Making Sense of the Cannabis Industry

Cannabis Business Insights | Friday, March 17, 2023

Many factors determine the cost of opening a cannabis business.

FREMONT, CA: The Cannabis industry is still young and growing. The US cannabis market generated about USD 10.8 billion in 2021 and will grow 14.9 percent annually from 2022 to 2030, according to Grand View Research.

Industry players still have ample opportunity to launch, grow and succeed in the cannabis space. This is largely due to the increasing acceptance of cannabis in the US and worldwide. Many states in the US have legalized recreational and medicinal cannabis, and more countries to follow suit in the coming years. This creates a big opportunity for entrepreneurs and investors to capitalize on the emerging cannabis industry.

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The industry is nascent, providing investors ample opportunities to maximize its potential.

Regulatory landscape: The cannabis industry is still very uncertain. Aside from federal prohibitions, or perhaps because of them, different state frameworks have resulted in a fragmented industry across various states. Companies find expanding difficult due to vast differences in licensing and reporting. Because the industry is not federally recognized, many things are affected. Each state has its regulations. They are crafting programs specifically for their environment.

Fragmented policy: The lack of federal policy has created an experimental period where states borrow what works from one another and try to scrap what does not. It has resulted in a situation in which states compete to develop the best policies across various fields. This competition has helped spur innovation and creative solutions to problems the federal government still needs to address. While the federal prohibition creates much confusion and problems, this trial-and-error period has been positive for the industry's evolution.

Fewer deductions allowed: In the cannabis industry, taxation challenges differ from those other industries face due to cannabis' federal status. One is the Internal Revenue Service's Section 280E, which does not allow cannabis companies to deduct ordinary business expenses from their tax bills.

Infrastructure: It is necessary to test the potency and genetics of cannabis flowers, harvest the oils, and conduct ongoing research to understand their specific medical applications. Additionally, vape purveyors, edibles creators, and glass blowers are in high demand.

Licensing and permitting: Businesses that deal with plants must obtain licenses and permits. Applicants must outline policies and procedures, provide an overview of their organization's members and prove that what they say is accurate. These processes vary by state and can be quite arduous. It has become an essential skill set for consultants to balance a level of detail in applications of limited length.

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Payroll problems in the cannabis industry often begin long before anyone makes a mistake calculating wages. The real challenge usually sits outside the payroll process itself—in banking relationships, payment processor policies, state regulations and a provider's willingness to support an industry that financial institutions still treat inconsistently. For dispensaries, cultivators, manufacturers and ancillary businesses, a provider that looks reliable during a product demo can quickly become a problem if it later changes its terms, introduces a cannabis-related surcharge or exits the industry with little warning. That is why the buying decision starts with continuity. Direct deposit, tax filings, wage records and employee self-service all need to keep working as the business grows, whether that means adding locations or hiring more employees. Keeping costs under control matters, but the lowest-priced option can mask weaknesses in banking relationships or systems that cannot support the next stage of growth. New licensees may only need basic payroll services at first, but it rarely stops there. Before long, the back office also has to manage time tracking, onboarding, benefits administration and wage-and-hour documentation. Multi-state operators face an even greater challenge. When payroll and timekeeping sit in separate systems, routine reporting often turns into time-consuming reconciliation. That creates more than administrative inconvenience. Missed approvals and last-minute corrections pull managers away from running the business when their attention is needed elsewhere. Small HR teams then spend too much of their time correcting records, following up on approvals, responding to pay-stub requests and updating employee information. A provider should be judged as much by its implementation process as by its software. Cannabis employers need systems configured to match their store operations, cultivation schedules, municipal requirements and internal policies. PTO tracking, time punches, worker classifications and employee access should reflect the way the business actually operates, not force employees into generic workflows. Training is equally important because features that go unused quickly become another administrative burden. The strongest service models provide dedicated implementation support, practical setup guidance, clear milestones and responsive assistance that continues well beyond the first payroll run. “Its services combine payroll processing with HR support, tax administration, time and scheduling, benefits administration, applicant tracking, onboarding and related partner solutions.” Regulatory knowledge also needs to be practical. Monitoring changes in state requirements is valuable only if that knowledge shapes system configuration and gives HR teams someone they can call when questions arise. Cannabis employers also benefit from providers that understand the industry's unique challenges. A provider that treats cannabis as an exception by adding surcharges or offering only reluctant support leaves businesses exposed to sudden service disruptions. One that has built its business around the realities of cannabis banking gives management greater confidence when making a long-term commitment. Paragon Payroll reflects that approach because its cannabis practice was built around the operational gaps that commonly create problems for employers. Its services combine payroll processing with HR support, tax administration, time and scheduling, benefits administration, applicant tracking, onboarding and related partner solutions. The company uses isolved as its HCM platform and emphasizes hands-on implementation instead of relying solely on self-service setup. Clients receive dedicated implementation support, are assigned resources quickly after onboarding and have access to extended phone support. With no cannabis surcharge and experience serving cannabis businesses since 2016, Paragon Payroll offers a practical choice for executives looking to avoid provider exits, unexpected fees, disconnected systems and disruptions to employee payroll. ...Read more
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