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Top Challenges of the Cannabis Industry in the Northwest

Top Challenges of the Cannabis Industry in the Northwest

The number of states with legalized cannabis is rapidly growing, both recreationally and medically, and so is the number of cannabis-related businesses (CRBs) that serve those markets. However, with cannabis still considered an illegal substance under federal law, there are many challenges to operating a cannabis-related business in the northwest, or anywhere cannabis is legal in the country.

While managing a company in the cannabis industry presents the following challenges, hope is not lost. A cannabis payroll and HR company, that specializes in and understands the industry, can quickly get cannabis companies on the path to success. That is why cannabis payroll companies are important to the industry.

Operating a Cannabis Business

While there may be many obstacles and challenges with operating a cannabis business it is still a growing and opportunity-rich industry, drawing many to the space. 

Washington Cannabis Businesses

The cannabis business is growing rapidly, and it is only a matter of time before the appeal draws many more states into the fold. 

In the Washington cannabis industry alone, companies are totaling annual sales of approximately $1.5 billion and upwards of 11,000 employees. 

Cannabis Industry Problems

With so much revenue, and a plethora of employees working in the space it's no wonder that Washington cannabis companies, as well as those in other states, face countless issues with:

  • Payroll
  • Banking 
  • Taxes
  • Compliance
  • Human Resources
  • And More

To say that these business components are easy for any industry would be a bold statement. For a business in a consistently evolving and growing industry, these challenges might make it feel like success in the cannabis space is impossible. 

However, with new business comes new opportunities, and finding a payroll and HR company that has the expertise to put behind a cannabis payroll and HR solution can help overcome some of the obstacles surrounding the cannabis industry.  

Cannabis Payroll

While there are many challenges in the cannabis industry, processing payroll is among the worst as it feeds off of other challenges like compliance, banking, and taxes. 

For instance, payroll can simply be difficult because many cannabis businesses are unable to initiate direct deposits with banks. This is something that virtually no other business type must deal with. 

Finding a Cannabis Payroll Provider

Unfortunately, the pure act of processing payroll is not the only cannabis payroll challenge. Simply finding a payroll provider that will service your industry can be a challenge. Here are some tips for setting up payroll for a cannabis business.

Paychex Drops Cannabis Clients

Recently, in March of 2023 one of the biggest payroll providers, Paychex, announced that they would be essentially ending all services with cannabis businesses

Specifically, Paychex is no longer providing automatic payroll tax administration, direct deposit, or time and attendance services, leaving many companies searching for a new cannabis payroll provider.

It is important for cannabis businesses to understand that just finding a provider to serve you isn't enough. You'll always be at risk. 

By using a payroll solution from a cannabis payroll provider that understands the industry and is prepared to handle the challenges that come with it (unlike Paychex), businesses can better manage tasks like: 

  • Managing employee salaries and wages
  • Calculating deductions 
  • Managing pay structures
  • Tracking labor costs 

Perhaps most importantly, utilizing labor distribution within cannabis payroll software provides more transparency to CPAs in showing how employees spend their time.

Cannabis Banking Challenges

Simply put, finding a bank that will work with a cannabis business is slow-going, and at times seemingly impossible. 

Companies are commonly forced to deal only in cash and struggle with simple operations like purchasing inventory and payroll.

While there is a reason for businesses to be optimistic about legislation such as the SAFE Banking Act until such legislation is established as law, the best way for any business to find a bank willing to work with cannabis companies is by working with a cannabis payroll company.

Contact PayNW today to learn more about our banking, insurance, and retirement connections for cannabis businesses. 

Payroll Taxes for Cannabis Companies 

While many businesses can plan for a good amount of tax exemptions and write-offs, the cannabis industry is frozen in place.

IRS Tax Code 280E says that "no deduction or credit shall be allowed in running a business that consists of trafficking a controlled substance."

So what does this mean for cannabis businesses? While traditional companies must pay taxes on net income (after deductions are made from gross income) cannabis businesses are taxed on gross income. As a result, cannabis companies are typically subject to a tax rate of 70% or higher. 

Other Areas of Cannabis Compliance

Other strict guidelines that impact cannabis companies include Anti-Money Laundering and Bank Secrecy Act regulations, which establish recordkeeping and reporting requirements for domestic banks and federal savings associations, as well as agencies of foreign banks. 

Without cannabis experts that understand the compliance of the industry, managing compliance as a CRB is not an easy task. 

Finding a cannabis HR provider that understands the human resource needs of cannabis is crucial in managing even the simplest of HR tasks. 

What's Next for Cannabis Companies?

Cannabis solutions are the answer! With new business not only comes new challenges but new opportunities as well. With companies like PayNW, cannabis businesses don't need to fear being with a provider that does not understand them, nor feat being dropped by their current provider. 

To learn more about how PayNW's cannabis HCM solution is already helping countless businesses in the space with things such as banking, insurance, and retirement connections, contact us today. 

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