Think You’re Ready for Payroll? Here’s Why Your Cannabis Business Might Not Be—Yet

I think we all can admit that Running a cannabis business is no easy task without the right support. With the complexity of compliance, banking restrictions, and constantly changing regulations, adding payroll to the mix can feel overwhelming. But here’s the truth: Rushing into payroll without proper preparation can cost you big time, and delaying it for too long could hinder your growth.

So, how do you know if your cannabis business is truly ready for payroll? In this guide, we’ll walk you through the critical factors and help you avoid costly mistakes before they happen.

Compliance and Licensing: Think You’ve Got it Covered?

Compliance in the cannabis industry is like a moving target—just when you think you’ve got it down, new regulations can pop up. 

Many business owners feel confident with just their state license, but here’s where things get tricky: State licenses are only part of the picture. Without proper local permits and up-to-date employee classifications, you might still be at risk.

"I already have my state license—why isn’t that enough?"

State licensing is just one part of the equation. Local compliance is just as crucial. For example, in California, failing to meet local permit requirements can lead to massive fines—even if you’re operating with a state license.

A dispensary in Oregon thought they were in the clear with their state license but later faced a $30,000 fine for misclassifying employees as contractors. Their payroll was delayed for months, creating chaos within their operations and hurting their reputation.

You might think you’ve covered all your bases, but even small gaps in compliance can lead to significant financial setbacks.

 Payroll should only be set up when you are completely compliant at all levels—state, local, and even federal (when it comes to taxes).

 Getting payroll wrong could cost you far more than you think, and that’s a risk you don’t want to take.

Regulatory Challenges: Aren’t They Just a Small Hurdle?

It’s easy to assume payroll is a routine business function, but in the cannabis industry, payroll regulations come with their own set of rules and complexities

. Handling payroll the same way other industries do could lead to unexpected issues.

"I’ve been managing my payroll manually, and it’s working fine. Why change it?"

Manual payroll might work for now, but the risk of errors increases as your business grows. Cannabis regulations shift frequently, and payroll processes need to adapt to these changes. Plus, relying on banks that don’t cater to cannabis businesses could lead to flagged transactions or even frozen accounts.

A Colorado cultivation company thought their manual payroll system was working smoothly—until their bank flagged cannabis-related payments as suspicious.

 Their payroll was frozen for weeks, employees left, and the business was stuck in a legal nightmare, all because they weren’t using a cannabis-friendly payroll system.

If you’re manually managing payroll or using a non-cannabis-friendly bank, you’re sitting on a ticking time bomb. 

Automating payroll with a specialized provider like Paragon ensures you’re prepared for growth and shields you from potential regulatory pitfalls before they spiral out of control.

Too Early or Too Late: Why Timing Matters for Payroll

Getting payroll timing right is essential for your cannabis business. Setting it up too early can cause tax headaches, while waiting too long can lead to disorganization, compliance issues, and disgruntled employees.

"I want to set up payroll early to show my employees we’re serious about this business."

While being proactive is commendable, rushing into payroll before you’ve fully sorted out compliance, taxes, or banking issues can cause more harm than good. Payroll mistakes—like tax errors and missed deadlines—can erode employee trust faster than taking the time to do it right.

"We’re too small to need a payroll system right now; we can wait."

Even small cannabis businesses need an organized payroll system. Waiting too long creates chaos when you begin to scale, and employees might leave if their payments aren’t accurate or timely.

Missed compliance deadlines can also trigger hefty penalties that could have been easily avoided with an automated system in place.

According to the National Payroll Reporting Consortium, nearly 40% of small businesses face penalties due to payroll errors, and cannabis businesses, given their unique regulatory challenges, are even more vulnerable (NPRC).

Delaying payroll too long or jumping in too early can cost you big. Setting up payroll when your business is truly ready will save you from costly errors, help retain employees, and keep you compliant with cannabis regulations.

 The cost of getting it wrong could be higher than the investment in doing it right.

What Needs to Happen Before You’re Ready for Payroll?

Before you dive into payroll, your cannabis business must complete several critical steps to ensure that payroll runs smoothly. Skipping these steps can lead to unnecessary challenges and increased costs down the road.

Here’s what you need to do:

• Get Proper Licensing: Ensure you have both state and local licenses in place. Rushing this process or ignoring local permits can cost you later.
• Secure Cannabis-Friendly Banking: Use banks that actively support cannabis businesses to avoid issues like frozen accounts or flagged transactions.
• Understand Your Regulatory Obligations: Cannabis employment laws differ from other industries. Ensure you’re aware of what’s required before you pay your first employee.
• Choose the Right Payroll Partner: Not all payroll providers are equipped to handle the complexities of cannabis businesses. Find a partner, like Paragon Payroll, who understands the regulatory landscape and can help you stay compliant.

"Why can’t I just use a regular payroll provider?"

Traditional payroll providers don’t have the specialized knowledge to navigate cannabis-specific compliance.

From federal restrictions to cannabis-specific banking, working with an industry expert like Paragon Payroll ensures you’re not vulnerable to compliance issues, delays, or getting dropped by a provider unfamiliar with your business’s needs.

A cannabis business in California was dropped by their payroll provider once they realized they were in the cannabis industry.

The scramble to find a new provider caused them to miss payment deadlines, lose trust with employees, and suffer increased turnover.

Avoid Payroll Pitfalls and Set Yourself Up for Success

Payroll is a critical area where you can't afford to make mistakes.

Payroll is about more than just paying your employees. It's about staying compliant with the law, building trust with your team, and protecting your business from costly errors that can hurt your bottom line.

If you're currently managing payroll manually or feeling unsure if your current setup is enough, now is the perfect time to reassess.

Consider exploring payroll solutions specifically tailored for the cannabis industry—there are great tools available to streamline your processes and keep you compliant.

Resources like Paragon Payroll's cannabis-specific payroll solutions or isolved’s compliance tools can help ensure that you're on the right track. There are also guides and checklists from organizations like MJBizDaily to keep you updated on industry best practices.

Remember, the cost of fixing payroll errors later—whether it’s fines, back pay, or lost employee trust—can be far more expensive than setting it up correctly from the start.

Take advantage of these resources to help safeguard your business and set yourself up for long-term success.

The Best Next Steps:

• Evaluate Your Compliance: Are your state and local licenses current and in order?
• Check Your Banking Situation: Are you working with a cannabis-friendly bank?
• Reach Out for Expert Advice: At Paragon Payroll, we specialize in cannabis businesses and know the ins and outs of your unique challenges.

We’re here to make the payroll process easier, safer, and fully compliant—so you can focus on growing your business. Let’s talk about how we can help.

Payroll might seem like a small operational step, but getting it wrong can lead to massive consequences—compliance failures, fines, delayed payments, and employee turnover. Don’t risk your business’s future. 

Reach out to Paragon Payroll to ensure your payroll system is set up for success. We’ll help you stay compliant, avoid costly mistakes, and build trust with your employees.