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Weed Cannabis companies look for legal protection to offer 401(k)s

As more states have legalized cannabis for medical or recreational use and more companies have jumped into the business of selling cannabis products, the retirement plan industry has been taking note. Retirement service providers want to make sure that the cannabis industry’s growing workforce has access to a retirement plan — and that they capitalize on the market opportunity.

The Insured Retirement Institute, a trade association for money managers and other financial services firms including insurance companies with record-keeping businesses, for example, is backing legislation — the Secure and Fair Enforcement Banking Act of 2021, or the SAFE Banking Act — that would protect and insulate from liability institutions offering and administering retirement plans or individual retirement accounts for the employees of cannabis companies that are regulated and licensed by a state.

“Without certainty or clarity, retirement plan providers are concerned about the risk of violating anti-money laundering laws if they offer retirement plans for employees of a business that engages in quote-unquote illegal activities under federal law,” said Paul Richman, chief government and political affairs officer at IRI in Washington.

Without doubt, the legal cannabis industry has been on a tear, posting robust job growth in excess of 27% annually for the past five years, according to the most recent Leafly Jobs Report, an annual analysis of employment in the legal cannabis sector. As of January, it supported 428,059 jobs, employing more cannabis workers than firefighters or machinists or bank tellers or insurance sales agents or even hairstylists, barbers and cosmetologists combined, the report said.

Last year, the cannabis industry created more than 107,000 new jobs, after adding nearly 33,000 in 2019 and more than 77,000 in 2020. Still, the industry is nowhere near its employment potential, with Leafly projecting a total workforce of approximately 1.5 million to 1.75 million workers once the legal cannabis market in the US hits maturity.

With such strong job growth, the retirement industry wants to make sure that it will be able to help cannabis workers “save for their retirement at their workplace as other workers would do,” Mr. Richman said.

For now, though, the retirement industry has its hands tied. With cannabis considered an illegal drug under federal law, record keepers are steering clear of cannabis-related businesses even if operating legally under state law. The Bank Secrecy Act and other federal laws that govern financial institutions are preventing them from serving cannabis companies because “there’s a worry over being involved in and assisting in what would be considered money laundering,” said Andrew Adams, a senior associate and leader of the labor and employment practice group at DarrowEverett LLP in Boston.

“What’s holding them back is the fear that their regulators are going to come after them,” he said.

Mr. Adams explained that taking cash from workers in a federally illegal business and then “reformatting that into a stock” or equities in a mutual fund offered in a 401(k) plan could be construed as money laundering.

Mr. Adams also noted that the Bank Secrecy Act requires record keepers to file suspicious activity reports with the Department of Treasury’s Financial Crimes Enforcement Network when an institution suspects any kind of crime relating to fraud or funds being derived from unlawful or illegal activities.

Financial institutions that fail to comply with the monitoring and reporting regulations are subject to civil and criminal penalties, including fines and regulatory restrictions, Mr. Adams said.

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