Menu ≡

Our Blog


How Restricted Access to Banking and Retirement Plans Affects the Economic Outlook of Cannabis Companies

September 06, 2022


  • Operating a cash-only cannabis business places the company and their employees in harm's way
  • Without access to retirement benefits, cannabis companies face high turnover rates and less qualified job candidates.
  • Many cannabis professionals cannot access credit cards, personal banking accounts, or even personal loans

By 2025, total legal sales of cannabis are projected to grow at 16% CAGR and reach $29 billion. What’s more, in 2021, legal cannabis supported over 321,000 full-time American jobs.

Despite these numbers, cannabis companies are prevented from fully supporting their employees and the long-term potential of their businesses due primarily to one obstacle—traditional banking is out of reach.

Because cannabis is still federally illegal, most federally regulated banks refuse to work with cannabis companies due to complex regulations and stigma. This results in a lack of access to traditional financial services, like business savings accounts, and 401(k) plans.

As a result, there has been a huge push to pass the SAFE Banking Act, which would allow banks, credit unions, and other financial institutions to service legally-operating cannabis businesses without consequences from the federal government. The legislation has passed multiple times in the House but has repeatedly been stalled on the Senate floor.

Until that act passes, the vast majority of the cannabis industry will be forced to deal with all cash and will face enormous challenges in ensuring baseline benefits for cannabis employees. This affects employment stability, company growth, and the future economic outlook of the industry overall.

Cash-Only Business Increases Employee Turnover

In the first two months of employment, the cannabis industry sees a 40-60% turnover rate. That means for every 10 people hired, four to six of them leave voluntarily or involuntarily, by the time they should be fully trained and ready to go.

There are two main reasons for this attrition, and both are tied to a cannabis company’s inability to use traditional banks and financial services.

Firstly, many employees quit due to the fear and inconvenience that results from dealing in all-cash transactions.

Operating a cash-only business may leave dispensaries susceptible to dangerous situations like armed robberies, in which some dispensary employees have already been killed. Also, dealing in all-cash means payroll is a headache, and often not carried out correctly, which has led to employee complaints and even lawsuits over unpaid or incorrectly paid wages.

What’s more, some cannabis hires leave the industry involuntarily—when their company goes under. While insolvent small businesses in other industries have access to bankruptcy and other forms of financial assistance to help them retain employees, cannabis companies are completely barred from such traditional assistance.

“In 2020, bankruptcy court doors continued to be shut to cannabis companies,” reports The National Law Review. “Although outlier cases exist, and even though courts have hinted that bankruptcy may be appropriate for some cannabis-related individuals and companies in some situations, there is a consensus now that bankruptcy is generally not available to individuals and companies engaged, directly or indirectly, in the cannabis industry.”

As a result, many good hires are left in the lurch by their companies and turned off from the cannabis industry for good.

Banking Ban Compromises Access to Retirement Planning

In addition to turnover, the cannabis industry struggles to attract the right hires in the first place—again due largely to the banking ban. Without the ability to offer competitive financial benefits like 401(k) plans, qualified and dependable workers can be hard to find, particularly for upper-management roles.

In a brand-new industry, there are few diplomas or certificates particularly tailored to specialized cannabis jobs, so companies look to recruit from outside industries. When this happens, cannabis companies must be able to compete with the lifestyle and benefits packages these established industries already offer.

 As the legislation currently stands, the most basic conveniences, like opening personal checking and savings accounts, credit cards, and being approved for loans, can disappear when you enter the cannabis industry due to the inaccessibility of financial services.

For instance, the CEO of Massachusetts-based cannabis company Garden Remedies, Jeffrey Herold, was prevented from buying a home due to his ties to cannabis.  Jeffrey and his wife were denied the mortgage less than a week before closing and had already sold their previous home.

“They ended up removing his name from the loan and putting it in his wife's name,” reports Business Insider. “But they had to stay in a hotel for a few weeks as they worked to resolve the issue, and they paid extra to restart the mortgage process.”

Additionally, cannabis companies are limited in what they can offer employees when it comes to retirement planning, another keystone of the traditional benefits package.

“A proven method for becoming an employer of choice in any industry is to offer an appealing benefits package to employees—especially to those you have trained and who are part of the value proposition in your company,” reports Cannabis Business Times. “Yet tax code Section 280E makes this proven HR axiom more complex and challenging for the cannabis industry.”

Though, like banking, offering cannabis employees 401(k)s is technically legal, few providers are willing to brave the tedious reporting necessary to remain compliant with the federal government.

Leading Cannabis 401(k)

In addition, managing high turnover becomes incredibly difficult without access to retirement plans. The high industry turnover rate means many cannabis businesses are spending more money on hiring efforts than its worth. This forces many employers to continually hire unprepared and undertrained employees. Without key retention tools such as retirement plans, reducing the high turnover rate becomes a heavy burden.

Additionally, without the same options for retirement planning as other industries, employers lack access to key savings credits and tax deductions, leaving them at a steep disadvantage.

Luckily, The Insured Retirement Institute and other financial services firms have been backing SAFE Banking Act, citing that its passage "would protect and insulate from liability institutions offering and administering retirement plans or individual retirement accounts for the employees of cannabis companies that are regulated and licensed by a state,“ reports Pensions & Investments.

The ongoing stigma and complexity around acquiring basic benefits as a cannabis employee make the process of recruiting qualified candidates difficult. Even with the strides toward the passage of SAFE Banking, many qualified workers still feel they are risking too much by entering the industry.

Establishing the Cannabis Industry for the Long Haul

In the end, the inability to hire the perfect person for a role–and keep them happy with competitive benefits—can mean the difference between failing and thriving as a cannabis business.

With no end in sight to regulatory headaches, many qualified cannabis industry hires bow out of the industry permanently. Meanwhile, cannabis companies are bleeding themselves dry by repeating the hiring process.

“Hiring costs money. Recruiting, advertising, and interviewing requires adequate cannabis funding and/or working capital. Unfortunately, obtaining and securing capital to grow and hire is difficult in the industry today,” reports Cannabis Industry Journal.

One major route to legitimizing the industry, next to the passage of the SAFE Banking act, is to find compliant ways to attract the best talent through robust, competitive benefits packages. Luckily, banking and financial services for cannabis companies, though rare, aren’t technically illegal.

Some banks, usually small local credit unions, are willing to brave the complex regulatory framework and work with cannabis companies. As well, some providers, including Leading Retirement Solutions, are bringing legal 401(k) benefits to cannabis employees to help support the long-term growth of cannabis companies. Leading Retirement Solutions has a custom-made plan just for the cannabis industry. If you are a company ready to upgrade the financial benefits you provide your employees, let us know.

Connect with us on FacebookLinkedIn, and Twitter!

Delaware EARNS Act Sets Retirement Plan Mandate in Motion

There's more where that came from!
We have answers to all your retirement planning questions. Check out the rest of our blog content below.

Back To The Blog

How Pooled Employer Plans Save Businesses Money

The Leading Cannabis 401(k)

Is your cannabis company considering retirement benefits? All of our cannabis-related content can be accessed here.


Invest In A Bitcoin 401(k)

Interested in buying bitcoin but don't know where to start? Find out about investing in Digital Assets through a 401(k) plan here.


The ROBS Strategy

Starting a business while you're strapped for cash? Learn more about the ROBS Business Financing Strategy here.


Back to the Blog

Website Design