We’ve experienced a “Green Rush” in cannabis, no question. The initial growth paired with a flood of investment dollars years ago, mergers and acquisitions, and recent consolidation in cannabis is comparable to the mid-1800s Gold Rush. The problem is, most of the people benefiting from all of this are typically those at the top or the few with equity in the businesses.
Ensuring fair wealth distribution and economic opportunity within the industry is the idea of “Green Equity” as I like to call it. It’s no secret that the cannabis industry has faced historically economic injustices across marginalized communities.
We need to consider equity-building models in cannabis (think social equity programs) as a viable path to wealth-building for employees. But the one equity-building solution that rises above all others is the Employee Stock Ownership Plan (ESOP). Here’s the scoop on what ESOPs are and how they create a path toward a more equitable cannabis industry.
The Cannabis Industry’s Wealth Gap
Corporate takeovers in cannabis tend to push out early pioneers and employees, leaving passionate workers searching for another position elsewhere. Not to mention, many cannabis workers lack access to financial benefits like stock options or equity stakes in the companies they’re working for. Sure, there are social equity programs at play, but most don’t provide long-term financial security for employees.
It’s time to bring the power to the people with an ESOP structure.
What is an ESOP?
An ESOP is simply another way for a company to sell itself. Business owners can either sell to private equity, a strategic buyer, or directly to their employees through an ESOP structure.
Why sell to employees? It’s great to reward those who work alongside you, of course. The incentive for business owners lies in significant tax benefits provided by the government to encourage employee ownership.
Key advantages for business owners include:
- Capital Gains Tax Deferral: Selling to private equity incurs capital gains tax. With an ESOP (if structured correctly), businesses can defer or even eliminate this tax entirely.
- No Federal or State Income Tax: A 100% ESOP-owned company pays no federal or state income tax, effectively doubling its cash flow.
- Government-Subsidized Purchase: The government helps finance the ESOP transaction by subsidizing the debt. This means the employees don’t need to put up any of their own funds to gain equity.
As for the employees, once they gain equity in the company, they build wealth as company shares increase in value.
With stock options or profit sharing, only certain employees typically participate. Profit sharing, for example, distributes a small percentage of annual profits, often just 1-3%, as extra income. This provides short-term financial benefits but doesn’t offer true ownership.
An ESOP, on the other hand, grants employees actual ownership in the company. Unlike profit sharing, where payouts happen annually, ESOP participants build equity over time, similar to an owner reinvesting in the business. The real financial reward comes when employees retire or exit, often resulting in a much larger payout than traditional profit-sharing plans.
Key advantages for cannabis employees in an ESOP include:
- Wealth Building for Workers: Budtenders, cultivators, and processors get a financial stake in the company’s success, leaving them with greater financial stability.
- Preserving Culture & Legacy: Unlike corporate acquisitions, ESOPs allow founders to pass ownership to employees who care about the company’s mission, giving passionate employees the opportunity to take ownership of the business.
- Stability in an Unstable Market: ESOPs help businesses remain independent rather than being absorbed by larger, profit-driven corporations.
The Future of Fair Cannabis Business
ESOPs in cannabis will become much more common in the near future. I’ve already completed eight ESOPs and expect to do at least six more this year. The more people see it in action, the more they adopt it because they can visibly recognize the benefits for the business, the owners, and the employees.
The biggest hurdle is education. Many business owners simply don’t realize ESOPs exist as an option. But as more companies implement them and experience the benefits, like operating tax-free and doubling cash flow, adoption will accelerate.
But most importantly, widespread ESOP adoption would make true equity and inclusion a reality in cannabis. Many in the industry talk about these values, but ESOPs actually deliver them—giving employees real ownership rather than just symbolic participation. It’s capitalism at its best, creating long-term wealth for those who help build these companies from top to bottom.
About the Author
Darren Gleeman is the Managing Partner of MBO Ventures, the cannabis industry’s premier ESOP investment bank. The firm provides ESOP (Employee Stock Ownership Plan) expertise and will also invest its capital alongside company owners and/or management teams. In 2023, Darren received a patent pending for his ESOP methodology used in completing the cannabis industry’s first ESOP, alleviating tax implications of 280E for a plant-touching multi-state operator, Theory Wellness. Darren was also awarded the Green Market Report 2024 Top Financial Advisor Award.
MBO Ventures is the cannabis industry’s only investment bank dedicated to Employee Stock Ownership Plans (ESOPs) which make the negative tax implications of 280E irrelevant. Led by Managing Partner, Darren Gleeman, the firm earned distinction in 2023, with a patent pending for its groundbreaking ESOP methodology. This methodology played a pivotal role in executing the cannabis industry’s first three inaugural ESOPs.
