ESOPs Could Be the Cannabis Industry’s Most Powerful Equity Tool

Talking about equity in cannabis can feel a little . . . abstract. The
industry says all the right things about inclusion, empowerment, and
repairing past harm, but too often there’s a gap between the message and
the model.

That’s where ESOPs can be helpful. Short for Employee Stock Ownership Plans,
ESOPs present one way to turn the industry’s big ideals into something
tangible — a rare moment when finance, leadership, policy, and social equity
align. In an industry where social equity often is defined only by
licensing, ESOPs can be game-changers. Through work and tenure alone — no
financial investment required — budtenders, trimmers, and managers gain a
material stake in the businesses they help grow. A paycheck covers the
bills but ownership builds a future, and ESOPs create generational wealth
opportunities for people historically excluded from ownership.

What’s more, the structure benefits owners too. When structured properly,
ESOPs allow owners to defer, and in some cases eliminate, capital gains
taxes on the sale of their business. In addition, companies that are
100-percent owned by an ESOP entity are exempt from both federal and state
income taxes, significantly increasing their available cash flow. While
Internal Revenue Code Section 280E still applies, it has no impact on a
100-percent ESOP-owned company because the business doesn’t pay federal or
state income tax. Finally, many founders who have sold their companies to
employees via an ESOP retain the right to purchase equity in the future
through warrants, essentially giving them a second bite at the apple. As
the company grows tax-free, the value of those warrants can increase
significantly, offering founders meaningful upside without ongoing risk.

Over time, workers build equity in the business too. When they retire or
resign, they receive a lump-sum payout based on the shares they’ve earned —
a potential nest egg.

Participation in an ESOP costs employees nothing. They don’t have to buy
in. Instead, ownership is earned simply by being employed. The higher the
pay, the more “stock” is allocated to their account each year; the longer
they remain with the company, the more shares they accumulate.

For business owners, ESOPs don’t require stepping away or handing the
company off to someone else. Many founders remain at the helm, guiding
their company’s growth and vision well into the future while working
alongside the people who know the business best: the employees. And when
the team has skin in the game, they show up differently. They’re more
committed, more productive, and more likely to stick around.

ESOPs are not stock options or profit-sharing. Stock options give employees
a chance to buy in and profit-sharing gives them a slice of the pie, but
ESOPs give them a seat at the table.

The benefits of ESOPs are backed by data. Researchers at Rutgers University
found productivity increases by about 4–5 percent per year at companies
operating under an ESOP model. That might not sound huge, but it adds up
fast. And retention? That can jump by about 300 percent, according to
*Forbes*: Turnover for ESOPs is around 10.8 percent, whereas companies with
traditional structures typically experience turnover of about 27.1 percent.

Think about that in the context of the cannabis industry, where turnover is
high and burnout is real. When employees become owners, they don’t just
clock in and out. They think like business partners. They care more. They
stay longer. And the entire company benefits.

The industry benefits too, because ESOPs aren’t just a smart business move.
They also can be a tool for economic justice. The war on drugs devastated
communities across the country. Now that cannabis is legal, we have a
responsibility to include the people who were left out (or pushed out) of
the traditional economy. We get to decide what kind of economy we want to
build. ESOPs can be part of the solution.

ESOPs won’t solve everything. But they’re one of the few models that
deliver on the promise of equity while benefiting owners and employees
alike.

If we’re serious about making this industry equitable — not just in theory
but also in practice — then it’s time to start sharing the table. Ownership
shouldn’t be reserved for the top. There should be a path for anyone who
shows up and puts in the work.
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Employee Stock Ownership in Cannabis: Key Questions Answered

1. What is an ESOP in the cannabis industry?

An ESOP (Employee Stock Ownership Plan) allows cannabis employees to
earn company shares through tenure and work, creating ownership
opportunities without requiring financial investment.
2. How do ESOPs benefit cannabis business owners?

ESOPs can provide tax advantages, succession planning options, and
long-term growth opportunities while keeping founders in leadership roles.
3. How do ESOPs impact cannabis employees?

Employees gain equity over time, receive lump-sum payouts at retirement,
and are more engaged, productive, and loyal compared to non-ESOP workplaces.
4. Why are ESOPs important for cannabis social equity?

ESOPs extend ownership opportunities to workers historically excluded
from the industry, helping close wealth gaps created by the war on drugs.

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[image: Headshot-1 Darren Gleeman MBO Ventures]

*As managing partner at MBO Ventures, serial entrepreneur and prolific
angel investor Darren Gleeman assists clients with employee stock ownership
plans (ESOPs) and capital management. Previously, he served as managing
partner at hedge fund GB Trading. Gleeman holds a patent on ESOP
methodology for the cannabis industry and received Green Market Report’s
2024 Top Financial Advisor award.*