Alpha Pointe Capital

Is a 401(k) allowed in the Cannabis Industry?

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On Pointe – 401(k) Edition

Is a 401(k) allowed in the Cannabis Industry?

Supporting the Emerging Industries is a ton of fun. So much innovation and the excitement for what might become can be electric.
Alpha Pointe Capital has made it a point to offer our services to those industries that dare to innovate, explore, and breakthrough paradigms of standards. But it’s not always easy. Especially when state laws may run counter to federal laws… such as the cannabis industry.

Back in 2017, we had a wealthy client who resides in France give us a call. She called to say she was excited to invest in her nephew’s new company he was forming in Nevada. She wanted to know if we could adjust her portfolio to make this investment. Considering her ultra-high net worth, it was relatively easy to carve out a few hundred thousand dollars for this investment.

However, we became quite interested in this new company, so we asked her about the company. She decided to send us the pitch deck.

When my partner received the pitch deck, he immediately hollered for me to come over to see it. Apparently, this new company offers a technology for the cannabis industry!

At the time, we had little clue about the cannabis industry. Of course, we had heard about the legalization efforts in Colorado and California but for some reason unaware of Nevada. Let alone what kind of tech would a cannabis company need? Little did we know…

As we made arrangements for our client, we became friendly with the CEO. Super smart guy who had built a technology to support logistics for the delivery of cannabis. After we talked more about his company and the prospects for the cannabis industry, he asked a question.
“I’d like to offer a 401(k) to my employees, can you do that?”

We answered that we thought we could, and we’d get back to him.
So, we called a dozen of our better-known 401(k) providers and asked about helping this new potential client. Well, we got some surprising answers…

Mostly a quick “No”. And some said they’d get back to us. A few sort of “chuckled” at us, then said “No”.

The main reason… cannabis was (is) still federally illegal. Even when a state legalizes it.

We finally got one of our providers to argue in our favor citing that the company was a tech company servicing the industry. If a company servicing the industry can have a plan what about those that are actually producing products?

But the question remains… can a cannabis plant-touching company have a 401(k)?

Talking with many ERISA attorneys the answer is, yes.

According to 401k Specialist magazine’s June 6, 2020, article by Jewell Lim Esposito, Esq. (who has practiced ERISA and Tax law for almost 30 years) explains “Yes” and cites this statement…

“Unequivocally, cannabis companies can have their 401k plans. As Billings astutely notes, “The devil is in the details.” I have painstakingly traced through the laws—the details—regarding cannabis 401k plans. Again, I refer readers to materials I have published regarding cannabis, the Internal Revenue Service, and the Department of Labor. I invite others to verify for themselves. “
(Read the full article HERE)

While this article may not be the authority, it does back the opinions of many ERISA attorneys whom I’ve spoken with.
A popular argument is how these companies are paying taxes on their payroll like everyone else. Another argument is how can the government deny over 425,000 cannabis workers a retirement plan whose pay is subject to taxes as well… especially during the retirement crisis in our country.

While these arguments may be valid, many 401(k) vendors will not assist cannabis with 401(k).
Even more interesting is the hemp industry which IS federally legal. Many financial institutions (including 401(k) vendors) will not service the hemp industry. Apparently, hemp laws are still confusing the hemp industry.
In my opinion, my hope is every American worker should have the option of a retirement plan to help fund their retirement. Especially when these companies and their employees are paying federal and state taxes like everyone else.

Take care,

James S. Gibbons CPFA 

Alpha Pointe Capital-Founder/Wealth Manager

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The views and opinions expressed here are those of the authors and do not necessarily reflect those of Thurston Springer Financial or Thurston Springer Advisors.

Registered Representative of Thurston Springer Financial and Investment Advisor Representative of Thurston Springer Advisors. Securities are offered through Thurston Springer Financial, Member FINRA, and SIPC. Advisory services offered through Thurston Springer Advisors, an SEC Registered Investment Advisor. Alpha Pointe Capital is a DBA of Thurston Springer Financial and Thurston Springer Advisors.