Wrong.

Cannabis firms that “touch the flower” are operating under the shelter of their state’s law but are in violation of the federal Controlled Substances Act, categorizing cannabis as a Schedule I drug, along with heroin, LSD, and meth (cocaine is mere Schedule II drug along with Vicodin, Ritalin, and codeine; go figure). Cannabis is considered a “gateway drug” – once you start smoking pot, heroin or meth is your next stop, says the DEA (sometimes), several people in Congress, and many pundits.

Those cannabis companies are locked out of having a bank account, accepting credit cards, shipping their product, deducting any expenses on their tax returns that are not part of the “cost of goods sold” (under Section 280E of the Tax Code), obtaining a forgivable PPP loan, or offering a 401(k) plan to their employees. 

In some states, workers are not even being treated as “employees” because of federal tax withholding requirements. There is not a solution to those restrictions for cannabis companies until cannabis is legalized at the federal level. 

Interestingly, in most jurisdictions cannabis dispensaries have been classified as an “essential business” during the COVID-19 lockdown. Congress has included the SAFE Banking Act into the next round of COVID-19 Relief Bill. Cannabis companies are federally illegal, but are “essential businesses” during the lockdown. Quite an inconsistent set of rules.

Most new hires in cannabis companies are not from other cannabis companies. In a relatively new industry, growing in employment at a rate of more than 20% per year, and with the diverse skills sets needed by these companies, they have to recruit elsewhere. And those elsewhere companies all offer 401(k) plans. It is part of the basic ante of drawing in qualified employees. Like healthcare benefits and paid time off – increasingly valued more than salary by the ascending generations – it’s something companies need to have to get the right people in the door.

The cannabis industry is booming while other industries are dying, particularly during the COVID-19 situation. Demand for cannabis workers is soaring. How do cannabis companies compete for talent when they can’t even have something as basic as a 401(k)? By getting creative while staying legal.

I discovered a firm based here in Seattle (which arguably is the epicenter of innovation right now) that offers a solution allowing cannabis companies – even those that touch the flower – to offer a 401(k) plan to employees. Without triggering a DEA raid or sending anyone to federal prison.

I was skeptical. I have seen so many so-called “solutions” over the decades that are flimsy. So I spoke with the Founder and CEO of Leading Retirement Solutions, Kirsten Curry.

OK, my skepticism was unwarranted. LRS, as a part of the Seattle wave of innovation has developed an amazing solution to the cannabis 401(k) problem. Your company can touch the flower and your employees can participate in a tax-advantaged retirement savings program.

I’m not an employee benefits guy. I am a compensation guy and a cannabis compensation expert. I understand the basics of 401(k) plans but would not go out-of-bounds and try to explain it here. LRS has a lot of great content on their website. If you are a cannabis company seeking talent in this booming industry, a 401(k) program might be the leg up you need to land that critical candidate. Check it out.