How 401(k)s Can Benefit Cannabis Company Employees and Employers

As the cannabis industry matures and companies grow, acquiring and retaining talent is becoming more competitive. To adapt, companies must adopt incentives employees seek, such as 401(k) retirement savings plans. Many small businesses currently don’t offer 401(k)s, but that slowly is changing, in no small part because associated fees are decreasing. According to recent surveys, 15 percent of small businesses—those with eleven to 100 employees—offer a 401(k) plan, while 50 percent of companies with 100 or more make 401(k) part of a standard compensation package.

In addition to providing employees with an attractive perk, 401(k)s can benefit companies in another way, according to Janine Bush, president of Cannabis Staffing Group: Employer contributions to retirement plans can help lower corporate taxes. Although clearly cannabis companies can’t benefit from federal tax benefits yet—because they engage in federally illegal commerce—as nationwide legalization inches closer, there is reason to hope the tax situation soon will change. By preparing compensation package revisions now, companies will be positioned to enact new perks and benefits the minute prohibition ends.

“401(k)s are great,” Bush said. “If an organization is providing a match to the employees’ contribution, it can be a very effective recruitment tool that will set your organization apart from the competition.”

However, she cautioned, implementing new financial schemes and staying compliant with ever-shifting local and federal regulations can be tricky. She counsels clients to adhere to guidelines established by the Employee Benefits Security Administration, a division of the U.S. Department of Labor, which enforces pension plan regulations. She also advises administrators to conduct a rigorous quarterly assessment of plan expenses and to stay ahead of shifting enrollment demographics and rapidly increasing cash flow within the plan’s investments.

Papa & Barkley is one of the few cannabis companies that offer 401(k) plans. The company began offering the perk to its 140 employees in 2018 and has been pleased not only with employee response, but also with how the policy has benefitted the company. Human Resources Director Tracy Jordan said matching 401(k) contributions helped Papa & Barkley strengthen its corporate culture. The benefit helped earn the company a spot among mg Magazine’s “50 Best Companies to Work for in 2018.”

“While most traditional companies have done away with providing these benefits, or at the very least are not providing a contribution towards the employee retirement fund, we offer matching contributions, which is quite extraordinary,” Jordan said. “Offering this benefit is very empowering for the entire workforce, and it is a great way to attract talent.”

Research backs up her assertion: Studies indicate offering 401(k)s reduces turnover, boosts morale, and attracts top talent. Even though Papa & Barkley doesn’t receive tax breaks—yet—management feels so strongly about saving for retirement that the company didn’t hesitate to shoulder the financial burden.

Competition in a growing industry also factored into the equation. “It is imperative we offer benefits that outperform other companies,” Jordan said. “We want to grab the amazing candidates that companies are fighting for, and a good 401(k) program is [a human resources department’s] dream. It’s an attractive bargaining chip to grab those top-level candidates everyone’s fighting for.”

Jordan offered advice to other companies debating modifying compensation packages. “This industry will keep you on your toes,” she said. “So be ready for [changes]. Educate yourself about the cannabis space and its state regulations. Reach out and network with other HR cannabis professionals who may be going through or facing similar challenges and come together to build up this industry.”

THREE PERKS OF 401(k) PLANS

For Employers
Attracting talent: Offering a 401(k) plan will help a company stand out from its competitors, particularly in highly competitive job markets.

Retaining talent: Employees are less likely to seek alternative employment when they stand to lose financial security or are faced with the complication of a 401(k) rollover.

Federal tax savings: Most employers can deduct contributions made to employees’ 401(k) accounts, a perk which likely will become available to cannabis companies once prohibition ends.

For Employees
Tax-deferred savings: 401(k) contributions are not subject to federal income taxes nor to most state and local taxes. Earnings accumulate tax-free until withdrawal at retirement.

Loan provisions: Unlike other retirement plans, employees may make loan withdrawals from their 401(k) based on certain circumstances such as emergencies or hardship.

Flexibility: Participation in a 401(k) plan is optional and not exclusive. Employees may also have other retirement plans such as an IRA.