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You won't find a major HR tech vendor that sells software aimed at the fast-growing cannabis industry. A startup called Wurk decided to fill that vacuum.
CEO Keegan Peterson, 32, a young veteran of several HR tech vendors, founded Wurk in 2014 to serve the unusual personnel management needs of cannabis growers, labs, distributors and retailers.
Perhaps understandably, Wurk doesn't like to release the names of its clients because of the still-turbulent legal and political atmosphere surrounding marijuana legalization.
Marijuana legality varies
For example, while marijuana for medical and recreational use is now legal in 30 states and Washington, D.C., federal law still prohibits it. And Attorney General Jeff Sessions in January 2018 rescinded Obama-era rules discouraging U.S. attorneys from enforcing the federal law in states where marijuana is legal.
Even so, business is good for the vendor based in Boulder, Colo., Peterson told SearchHRSoftware.
The U.S. cannabis industry has about 200,000 workers now and is expected to grow to a workforce of some 500,000 by 2020, according to Peterson.
Cannabis payroll bypasses traditional banks
Wurk's SaaS-delivered software is built to help cannabis businesses navigate the often fiendishly complex and seemingly constantly changing laws affecting their operation and be able to reliably pay their employees.
"The real challenge with payroll is the way companies traditionally move money doesn't necessarily work for the cannabis industry, so there have to be new systems in place that could support high-risk industries, like cannabis," Peterson said.
The vast majority of mainstream banks won't handle money for cannabis businesses, so Wurk's payroll platform is configured to process payments through "cannabis banks." An example is Partner Colorado, a former small credit union that has grown into a leading bank for the marijuana industry. (Wurk declined to name the cannabis banks it works with.)
"It's very unique. We have to write contracts differently. We have to do payroll differently. We have to think of the operations of our clients differently," Peterson said.
Wurk relies on three law firms it retains to advise the company on compliance issues. In turn, Wurk helps its customers comply with each marijuana-legal state's particular laws.
Tax compliance presents obstacles
When it takes on a new client, Wurk vets the business to make sure it's properly licensed in its state. "They have to understand, if we're going to be moving money for them, that they're a compliant business and legal to operate," Peterson said.
A big issue the Wurk platform tackles is enabling cannabis operations to adhere to the specific tax laws of their states, as well as federal tax law, which make marijuana tax compliance incredibly complex due to a unique set of circumstances.
Peculiar to the marijuana industry is the federal tax accounting law, Section 280E, which bars most cannabis businesses from deducting many of their expenses from their taxable income.
The 280E law usually applies to retail and the sale of cannabis, while production businesses can generally claim deductions for seeding, planting, irrigating and cultivating. So, those often fine distinctions make it important how businesses track employee hours and report them to the IRS.
Adapting workforce management
The dispensary side is akin to mainstream retail businesses, with hourly employees with variable shifts and hours.
The growing sector is more like a regular agricultural enterprise, though mostly indoors. Hourly workers do things like trimming and watering plants.
The extraction side of the business functions more like a scientific lab, with highly skilled employees, such as chemists with PhDs, to extract cannabis oils to make edibles and other versions of marijuana. Occupational Safety and Health Administration compliance is also important in this workplace setting, with power tools on hand.
"The workforce is very different depending on which type of business you're working with, and sometimes, you have all three of those in one company." Peterson said. "So, that's where there's a lot of complexity in workforce management, how people move and flow into tasks that are very different from each other."
Larger cannabis organizations have more opportunities for specialization, but smaller ones often have workers doing parts of different phases of the business.
The Wurk platform is dual-facing, with mobile-based self-service functions for employees, such as paycheck viewing and self-scheduling, and workforce and payroll management tools for owners and supervisors.
Peterson characterized Wurk's customer base as ranging from 1,000-employee, diversified companies to family-owned, small dispensaries.
Opportunity and challenge
Micah Tapman, managing director of CanopyBoulder, a cannabis business incubator and venture fund that invested some startup capital in Wurk, said the vendor has a "terrific" market opportunity and also some significant challenges.
While CanopyBoulder only gave Wurk $30,000, Wurk has raised about $3 million total in venture capital funding, according to the company. CanopyBoulder still serves as an adviser, and Wurk executives went through a four-month business accelerator program in 2014.
"Wurk is an example of a particular type of market opportunity that is unique to cannabis," Tapman said. "That is an opportunity to do a basic service that, in other industries, is very well-established, highly competitive and very difficult to break into."
"In the cannabis industry, for whatever reason, people are not providing that service," Tapman added. "So, instead of competing against ADP and Aon Hewitt, you're not really competing against anyone on the cannabis market. It's what I call a 'greenfield.'"
Among Wurk's biggest tests will be attracting top-tier talent, a problem endemic to the marijuana industry, he said. Another issue is small profit margins due to 280E tax issues, which spin off stiff price competition.
One of Wurk's biggest challenges, among others, is maintaining a stable customer base as the cannabis world consolidates, Tapman said.
"The cannabis industry is extremely chaotic," he said. "We've got people who are not business people by training, and we've got changing regulatory landscapes. So, even if you are good at business, it's hard to keep up with what's happening."
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