6 FAQs on Hiring and Compliance in the Cannabis Industry

The cannabis industry is booming. 16 of the United States and Washington, D.C. have legalized adult-use marijuana programs. Consuming cannabis for medical purposes is legal in 36 states, with more states looking to legalize medicinal and/or adult-use in the coming years. But new markets mean new laws and regulations, and it can be difficult for cannabis businesses and prospective employees to navigate the complex hiring and employment requirements imposed by state law and regulation. With the help of our experts, we’ll break down six key questions about the cannabis industry as it relates to hiring and employment compliance, including background checks. 

There are two important categories of rules to consider when it comes to hiring and employment compliance in the cannabis industry: (1) rules that apply to cannabis business owners (and other members and officers affiliated with the business license), and (2) rules that apply to people seeking employment in the cannabis industry (these rules may also apply to independent contractors, volunteers, and other personnel providing services in the cannabis industry). The burden on the business owner (business license holder) is oftentimes higher than the burden imposed on individual employees (for example, a state may prohibit persons with certain conviction records from obtaining and holding a state cannabis business license, but allow persons with the same conviction records to secure employment in the industry).

In addition to obtaining a license to open and operate a cannabis business, business owners must also consider general federal and local employment laws, as well as badging requirements for their employees. 

Let’s start by defining licensing and badging before we dive into the difference between the two. 

Licensing: If you’re starting a cannabis business, you are required to obtain a dedicated cannabis business license. Prospective licensees submit business license applications to the applicable regulatory agency in their state to obtain a license to open and operate their business. All persons affiliated with that license (which may include owners, members, officers, etc.) are subject to certain background check requirements and various other requirements as part of the business license approval process.

For the most part, this practice ensures that all persons associated with the funding, operation and management of the business meet certain requirements set by state law and regulation (for example, that none of the affiliated members have criminal financial histories, drug trafficking convictions, etc.). 

Badging requirements: In addition to business licensing requirements, most states impose some degree of badging requirement on some or all persons affiliated with a licensed cannabis business, including owners, officers, principals, board members, employees, agents, contractors, and volunteers. As mentioned previously, the “badging” approval of some of these persons (such as owners and officers) may occur through the licensing process, whereas other personnel are badged separately (such as employees and contractors).

Each state has at least one cannabis licensing and regulatory agency, which establishes regulations on cannabis licensing and employment and handles the badging process. Where there is a badging requirement, there is likely a background check process involved as well.

In some states, the business license holder (licensee) is required to submit the applicant’s badging application on their behalf; other states permit the badging applicant to submit their application directly. 

The issue of licensing and badging is particularly confusing because some states use the term “licensing” to apply both to someone getting a license to operate a business in cannabis and to someone getting a license to work in cannabis. 

For clarity, we’ll use the term “badging” for people looking to become a cannabis industry employee (or contractor), because it’s like a requirement to have a physical badge to check into work every day. 

Badging could be in the form of a license or a permit that gives you the ability to work in cannabis. Many states in the country have some sort of badging requirement for employment in the industry. Badging includes its own application process, application fee, background check requirements, and disclosure forms (that is, separate from the business licensing process). 

Once a cannabis business is up and running, it needs employees to operate. First, all states require cannabis employees (or anyone who “touches the plant”) to be an adult 21 and older (as is required for cannabis possession or consumption). Some states, including Colorado, require cannabis employees to get a state-specific badge which allows you to work in that state. It’s important to note, however, that other states (such as California and Washington) do not impose badging requirements for employees. These states allow the licensed businesses to establish their own employee hiring and background check processes. 

As with most industries, every state regulates cannabis differently. So, if you want to gain employment in cannabis, or if you’re hiring in cannabis, it depends entirely on the laws and regulations of your specific state. Employers should consult the applicable state and local regulatory authorities for the most up-to-date information on these requirements. 

The challenges a cannabis business or employee face vary based on the state’s rules. For the states where there’s a separate process for licensees and affiliated persons as opposed to the badging requirements on employees, it can be tricky to navigate the separate compliance tracks. This becomes especially true when considering permanent records. What may result in a denial of a license to operate a business in terms of criminal history may differ from what could cause a denial of a badging license for an employee with a criminal history.

It’s important to consult the relevant state regulatory and licensing authority, as several states are in the process of developing and implementing emergency and/or permanent regulations.

It can be difficult to grow your workforce regardless of the industry. But when it comes to cannabis, there is an added layer of complexity brought on by the conflict between state and federal law. Cannabis is still a Schedule I drug on the DEA’s Controlled Substance list, which means it is federally illegal to possess, consume, buy/sell or handle this plant—which includes working in your state’s legal cannabis industry. While de-scheduling cannabis may be in our country’s near future, this conflict of laws creates hesitation for many considering employment in cannabis.  

With that in mind, the more assurances you can give to the people who are trying to enter the industry about what the process requires (for example, what types of criminal history will result in a denial of a badge) allows the employer to communicate how confident they can be that a candidate is going to have a job at the end of the badging process. It’s on the employer to understand the rules and regulations in their state so they can be clear with a candidate’s potential success in the badging process.

Similarly, many people sign up to work for cannabis companies but then drop off along the way. How can you mitigate this? Using a background check provider who offers clear and easy updates and access to a candidate’s background check status will show you less attrition. Why? By communicating to prospective employees the qualifications they have to meet in order to get their badge, you provide transparency on the likelihood of an individual to move through the onboarding process. That gives the potential employee more security in the job-seeking process. 

As we mentioned before, California doesn’t have specific cannabis badging, unless they exist at the local (city or county) level. But in other states where the qualifications are more stringent (for example, if there’s a list of felony convictions and/or misdemeanors that have to be disclosed along with varying remediation factors), it helps to have a third-party background check provider who can help you establish adjudication criteria. 

A background check partner can help you say, “this is why we feel confident you’ll be able to make it through that hiring and compliance labyrinth” and move qualified candidates through the funnel to get them up and running. 

Most states require delivery to be conducted by an employee of a licensed retail business. This strict requirement is tied to a state’s need to track a plant “from seed to sale” (that is, from plant stage to final consumption). Delivery, of course, is an important final step in that process. So, states want that delivery person to be in the seed-to-sale tracking system as affiliated with a licensed business. Just as a retail store employee may be required to be badged and affiliated with a specific license because they are transacting directly with customers, delivery persons may be required to be badged and affiliated with a specific license because they are the ones transferring the product from the licensed retailer to the end-use consumer. 

Other states have taken a more of a flexible approach by creating a “delivery-only license”, a business license type that is only for delivering cannabis and cannabis products between a licensed retailer and the end-use consumer. That license would allow someone to pick up an order from a licensed retailer and deliver it directly to the consumer. Delivery-only licensees cannot buy from the manufacturer because they’re not a retailer, and they cannot serve as a transporter of goods between other license types (such as between a grower and a manufacturer). Instead, they have to purchase the product or get the product from the retailer and deliver it directly to the consumer.

Some states are adopting this delivery-only license model because it provides a great market entry access avenue for social equity licensees. That’s because it has a lower cost barrier to entry than other license types. The requirements for creating a delivery business are much lower than a brick and mortar retail store, therefore the delivery license is open to a wider pool of candidates. 

Since you have to be affiliated with a licensed business to deliver cannabis, retailers can’t hire independent contractors for this service. Typically, delivery employees need to have a badge, depending on the state’s requirements for badging, or to be otherwise affiliated with the applicable licensed business. 

The cannabis industry is new. Whenever a new industry emerges, there’s going to be tighter requirements around what the state issues as the qualifications for entry. Over time, they will likely loosen. Of course, federal de-scheduling of cannabis (or outright legalization of cannabis possession and consumption at the federal level) could change everything. 

Some of the older, longer-standing cannabis markets, like Colorado and Oregon, have created stricter badging requirements. Because they were some of the first ones to legalize cannabis, they wanted to insulate their industry from potential federal exposure. They instituted strict rules with clearly defined criminal history requirements. For example, if a person had a certain type of criminal record, they wouldn’t be allowed to work in the industry. 

Newer markets like California, for example, determined that if you wanted to work in the industry, as long as you passed the background check that satisfied your employer, you would be ready to work. Hopefully, that’s the trend that we’re working towards moving forward. 

Over the years, many states have added into their cannabis regulations remediation factors or factors that they’ll consider, such as: How long ago was the conviction? How old were you when it happened? What happened after the fact, did you go to jail? Did you get on parole? All of those factors are then taken into consideration in your badging application so that there is no cut and dry rule that if you have X conviction, you can’t obtain a badge for employment. We refer to this initiative as fair chance hiring, where the goal is to minimize disqualifications and maximize opportunities. To learn more about fair chance hiring and positive adjudication, find our resource here. 

Overall, the cannabis industry wants to be seen as a legal, well-functioning economic market. As the industry continues to grow, these issues of hiring and employment, compliance, and background checks will continue to be revisited and refined. Of course, compliance in this industry will continue to be a challenge for as long as cannabis remains a Schedule I substance under federal law.

From licensing and badging requirements to state-specific hiring laws, the cannabis industry and surrounding legislation will continue to develop as the industry grows. What’s most important is to understand both federal hiring laws and industry specific regulations at your state and local levels.

For more answers on hiring and compliance questions in the cannabis industry, watch our on-demand exclusive cannabis roundtable.