Marijuana Legalization Implications Spreading for Companies

The legalization of medical and recreational marijuana in 29 U.S. states is providing compliance and financial challenges for companies in a variety of industries.

Panelists at a FEI Financial Leadership Summit session said the legalization of marijuana in Colorado has been a boom for companies participating in the cannabis sector, state tax revenue and the state’s tourism sector.

Those benefits, however, come with a variety of compliance and operational issues for cannabis companies and their business partners.

“From a corporate standpoint, there are several potential liability issues,” said Deirdra O’Gorman, president and CEO of Fourth Corner Credit Union. “If you have employee drug policies, you have to change the conversation to address employees that live in a state where consumption is legal. Trying to test employees after the fact doesn’t hold water any longer.”

Robert Frischtel, CEO, General Cannibis Corp., which provides ancillary sales to marijuana growers and dispensaries, said his company’s policy focuses more on the idea of impairment than on use.

“We use intoxication as a general idea, and treat cannabis use the same way we treat alcohol,” Frischtel said. “I don’t want employees using it before or during work, and we expect them to be responsible with it. If you have a policy, and substitute the word ‘cannabis’ for ‘alcohol,’ you’ll have the same policy.”

That said, Frischtel added it’s challenging for employers in multiple states to align potentially conflicting policies with different legal frameworks.

Marijuana laws are a patchwork in the United States, with four states legalizing recreational use, 25 permitting use only for medicinal purposes and 15 states considering legislation to decriminalize possession.


Expanding Market


Looking at the financial impact of the 2014 legalization of recreational marijuana cultivation and sales in Colorado, demand started strong and has kept growing.

In the first year of legal sales, Colorado companies generated $700 million in sales and $76 million in tax revenue. In 2016, projections call for $1.6 billion in retail sales and $170 million in tax revenue.

Frischtel said direct sales and tax revenue are supplemented with a wide range of business services purchased by cannabis companies, including investments in cultivation and retail locations, IT support, health insurance for employees, and other expenses.

The panelists said the state’s tourism industry is also benefitting, with out-of-state plates a common sight in dispensaries located in border towns.

Operational Challenges

Despite its success, cannabis companies face a variety of compliance, financial and operational challenges. Because marijuana is illegal at the federal level, companies operating in jurisdictions where it’s been legalized have trouble finding routine business services such as banking, sources of capital

O’Gorman, whose company is trying to establish a credit union for companies and employees involved in the cannabis sector, said despite strong regulatory controls on cannabis cultivation and retail sales, many banks remain reluctant to provide services for marijuana-related companies.

The lack of banking services forces cannabis companies to conduct transactions in cash, which adds cost and operational complexity. Functions that are routine for most companies, meeting payroll tax obligations, are considerably more complex for cannabis companies that have to pay workers in cash.

Frischtel said his company has had banking relationships severed four times, including two without notice. As a result, he said his company, and others in the sector, maintain backup accounts in case their primary bank closes their accounts.