What Is a Cannabis PEO and How They Help a Cannabis Business Grow

A flood of new state laws coupled with changing consumer sentiment have made cannabis among the fastest growing industry sectors in the U.S.

Consider for example these metrics from FitSmallBusiness:

• Through the end of 2018, 10 states had legalized cannabis for recreational purposes, and another 33 had done so for medical purposes
• Sales of cannabis amounted to $10 billion in 2018
• 55 million Americans now smoke marijuana for either recreational or medical reasons
• Through 2017, there were almost 10,000 active licenses for marijuana businesses
• On average, a dispensary in the U.S. makes $3 million in annual revenues
• The average operating cost for dispensaries in the U.S. is almost $2 million

WHAT ARE THE PRINCIPAL CHALLENGES FOR HUMAN RESOURCES IN CANNABIS BUSINESSES?

As the number of cannabis businesses and their operations multiply and competition among them increases, owners and middle managers face a set of increasingly more complex challenges. Many of those challenges fall on the shoulders of human resources.

Depending on their size and operating structure, different cannabis businesses face different challenges. In general, however, the lion’s share must manage at minimum the following 7:

1. Complying with state laws: HR professionals must be aware of changes in laws, like those regarding minimum wage.
2. Managing benefits packages: as cannabis businesses struggle to remain competitive, they need to offer competitive benefits (like those for healthcare) while remaining profitable.
3. Maintaining security: the rise in malware, ransomware and distribute denial of service (DDoS) cyberattacks places an added burden on human resources to keep business data secure.
4. Promoting workforce diversity: HR is largely responsible for ensuring that employees reflect the nation’s diversity in terms of gender, race, educational attainment, age, sexual orientation, religion and socioeconomic background.
5. Recruiting and hiring new employees: with the advent of online recruitment strategies and increased competition for top talent, the hiring and onboarding processes have become more complex. That complexity extends to identifying job candidates who not only have the hard skills to do their jobs, but also the soft skills to ensure a productive and collaborative work environment.
6. Onboarding and training: to keep employees at peak performance—and to provide them with attractive professional development opportunities—human resources must find effective strategies to bring them into company culture and provide them the resources to stay current in their jobs.
7. Other challenges: in addition to those noted above, human resources must effectively manage challenges like payroll administration, worker’s compensation and employee taxes.

WHAT IS A PROFESSIONAL EMPLOYER ORGANIZATION?

Faced with this complex web of challenges, an increasing number of businesses—including those in the cannabis industry—are outsourcing some key functions to professional agencies with deep expertise and knowledge in human resources management. Specifically, they are using the services of professional employer organizations (PEOs).

This is how the Society for Human Resource Management (SHRM) defines the nature and role of professional employer organizations:

“A professional employer organization (PEO) is an organization that enters into a joint-employment relationship with an employer by leasing employees to the employer, thereby allowing the PEO to share and manage many employee-related responsibilities and liabilities. This allows employers to outsource their human resource functions, such as employee benefits, compensation and payroll administration, workers’ compensation, and employment taxes.”

WHAT ARE THE MAIN BENEFITS OF PARTNERING WITH A PEO?

An experienced professional employer organization can help your business streamline human resources operations, boost employee engagement, attract and hire a more diverse and more talented workforce, increase security and more effectively ensure compliance with state laws. In addition to those qualitative advantages of outsourcing HR functions to a PEO, there are several quantitative benefits.

According to the National Association of Professional Employer Organizations (NAPEO), for example, businesses that partner with professional employer organizations realize the following 4 benefits:

1.  YOU’LL EXPERIENCE FASTER GROWTH

Your cannabis business has many objectives, everything from polishing your brand to increasing awareness and outstripping the competition. But the principal goals are still to become more profitable and grow more quickly.

When you work with a PEO, you’ll be freed up from the host of human resources concerns and problems that inevitably confront every business. That additional time will allow you to focus on activities closer to the core of your business, things like product development. Said differently, working with a PEO will allow you to focus more on what your business is all about.  Specifically, businesses that outsource to a PEO grow from 7% to 9% faster than those that don’t.

2.  YOU’LL INCREASE EMPLOYEE ENGAGEMENT AND RETENTION

Studies show that it costs as much as 25 times more to acquire a new customer than to retain an existing one.  It’s one of the reasons businesses invest so heavily in strategies and programs designed to increase employee satisfaction and engagement.

An experienced PEO will improve your hiring process and employee retention strategies, ensuring that the employees who join your cannabis business are the right fit for your company—and that they’ll stay with you rather than move on to one of your competitors.  That ensures increased profitability, productivity and continuity.  According to NAPEO, companies that work with a PEO decrease employee turnover by almost 15%.

3.  YOU’LL LOWER COSTS

Because of their deep experience in human resource management, PEOs are able to do the same things in house HR teams do, but more efficiently and at a substantially lower cost. Those are savings you can invest back into your cannabis business to fund other critical needs. On average, to be specific, a PEO will reduce human resources administrative costs by more than 35%.

4.  YOU’LL ENSURE THE LONGEVITY OF YOUR BUSINESS

According to Medium, approximately 90% of new business startups fail. They fail for a variety of reasons, from ineffectual leadership to hiring the wrong people, weak cashflow and poor management. A reliable PEO can help your business meet all these challenges. For that reason, the odds of companies which work with a PEO going out of business are as much as 50% lower compared to those which don’t.

CONCLUSION

Every cannabis business is different, of course, and only you can decide whether partnering with an experienced PEO is the right decision for yours. That said, the lion’s share of businesses which outsource HR functions to a PEO reduce costs, increase profitability, improve employee engagement and retention, grow more rapidly and succeed.

To learn more about the ways our human resources and payroll services can help your cannabis company achieve its principal business objectives and grow, contact us today.