Member Blog: Compensation in the Wild West of Cannabis

by Fred Whittlesey, Founder, President, and Principal Consultant of Cannabis Compensation Consultants
Member of NCIA’s Human Resources Committee

At the NCIA Cannabis Business Summit & Expo next week, there will be a panel session titled Cultivating Your Workforce. As a member of the NCIA Human Resources Committee, I have been actively involved in putting this together, and as a compensation expert, I wanted to ensure there is going to be, of course, a lot of discussion about compensation – executive compensation, incentive compensation, and employee ownership.

It’s appropriate that this month’s #CannaBizSummit is being held in San Francisco, arguably the historical culmination of Wild West culture, with the Gold Rush as its driver. Not unlike today’s cannabis industry – a gold rush of sorts, by federal definition a lawless community, and a community culture of moving fast and defining as we go.

As a compensation expert, I typically prefer a more orderly and well-defined world, which is why I am fascinated with working in the field of compensation in the cannabis industry. It’s challenging because I am in the business of answering clients’ questions about compensation. It’s not always easy to do in cannabis.

There are three factors that explain where we are today in understanding and analyzing compensation levels and practices in cannabis, and three driving forces that will take us from today’s Wild West to tomorrow’s still innovative, still creative, but a bit more business-like approach to compensating employees in cannabis companies.

Today

No valid compensation surveys or databases exist for the cannabis industry. There are various publications that self-label as “surveys” but are merely data compilations missing the rigor of survey methods that have been established over the past decades:
Little or no definitions of jobs
Extremely wide ranges that defeat usability
Reports of cash compensation only, some with base salary only
Very small sample sizes, often not disclosed
No list of participating companies

In short, they’re not compensation surveys. Established survey companies have not entered the cannabis market due to legal and/or stigma factors. They will, eventually. But they’ll be late to the party, so to speak.

For now, we have no real market data. Except for some executive positions…

For executive positions and equity compensation plan design details, data from public company securities filings continues to be the most valid and reliable source
Securities and Exchange Commission EDGAR filings (U.S.)
System for Electronic Document Analysis and Retrieval (SEDAR) (Canada)

Despite currency, cultural, and governance differences, combining U.S. and Canadian data makes sense given the integrated labor market for talent. But it’s no easy task.

Unlike for publicly-traded companies in the U.S., executive compensation information for cannabis companies is difficult to obtain and interpret for multiple reasons:

Most companies are listed on Canadian exchanges
The Canadian disclosure requirements are less rigorous, such as:
Lack of a single table for all forms of executive pay
No dollar value required to be calculated for equity compensation grants
Limited disclosure of the history of equity compensation grants
A high rate of errors and omissions compared to U.S. filings (as I discussed in MJBizDaily)
Companies whose shares are traded in the U.S. are not on major exchanges and not subject to the extensive disclosure requirements of NYSE and Nasdaq companies. This is changing – as exemplified by last week’s listing of the SPAC Canna-Global Acquisition Corp (NASDAQ:CNGLU) on Nasdaq, but SPAC listings have a reduced set of disclosure requirements. (full disclosure: I am an investor in CNGLU.)
Most companies are of a size and status (e.g., Emerging Growth Company) that also have reduced pay disclosure requirements.

So, despite what is a rich source of executive and equity compensation data which we have relied on for decades now, these databases are not (yet) of the same usefulness as for other industries.

And even if we didn’t have those tactical issues… the characteristics of the cannabis industry exacerbate these difficulties:

Smaller companies and private companies
High-growth stage, resulting in the lag time in reporting rendering the information significantly out-of-date
High concentration of founders and insider ownership, which results in compensation levels and practices that are not free-market based – one CEO taking zero compensation and another in the 8 figures.
Top-heavy C-level position structures, e.g., an Executive Chair and a CEO and a President and a COO – too many chiefs
High levels of turnover and movement of executives among internal positions. A good is example is from 4Front Ventures’ most recent filing:

So, the question of how much this company pays its top executives… is an unanswerable question. I wonder if even the company could answer that question?

Tomorrow

The turbulence in executive compensation levels and practices will lessen, and our knowledge and understanding will improve, when three trends converge:

More public companies, including SPAC deals, and continued M&A activity, bring in more outside investors with expectations of corporate governance and practices consistent with other industries in which they are invested. This also will have the effect of lessening the influence of founders as more “professional” (hired external) Board members are added to the governance structure.
With more public companies will come more market data, as we have for most industries today both in the U.S. and Canada. While limited to the top 3 or top 5 executives in each company, these disclosures provide a factual and verifiable dataset for the most senior positions, for the use of equity compensation for employees, and for the breadth of executive compensation arrangements such as new hire packages, severance and change in control agreements, and various perquisites.
And of course, legalization. With the U.S. federal restrictions and the associated stigma removed, cannabis companies will become subject to the same governance, institutional investor and proxy advisor pressures, and the large consulting firms will push them toward the ISS/Glass Lewis “playbook” approach to advising. I’m not saying that’s a good thing, because it’s not, but we already see it happening in Canada where large multinational compensation firms are overlaying the boiler-plate ABCs.

It is my hope that the innovation and creativity we see in the cannabis sector today will not suffer from these three dynamics. There’s nothing wrong with living in the Wild West, if you’re comfortable with fewer rules, fewer constraints, and less transparency. But it helps when there is a Sheriff and a couple of Deputies in town.

This conversation is not limited to executive compensation. Equity compensation for all employees is a common aspiration in cannabis companies. Equity compensation plans are always complex to design, implement, and administer and are exponentially more so in cannabis companies. Complex organization structures with public entities, private companies, LLCs, and even nonprofits all bring talent from diverse industries with vastly ranging experience with and expectations for equity compensation.

A trimmer coming from agriculture or a Dispensary Manager from specialty retail has likely not received equity as a component of their compensation in the past.
A chemist coming out of biopharma or a software developer, if told there is no equity compensation plan for all employees at your company will be, at the least, disappointed if they even continue interviewing with you.

Similarly, a candidate from the financial services world may be surprised that every employee is not participating in one or more cash incentive plans, not just the sales reps.

There is a LOT of work to be done on compensation planning in the cannabis industry, and I’m thrilled to be right in the middle of it.

Fred Whittlesey is the Founder, President, and Principal Consultant of Cannabis Compensation ConsultantsTM, a Compensation Venture Group SPC company.

Fred is a member of the NCIA Human Resources Committee and the NCIA Sustainability Committee.

Fred is recognized by corporations, professional organizations, universities, media, and colleagues around the world as a compensation expert and thought leader. His ideas have been presented in numerous book chapters, journal articles, media interviews, conference and seminar presentations, and hosted blog postings.

Fred’s thought leadership in the field of compensation is evidenced by his delivery of more than 300 conference presentations, seminars, certification courses, webinars and podcasts. He has presented and taught in 26 US States, 4 Canadian Provinces, UK, Ireland, France, Germany, Netherlands, Switzerland, Turkey, and Indonesia.
He has authored more than 50 peer-reviewed journal and magazine articles, book chapters, white papers, and sponsored papers. He has been a paid writer for PayScale.com, Salary.com, InvestorJunkie.com, and SeekingAlpha.

Fred has been interviewed and quoted more than 100 times by more than 35 different media sources including Associated Press, Bloomberg, Business Week, Fortune, New York Times, Los Angeles Times, Orange County Register, Seattle Times, San Jose Mercury News, and San Francisco Chronicle. He has been retained to conduct research to support investigative journalism for The Los Angeles Times and The Boston Globe.

Cannabis Compensation ConsultantsTM is a division of Compensation Venture Group SPC, a Washington Social Purpose Corporation. The company is a Green America Certified Business.

The firm specializes in compensation strategy, executive and director compensation, equity-based compensation, incentive design, and employee pay with a focus on sectors driven by innovation. We also provide expert witness and litigation support for civil litigation and regulatory matters. Our clients include Boards of Directors and executive teams of public and private companies, LLCs, S corporations, and foreign subsidiaries.

Our Canadian sibling consulting firm is Conscious Compensation Group Inc. in Squamish, BC.

Video: NCIA Today – July 30, 2021

NCIA Deputy Director of Communications Bethany Moore checks in with what’s going on across the country with the National Cannabis Industry Association’s membership, board, allies, and staff. Join us every Friday here on Facebook for NCIA Today Live.

Committee Blog: Returning To Work During COVID-19

By Heidi C. Quan and Jeffrey David
Members of NCIA’s Human Resources Committee

Now that COVID-19 shelter-in-place orders have eased restrictions for businesses to re-open across the country, employees and employers alike will have questions about returning to workplaces. Each city, county, and state will have its own specific requirements as to when and how you can re-open your business so you should be sure to check your own regional and municipal requirements. Whether you are getting ready to re-open or have been operating, we provide some FAQ’s to help facilitate a safe and compliant operation for your cannabis business in this new COVID-19 era.

Do my employees have to come in?

The short answer is yes, with caveats. You have the right to request that your employees return to work where the local rules allow for it. Please keep in mind that your re-opening must comply with local guidelines in order for you to require your employees to return to work. However, simply notifying them to return to work is only the start of the process. If they qualify for certain leaves, they can take that. Remember that the new Families First Coronavirus Response Act (FFCRA) will be effective until December 31, 2020. If they require accommodations, these need to be considered. Otherwise, if an employee has no special consideration and you need them in order to operate, you can take action if they refuse to return.

The practical reality is that many people are hesitant and afraid to return to work, especially without knowing how they will be protected. Most employers are being flexible about when and how they are bringing employees back to the workplace, especially if employees have been successful with working from home, have childcare issues, or are in a vulnerable population. If you are creating a workplace protection plan (see FAQ #2), consider sharing that plan in advance with your employees to ease their minds and make sure everyone knows what to do when they return to work.

Always remember, there is a difference between someone saying that they don’t want to return to work because they are generally afraid and someone saying specifically “I’m afraid to come back because I am immunocompromised.” And remember that an employee does not need to specifically ask for an accommodation. Simply advising that they are immunocompromised triggers your requirement to engage in the interactive process, which could result in modified hours, a special mask, moving a workspace, continued telecommuting, different job duties, or a leave of absence.

How can you keep employees safe?

With a pathogen as contagious and lethal as the coronavirus that causes COVID-19, employees will rightly want to know how they will be protected. To reassure employees, create a workplace protection plan that addresses the identification and isolation of sick employees, social distancing, workplace hygiene, and workplace cleaning. Share all safety steps that are being taken to maintain a safe work environment with your employees. Of course, each workplace is unique and will require different policies tailored to their specific sites.

General policies you should consider adopting include enforced safe distancing policies, temperature and/or daily question screenings, continued education on the importance of frequent hand-washing, cleaning and sanitizing of workspaces, minimal face touching, staying home when sick and self-monitoring of symptoms. Some examples to help maintain a safe worksite include having ample hand sanitizers available throughout the worksite, keeping office doors closed, wearing appropriate face coverings, marking off the 6-foot spacing with tape or other indicators, designating hallways and stairways as one-way, propping open doors to eliminate the need to touch handles, adding Plexiglas barriers at workspaces. Employers may also consider closing common areas or limiting the number of people who may use such spaces at a time.

Does the company have the right to ask about employee health history and take temperatures?

Yes. Employers are allowed to ask about coronavirus-related symptoms and take the temperatures of employees under guidance from the Equal Employment Opportunity Commission (EEOC), and some states now require it. The EEOC also permits employers to mandate that employees be tested for the virus before entering the workplace under certain circumstances, such as known exposure to someone already infected by the virus.

Testing should be administered in the least invasive way possible, like utilizing temperature guns or forehead temperatures. Testing should take place at the earliest possible opportunity at the workplace, to protect employees who have made it through already. Consider staggering start times, so that lines do not form. If a medical professional or person with medical training is available, have them administer the temperatures. If somebody with medical training is not available or onsite, the company should consider whether managers or HR employees may be trained to administer and read the test results.

If temperature taking at the workplace is mandated, the time spent being tested and waiting for a test should be considered part of the workday, and the process should be well thought out to eliminate crowding. If an employer requires the temperature be taken at home before coming in to work, the employer should consider allotting a few minutes on employees’ time cards for doing so. Consideration must also be given to providing notice to employees of the temperature screening process, data being collected and kept (if any) and the consequences for failing a screening. Please note that any data collected must be kept securely and separate from employees’ personnel files.

If an employee is sent home after screening, can employers require temperature testing or a doctor’s note to confirm they are no longer infected?

Yes. If someone has been sent home due to symptoms, administering a temperature test before allowing the employee to return to work is appropriate as the CDC recommends individuals be fever-free for at least 24 hours to ensure they have recovered. The CDC also recommends that anyone who recently had close contact with a person with COVID-19 should stay home for 14 days. The CDC, therefore, recommends that potentially exposed employees who do not have symptoms should remain home for 14 days. In such situations, please refer back to the FFCRA for requirements regarding paid leave.

Additionally, the EEOC has clarified that the ADA permits employers to require employees returning to work to provide a doctor’s note stating they are fit for duty because the inquiry would not be disability-related and/or because confirming that an employee is no longer contagious is a legitimate business necessity. The EEOC notes, however, that “doctors and other health care professionals may be too busy during and immediately after a pandemic outbreak to provide fitness-for-duty documentation. Therefore, new approaches may be necessary, such as reliance on local clinics to provide a form, a stamp, or an e-mail to certify that an individual does not have the pandemic virus.”

Can employers require employees to wear masks or other personal protective equipment?

Yes. The Centers for Disease Control and Prevention recommends the use of “cloth face coverings to slow the spread of the virus and help people who may have the virus and do not know it from transmitting it to others.” Many employers are making face coverings part of the work uniform, especially for jobs that require physical proximity. Some states and localities have required face coverings in order for businesses to re-open. Be sure to check your specific region for your own requirements. However, keep in mind that employers may be required to either provide employees with masks or other personal protective equipment or reimburse them for the expense if required to do their jobs.

Also consider whether or not to require your customers to wear masks. There may or may not be a local requirement to do so, but customers are an additional COVID-19 vector that should be considered when preparing for your employees to return. Just like employers may deny service to customers without a shirt or shoes, they can deny service to customers without a facemask.

What happens if an employee gets sick with COVID-19? What happens if someone in an employee’s family gets sick with COVID-19 and the employee is the caregiver?

Employers need to understand state laws and federal programs which have been enacted to deal with this pandemic. The FFCRA provides paid sick leave for people affected by COVID-19, as well as paid emergency family leave under certain circumstances including when the employee’s child care is unavailable for reasons relating to COVID-19 or when the employee must care for someone subject to a quarantine order or advised by a healthcare provider to self-quarantine. The United States Department of Labor has issued a helpful summary of FFCRA.

What if a co-worker gets sick?

Privacy rights must be maintained, but employers must also maintain a safe workplace and the law allows for them to do so. If temperature screening reveals a fever, that employee should be immediately sent home with return-to-work instructions. The employer should follow up with the employee regarding who they worked with, all the locations they worked and any other information to be able to notify all individuals who the employee came into contact with and comply with the most current local, state, and federal public health recommendations. If an employee calls in sick specifically with COVID-19, the employer should do the same. Actions may include closing the worksite, doing a deep cleaning, and/or requiring employees to work from home for a period of time. If deep cleaning is called for, the CDC recommends hiring professionals.

Under no circumstances should sick employees be identified by name. Notification to affected employees must not reveal any personal health-related information of an employee.