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What Cannabis Rescheduling Should (but likely won’t) Mean for Retirement Savings Plans

June 18, 2024

Last month marked a potentially transformative moment for the cannabis industry in the United States. The U.S. Drug Enforcement Administration expressed its willingness to reclassify marijuana from a Schedule I to a Schedule III drug under the federal Controlled Substances Act (CSA). This proposed shift, still pending approval through various rulemaking steps, could significantly lighten federal restrictions on cannabis, reflecting a more progressive approach toward its regulation and acceptance.

With reclassification and lightening of federal restrictions, we expect employment by the cannabis industry to continue its upward trend in the coming years. According to the 2024 Cannabis Industry Salary Guide, Vangst CEO Karson Humiston anticipates a return to hiring and headcount gains in the coming year. “A Schedule III reclassification would end the onerous burden of 280E taxation,” says Humiston. “That will free up capital for expansion, fueling the creation of as many as 100,000 new cannabis jobs.”

With ever increasing employment, typical employee benefits like retirement savings plans remain a priority for cannabis companies that are looking to attract and retain talent as well as reward and support retirement savings for their employees. However, the cannabis industry and its hundreds of thousands of employees have been largely denied access to typical retirement savings plans because so few service providers will agree to serve the industry. Leading Retirement Solutions’ CEO, Kirsten Curry, cites that “Employees don’t get the opportunity to save, companies and organizations don’t get the opportunity to make matching contributions bolstering retirement savings for their employees, and business owners don’t get to claim significant tax credits and deductions related to offering a company retirement plan (e.g. 401(k) Plan, 403(b) Plan, Cash Balance, Profit Share, etc.).”

Banking and investment services are foundational to offering a company-sponsored retirement plan to cannabis company employees. The general sentiment is that reclassification will not result in greater access to these critical services. According to the Motley Fool, Rob Nichols, president and CEO of the American Bankers Association, doesn't believe this will open up more banking services to cannabis companies. He was quoted by MarketWatch as saying that "cannabis would still be largely illegal under federal law, and that is a line many banks in this country will not cross."

Leading financial and retirement plan experts, having worked with the cannabis industry over the years, shared their thoughts with us on the impact of rescheduling and whether it will expand access to retirement savings plans for the cannabis industry.

Financial Service Experts Weigh-In

Jewell Lim Esposito, Esq., Founding Partner at Pierson Ferdinand LLP and Chair of the law firm’s Cannabis Practice has been a leading advocate of employee benefits for the cannabis industry. "Both ERISA and the Tax Code permit cannabis companies to sponsor retirement plans, but creating a plan has not been that easy for them even so.  Much of the hold-up has been with providers who normally would be involved in servicing these plans (such as TPAs, recordkeepers, advisors, broker-dealers, custodians, and even the investment fund options themselves).  They first must overcome the understandable skepticism of even getting involved with a cannabis company, then they must ascertain their know-your-customer protocols are fully met before getting fully involved in the retirement plan offering.” The main blockers tend to be investment advisors, broker-dealers, and custodians."

Robert Ellerbrock, Founding Partner at Pierson Ferdinand LLP, who oversees Trust Integritas, LLC, a Corporate Trustee and Custodian for cannabis companies and their retirement plans shared, "Once cannabis moves to Schedule III, service providers handling money will no longer be subject to trafficking charges. This change is expected to make custodians and other retirement plans service providers much more receptive. However, we don't expect changes for at least a year due to the public comment period and legislative process, especially during an election year.  We anticipate the rescheduling to make it easier for companies with both cannabis and non-cannabis divisions to comply with the requirements to offer retirement plan benefits to all employees (both cannabis and non-cannabis) in a controlled group of companies.”

The potential reclassification of marijuana from a Schedule I to a Schedule III drug by the U.S. Drug Enforcement Administration marks a significant turning point for the cannabis industry. This shift could alleviate some of the stringent federal restrictions and pave the way for more progressive regulatory frameworks. However, the current consensus within the financial and retirement savings industry is that despite rescheduling, it will likely take a significant amount of time for the 401(k) industry to provide access to retirement savings plans for the cannabis sector.

Curry shares that their organization is often asked by cannabis companies if access to 401(k) Plans will open up soon and/or with reclassification. Curry and her company have worked with a number of the banking and investment organizations that offer access to retirement savings plans, like 401(k) Plans. In surveying these organizations, although many (but not all) are desiring to support the cannabis industry, there is general acknowledgement that when the decision is made to do so, it will take additional time to put all of the legal, operational and other requirements in place.

The anticipated changes resulting from reclassification will necessitate a lengthy rulemaking process, public comment periods, and legislative approvals, which could be further complicated by the upcoming election year.  As financial service experts have pointed out, the practical implications for the cannabis sector, particularly regarding access to retirement savings plans, will take time to materialize.

Looking to the Future

Despite the hurdles, industry leaders like Kirsten Curry of Leading Retirement Solutions and legal experts like Jewell Esposito, and Robert Ellerbrock remain cautiously optimistic. They emphasize that while the reclassification would permit prescriptions at the federal level and eliminate the burdensome 280E tax restrictions, financial institutions may still be reluctant to engage with cannabis companies due to the ongoing federal illegality of recreational cannabis. Nevertheless, the potential for significant tax benefits and the removal of the 'trafficking' classification could eventually incentivize financial service providers to re-evaluate their stance on servicing the cannabis sector.


For more tips and information regarding retirement plans, contact us.

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Leading Retirement Solutions is an industry leader in innovative retirement plan solutions for businesses. LRS focuses on improving retirement strategies by offering custom-fit solutions and nontraditional investment opportunities. Our services include plan design, plan administration, recordkeeping, consulting, and more. Leading Retirement Solutions prides itself on helping fellow women-owned businesses, not-for-profit organizations, cannabis businesses and small businesses through tax sheltering and employee benefits.


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