Margins in cannabis are thin. Owners agonize over inventory costs, licensing fees, and the latest tax hit. Yet the most expensive mistakes rarely show up on a P&L. They hide in HR with quiet missteps that can cost tens of thousands of dollars, put a license at risk, and erode the credibility of an entire operation.
I’ve spent more than twenty years working with Professional Employer Organizations, or PEOs, and in cannabis, the pattern is stark. Operators obsess over cannabis law, while overlooking the labor laws that apply to every business. The result is the same handful of traps, repeated again and again.
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Take New York, where dispensary employees must legally be paid every week. It’s a clear statute, yet I constantly encounter businesses paying biweekly because their vendor set it up that way. Every pay period, they’re technically in violation and are liable for back pay, penalties, and exposure that could jeopardize their license. Something as mundane as a pay schedule becomes a silent threat.
The I-9 form is another classic hazard. Federal law requires that every new hire complete it within three days, with no blank boxes left behind. Forms must be stored in a locked file separate from personnel records. Few cannabis companies know this, and many vendors don’t bother to enforce it. Federal regulators can issue steep fines for every single mistake on an I-9, and across a staff of budtenders, those add up fast.
Misclassification is just as common. I’ve seen countless operators call frontline staff “contractors” to avoid payroll taxes. In reality, those workers are employees under every legal test. Once regulators catch up, the back taxes and penalties eclipse whatever short-term savings the company imagined.
Even benefits can turn into a trap. Owners assume the Affordable Care Act only applies once they reach fifty employees. In truth, the moment a business offers health insurance, even to a team of ten, federal reporting requirements kick in. I’ve met operators offering benefits in good faith, but without the necessary filings. That’s a compliance issue waiting to be discovered.
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And then there’s the “my cousin handles HR” problem. Many businesses put a trusted relative or friend in charge of personnel. They may be kind, diligent, even beloved by the staff. But without ADA-compliant job descriptions, up-to-date handbooks, and documented training, every termination is a lawsuit waiting to happen. Good intentions don’t hold up in court.
The ripple effect of ineffective HR
What makes these traps so costly in cannabis is the scrutiny. Over 100 regulatory bodies can touch employment in one way or another. Anonymous complaints can trigger surprise visits. And once one agency finds something, others often follow. I’ve seen companies blindsided by investigations that start with a single wage dispute and end with cascading fines.
Too often, cannabis operators treat HR as an afterthought, a box to check once the doors are open. But ignoring it is like leaving the back door unlocked in a high-risk neighborhood – it’s only a matter of time before someone walks in. The real cost of these mistakes isn’t just fines or lawsuits. It’s the erosion of trust: from employees who feel unprotected, from regulators who see a company cutting corners, and from investors who expect the same operational discipline they’d find in any other industry.
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Beyond compliance, elevating HR is about building a credible and sustainable industry. Cannabis workers deserve the same protections, such as direct deposit, health insurance, and retirement options, that employees in other sectors take for granted. Extending those protections sends a message: this is a legitimate business with legitimate jobs, worthy of long-term careers.
The cannabis industry has worked too hard to leave its future vulnerable to paperwork mistakes. Every week, I meet operators who believe they’re saving money by skimping on HR, only to learn that the cheapest decision on the front end is the most expensive on the back end. In cannabis, ignorance is not a defense. Compliance isn’t optional. And credibility with regulators, lenders, and employees begins with getting HR right.
*This article was submitted by a guest contributor. The author is solely responsible for the content.