Far from the Cheech & Chong stoner stereotype usually associated with Cannabis sativa (marijuana, Mary Jane, herb, pot, tea, kind, kaya, dank, dope, spliff, spark, etc.), it’s now mainstream. Not only are its medicinal benefits fueling legalization in 46 states, but its gargantuan tax revenue is silencing society’s more straitlaced pundits and politicians. Rumors of pro-pot national legislation sent stocks soaring in December as marijuana research and banking bills made their way through Washington D.C.
Grand View Research pegged its market’s size at $16.7 billion in 2022 and predicts it will hit $102.2 billion by 2030, a compound annual growth rate (CAGR) of 25.5%. That type of stratospheric increase has instilled corporate respectability in an area once reserved for dirty hippies and dangerous outlaws.
Cannabis companies now reflect the characteristics of their more-traditional counterparts. And like any maturing industry, the attraction and retention of quality help is a growing issue, with employee benefits gaining in importance.
“These are employees covered under Title 1 of ERISA. They’re paying taxes and getting W-2s. The federal government is making a ton of money in this industry. Why shouldn’t they deserve to have a 401k?”
Tom Krusic
Alberta Lea, Minn.-based intellicents would seem like an unlikely ally, with its humble focus on worksite financial planning and small-town office locations. Yet, their mission to help the average American worker—and a belief that everyone deserves 401k coverage—has them confidently targeting the space.
“Part of the value of getting out there is destigmatizing this industry by saying, ‘Yes, everybody deserves to have a 401k, no matter what industry you’re in,’” intellicents financial consultant Tom Krusic said. “These are employees covered under Title 1 of ERISA. They’re paying taxes and getting W-2s. The federal government is making a ton of money in this industry. Why shouldn’t they deserve to have a 401k?”
Working with cannabis operators since 2019, he has an advantage in that larger competitors are staying away, mainly for two reasons: the nature of their client constituencies and the resources needed to comply with the 2014 Treasury Department cannabis banking guidance.
“My team found a way to do it with a smaller bank that had been playing in the space,” Krusic explained. “It acts as a paying agent to invest in publicly traded mutual funds just like any other 401k plan.”
Interestingly, he gets referrals from other benefits brokers who can engage with marijuana companies through their healthcare divisions but not their 401k divisions.
“Their mothership said, ‘No, you can’t do it,’ so I’m getting business from my competition in the more traditional space.”
MEP structure
Krusic is managing two multiple employer plans (MEP) for payroll companies specifically working in the cannabis space, and the structure and process are like any other business.
“We do automatic enrollment. We do safe harbor plans. We’re consulting with the client on plan design. Employee education is sometimes virtual, sometimes in their grow facility.”
For an idea of scale, one has roughly 12 plans and close to 5,000 participants. He predicts it will grow to 20 adopting employers and 7,500 lives by the end of 2022 and approximately 20,000 employees by the end of 2023.
The MEP structure was a deliberate strategy to move downstream. Having already worked with the 1,500 to 2,500-sized employers across the country setting up single-employer plans, it was a scale play to get smaller to medium-sized businesses to adopt a program.
“There’s a company here in Denver that does payroll in the cannabis industry,” Grant Arends, intellicents’ Co-Founder and President of Retirement Services said. “We launched the MEP where they’re the sponsor, we’re the advisor, and then we have an independent recordkeeper.”
Ganja land grab
Arends called it a “land grab,” getting as many cannabis clients as possible in the belief that the industry will progress in a manner like state lotteries and casinos and the tax revenue opportunities that come from both.
“Obviously, we were worried about negative PR from some client, but there’s universal acceptance of the cannabis space, even in states where it’s not yet legal,” he said. “We didn’t know anything about cannabis companies. We didn’t think they were so corporate, so we had a lot to learn. These are big businesses, with c-suites on the top floors of high rises in Chicago and Minneapolis.”
For the intellicents leadership team, any fiduciary concerns were quickly satisfied due to the strict advisory nature of the services they provided.
“From a fiduciary perspective, the money is segregated from people’s paychecks and from the employer,” Krusic said. “It’s in a trust. The rules do not change for this industry once the money gets into an ERISA-qualified trust.”
Anti-money laundering and know-your-client (KYC) rules still apply, and a credit union in a state where it’s legalized must act as an intermediary.
“We’re not counting the money; we’re just talking about the money as the advisor,” Arends added. “From our perspective, we didn’t see the liability of advising on these plans if we’re not taking custody. So as a leadership team, we felt comfortable advising on these plans.”
Once they entered and felt comfortable in the space, they realized the challenges were similar. Aside from a few slight differences, getting 20- and 30-year-old employees to save is the same as in any other industry.
“They’re not as risk-averse as other professions because they’re willing to go into an industry like this,” Krusic explained. “The education and skills they need to do their job right are very high. And their employers know that they could just go to the next cultivation center. It’s incredibly important for attracting and retaining employees. It’s about giving them the chassis they need to save, and these employers want to give them as many resources as possible.”
Ultimately, it’s about relatability and knowing the problems that need to be addressed.
“Part of it is a highly compensated environment, but then there’s a huge part of it that’s manufacturing and hourly wage employees in their 20s and 30s,” Krusic concluded. “Does your 65-year-old advisor in a suit and tie hit that demographic pretty well? Probably not as well as me in my early 40s that has the life experience and can relate to them from an age perspective.
“It’s so fun to be in a new and up-and-coming industry. There’s a lot of innovation and shared best practices.”
SEE ALSO:
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