Key complexities that businesses in the cannabis industry face

Key complexities that businesses in the cannabis industry face when managing payroll and HR!


While many industries are encountering challenging economic conditions, the cannabis industry is projected to experience significant growth. According to the Brightfield Group, “the market is estimated to reach over $31.8 billion annual sales the end of 2023, growing to $50.7 billion in annual sales by 2028.” Many states, recognizing the potential significant revenue opportunity created by this industry is working to legalize both medical and recreational use of marijuana. Business owners in this area are well familiar with the unique challenges of running this type of business. These challenges especially happen when managing back office operations like payroll and HR. In this article, we will explore some of the key complexities that businesses in the cannabis industry face when managing payroll and HR.

1. Compliance with State and Federal Laws

One of the most significant challenges of running the back office for a cannabis business is the need to comply with both state and federal regulations. Here’s a resource that shows which state has legalized cannabis businesses and the corresponding laws.  It’s clear that the legal landscape for cannabis is constantly changing, and it can be challenging to keep up with the evolving laws and regulations. As of the date, according to, “under the federal Controlled Substances Act (CSA), marijuana is strictly regulated and may not legally be used for medical or recreational purposes”. Therefore, cannabis is still illegal under federal law.  This also means that businesses cannot use traditional banking services, making it challenging to manage payroll.

2. Employee Classification

In a traditional business, employee classification is typically referred to one of two scenarios: an employee is classified as either exempt or non-exempt under federal and state wage and hour laws, such as the Fair Labor Standards Act (FLSA), which regulates minimum wage, overtime, recordkeeping and child employment standards at the national level. Cannabis businesses have unique needs in this area. Cannabis companies often employ workers in different capacities, including budtenders, cultivators, and dispensary managers. There is no clear-cut job classification for workers in the cannabis industry, making it challenging to determine whether they should be classified as hourly or salaried employees. This classification can impact how employees are compensated, which can lead to legal and financial repercussions if not handled correctly.

3. Taxes and Accounting

Another challenge for cannabis businesses is managing taxes and accounting. The IRS has provided a resource page to help guide Cannabis business owners. And it is advisable to refer to your local state for state specific tax requirements. A unique tax criteria businesses should be aware of when it comes to this industry, since cannabis is illegal under federal law, businesses cannot deduct expenses related to the production, sale, or distribution of cannabis on their federal tax returns. This can significantly impact a business’s financial health and profitability. Additionally, since cannabis businesses are cash-heavy, accounting for these transactions can be challenging, requiring specialized knowledge and software.

4. Recruitment and Retention

Recent reports showing the labor market reflect a tight labor market. Staffing exports recommend when it comes to recruiting you should:

  • Know what you are looking for when it comes to your candidates
  • Search the right places
  • Differentiate or set yourself apart
  • Let your employees serve as your ambassadors
  • Tailor your pitch to the individual
  • Leverage social media to help you approach

Cannabis is a highly competitive industry, with many businesses vying for a limited pool of skilled workers. As such, businesses need to be strategic about recruitment and retention. HR departments must develop competitive compensation packages, benefits, and professional development opportunities to attract and retain talent in this fast-paced industry.


In conclusion, managing the back office for a cannabis business requires specialized knowledge and expertise. HR and payroll professionals need to be up-to-date with the latest laws and regulations, understand the unique challenges of the industry, and have specialized software and tools to manage taxes and accounting. By investing in their back-office operations, cannabis businesses can streamline their operations, minimize risks, and remain competitive in this rapidly evolving industry. When leveraging companies for payroll, benefits and HRIS requirements, it is recommended to partner with an organization that has expertise in this industry.

Get in touch with us for an expert-led demo to know more about UZIO payroll services.