor is experience with cannabis regulations and documentation.
The marijuana industry is under heavier scrutiny than most other sectors, with regulators and financial institutions asking for lots of documentation.
“For banking, they need to have all of the documents in place to show that we’re licensed, that we’ve done our due diligence (and) they have done their due diligence. I’m not sure that other payroll companies that aren’t familiar with cannabis understand the ins and outs of receiving the license,” Robinson said.
“It’s a very complicated industry, and if you’re not familiar with that world, it makes it difficult for a non-cannabis payroll provider to make sure that they’re doing what they need to do.”
After deciding to switch to Green Leaf, PTS had four weeks to make the transition.
“It was a lot of auditing. It was a lot of time. It took a lot of teamwork. We had four weeks to get Green Leaf up and get everyone trained – and notify employees and make sure they have the ability to clock in and out,” Robinson said.
“Every little nuance of payroll was affected. And it not only affected payroll, but it also affected HR platforms. It affected our learning modules, it affected anything that has to do with HR. It affected our whole world.”
A successful transition from one payroll company to another requires comprehensive auditing of documents and records, said Savannah Dougherty, human resources manager at Joyology, a Michigan-based marijuana retailer that was a Paychex client.
“We had to transition everything – not just payroll but all of our personal history records. And then, every employee had to get logged into the site, get new passwords. You had to audit to make sure everybody was in it,” Dougherty said.
“Moving all of your data from one system into a different system, there were also a lot of hours spent on just auditing that data.”
Omar Sacirbey can be reached at email@example.com.