An Overview of Wages in Cannabis
Welcome to theDailyBlunt, today is Tuesday, August 15, 2017, and it likely will be all day.
Today we’re looking at a report that recently came out of the Washington State Institute for Public Policy that focused on employment data for the cannabis industry here in the good ole’ W-A.
The report, focusing on data collected between January 1, 2014 through December 31, 2016 (the most current data) reports on wages and number of Full Time Equivalent (FTE) jobs.
The report came with a bunch of cool graphs, all of which can be found in the report here
Some of the most interesting data deals with what the average wages across all license types in the state. What is noteworthy about this graph is that the median hourly wage is actually in many cases significantly lower than the average hourly wage in the same business size bracket, particularly within the 0-4 and 9-19 FTE employee ranges.
There are multiple sensible explanations for this phenomenon for each business size bracket, which I’ll briefly touch on, but there is also a much more interesting “gray area” cause that I’ll get to later.
The first reasonable explanation for this “average vs. median disparity” licenses which have 0-4 employees is that there is likely one person, the owner, who is paying themselves a decent salary for tax purposes. To summarize a complex topic, (that also factors in to your 280E form) this is because you are federally taxed on your net income, rather than your gross income. So the more you can expend on your business, the better your tax bracket might be. DISCLAIMER: We are not accountants. ALWAYS speak to your accountant prior to making any decisions.
The reasonable explanation for businesses 9-19 FTE employees in size is that by that point, you’re a little bit of a sizable operation! Congratulations, you’re (probably) doing something right! Maybe by now you’ve got a few people who necessitate a higher salary, like a master grower for your producer licenses or a chemist for your processor operation. The owner paying him or herself for tax purposes is still a factor here, as well.
Okay, now for the interesting stuff. Because of the nature of the business that we’re in, we have helped and continue to help bring deals together. As the industry grows, we’ve been receiving more phone calls, and attention in general, from out-of-state investors. In most other industries, it’s probably unlikely (warning: we’re not economists) that outside investors are going to impact the wages of an industry’s employees.
This is not the case for the i502 industry.
Because of how state regulations are set up, to take a cut of profits in an i502 license, you are considered a “party of interest”, which means you must be a state resident. In our experience, this deters the less serious investors. However, the savvier businesspeople aren’t letting this get in their way.
What we have noticed is that out-of-state investors are establishing terms with their new Washington-based partners to make them employees of the company they’re investing in, or to receive a “salary” as an additional perk – a “ghost salary” for which they never show up. This way the investors can get around the party of interest rule, while still reaping favorable returns on their investment.
We’re not saying that we’re either for or against this practice, just that we’re noticing that it is a symptom of marketplace conditions.