As the industry’s overall reach and the relative size of its companies continue to grow, ancillary companies like Denver, Colorado-based Würk add much-needed guarantees and efficiencies to cannabis operations that managers in other industries take for granted. A SAAS-based Human Capital Management (HCM) company founded in 2015 by Keegan Peterson, who passed away last year…
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As the industry’s overall reach and the relative size of its companies continue to grow, ancillary companies like Denver, Colorado-based Würk add much-needed guarantees and efficiencies to cannabis operations that managers in other industries take for granted. A SAAS-based Human Capital Management (HCM) company founded in 2015 by Keegan Peterson, who passed away last year at the age of 33, Würk, in its own words, “allows cannabis companies to manage payroll, human resources, timekeeping, scheduling, and tax compliance, and minimizes compliance risks in the ever-changing cannabis regulatory environment.” Operating in 31 states, including California, Colorado, Oklahoma, Illinois, New York, Nevada, as well as in Canada, the company recently added 401(k) options for its cannabis clients, a move whose importance cannot be underestimated, according to current CEO Scott Kenyon, who spoke with CBE last week about expanding options for employers and employees in an industry still finding its way.
“Let me paint a picture,” said Kenyon, when asked about the evolution of the industry from an HR perspective. “When we started, everybody in the industry was being paid in cash. Whether it was tax collectors, employees, whomever, everything was in cash. Fast forward to today, we still have lots of room to go, but now we’re able to offer 401k contributions and matching programs. When Würk started in 2015, our goal was to provide the same type of payroll experience that you have outside of the cannabis industry. Our founder and former CEO, Keegan Peterson, came from the payroll and what we call the human capital management space. He wanted to bring to cannabis everything that he knew everybody else got outside of cannabis. He had a couple of good friends who owned dispensaries and they would complain to him: ‘How can you help us solve it?’ So, he put together a team and started the company.”
Würk also provides guidance on 280E tax law, accounting, and compliant banking, utilizing a platform designed to scale nationally while incorporating local laws and regulations unique to individual states. “Würk is the first payroll provider, and only the third company in the cannabis technology industry, to complete a System and Organization Controls (SOC) 1 Type 2 Audit of systematic controls by a third-party CPA firm,” the company said in a statement.
“We do have a professional services group, but overall, even in the staffing industry, we are able to provide our customers with an extra touch point as or when needed,” added Kenyon. “Take a dispensary owner, say Tom’s dispensary. Two years ago, he owned Tom’s tire shop and was doing a great job. Then he said, ‘Let’s get into this green craze of cannabis’ He started a small business, and it was nearly impossible to get a license, and with all the compliance requirements, now he’s spending a ton of time just making sure he doesn’t screw anything up and get in trouble with the licensee. In the end, he’s like, this is a lot harder than running a tire shop because of all the compliance, and what happens is he isn’t able to take care of payroll or HCM, which really allows you to lead and manage your organization, because he was being taken away by everything that’s required to make sure you’re in compliance.”
What if Tom had four tire stores, I asked. Would he have already incorporated HR software for his 50 tire employees?
“Most likely he’s really close to getting there,” said Kenyon. “When people switch from doing their own payroll in a normal non-cannabis vertical, that tipping point is usually about 50 employees. In cannabis, however, it’s anywhere from 10 to 15 employees, because there are so many distractions, so many different things that are taking their energy, they need somebody to come in and make sure they are paying their taxes correctly and have a system for their employees. And just as importantly, they have to be able to recruit talent, and one of the biggest things around having a 401k is to be able to attract different talent from different verticals. That’s table stakes. Like dental and vision should be considered the norm and not add-ons, 401k is 100 percent considered the norm. When you don’t have that to offer, it makes people think, do I want to take this job?”
Software solutions are not new to cannabis, of course. Retail and other segments of the industry have experimented from the start with proprietary and third-party software designed to provide immeasurable benefits to every aspect of the business, only to find that much of it was not up to snuff in terms of its efficacy or being able to efficiently integrate with programs supporting the supply chain.
“Think back to when mobile became a thing and everyone said their software, their API, will work perfectly on mobile,” said Kenyon. “Well, it didn’t, it never did, and it would have taken a ton of work. Fast forward to the cannabis industry as these ancillary POS software companies started up; no one was building their software thinking that they were going to integrate with everybody, or anybody. They just wanted to be the best POS system, or they wanted to be the best tracking system.
“Early on,” he continued, “we said we wanted to have an open system that we can integrate as easily as possible with other ancillary companies. And just like in the early days of mobile, everybody thought it would be easy. Well, we became the experts at it because it was so hard to do, and to this day, we’re still coaching these other companies on how to adjust their codes that allow us to come in there and integrate with them easily. Because at the end of the day, our customers, their customers, want to have things like single sign-on, and they want to have their data talking back and forth. So, as the industry matures, the needs of my customer, specifically the HR professional, matures as well, and they’re demanding more and more each year.”
Würk counts among its clients small and midsize companies as well as some of the largest MSOs in the industry, an amalgam of businesses that allows the company to keep a firm finger on the pulse of employment trends in this industry, “One thing that really surprised us in the back half, and really Q4, of last year was that our small businesses and mid-sized businesses started to shrink going into September, October, and even November, where historically they would rise up for the holiday season,” said Kenyon of recent growth trends. “What we saw was those folks started to, for lack of a better phrase, right-size on the employee side, and we didn’t see that with the MSOs. Well then, fast forward and the MSOs started catching up in October, November, and December. So, you’re right, we see data, we track it by state, and by business. Are they fully integrated, are they just a manufacturer, or just a grower? We’re tracking that information all the time to see where those trends are so I can more effectively manage our business. But overall, the industry, despite shrinking in Q4, had an amazing year last year, averaging 280 new jobs a day. I mean, no other industry does that. Our data is very valuable, and as far as our customers, we have everything from the common Tom’s to eight of the top 10 largest MSOs. And now, with the recent announcement, we have the largest acquisition of Columbia Care by Cresco.”
There is, according to Kenyon, somewhat of a correlation between the industry’s growth and Würk’s growth as a company. In fact, he added, “Würk did grow faster than the industry. The industry grew a little over 30 percent last year and Würk eclipsed that by quite a bit, so we had a tremendous year last year.”
In terms of customers or revenue, I asked. “Customers,” clarified Kenyon, “but that correlates, because we’re cost-per-user on our software, so they are very similar in terms of revenue and users. But one of the biggest jumps we saw was in part-time employees. We saw a big jump on our platform of almost 100 percent year-on-year on part time employees. What our solution does, for example, using my example of the Tom dispensary, is if you hire a part time employee in California, and they work overtime on a Saturday, they don’t just get time and a half, because in California there’s an extra dollar allotment that the company has to pay because it’s a weekend, and our software is able to automate that. So, our end users – the owners of these companies that are using our platform – are able to focus on the most important things. There may be challenging regulations around overtime and different things like that, but when you have a solution that automates things like that and you don’t have to worry about underpaying or overpaying, that takes away a big chunk of your mental time and allows you to address it in other areas. So, part time is one of the biggest areas we’ve seen growth in, and then specifically, as a group, in all the legalized states, dispensary employees continue to be the fastest growing group. In certain states, it’s different. In California, automation is expanding very quickly, so a lot of the growth-type jobs are going away through automation.”
I was particularly curious about employee turnover levels in the industry, but it is the sort of information companies would rather not share. “We do,” said Kenyon when asked if they track turnover data. “But we don’t share that number because that’s very sensitive for our customers. But what I can tell you is that the industry has not avoided the great resignation. Our numbers are actually very similar to what you’re seeing outside of cannabis.”
“What’s interesting, though, is while there’s a great resignation, there’s a higher stickiness to the industry,” he added. “So, they may leave a Verano, but then go to a Cresco. They’re passionate about the industry, but they want to go where there’s the most opportunity for them and their given role, but also where there is a whole package selection regarding 401k, education assistance programs, a whole litany of things that can happen where people want to make sure their total targeted compensation is where they need to have it.”
Did the Great Resignation also bring people from other industries into this one? “100 percent,” replied Kenyon. “If you go back to 2015, the group of people that started in these different states became the experts and went state the state, but it was still a very small and intimate group of folks that were in the cannabis industry. It was not mainstream by any means. Well, fast forward to 2021, and you saw companies like Jay Z’s company, The Parent Company, hire their CEO, Troy Datcher, with 25-plus years with J&J, he led the Clorox division, led other divisions within J&J. To get a CPG guru like that into our industry is just amazing, and you see that at all levels – the CFO level, the executive level – but then also when you start getting into the brand marketing folks, the product marketing folks. I have had more people talk to me about product marketing. ‘Do you know any product marketing folks? We’re really having trouble finding those for cannabis.’ So, we’re starting to normalize as an industry and at the same time attract more talent from outside the industry, but it is our job as stewards for the industry to continue to make it more attractive and to attract the best talent out there.”
Does he have execs from, say, Coca-Cola asking if it’s time to make the leap into pot? “Yes,” said Kenyon without hesitation. “You know, I travel a lot for my job. Every time I sit next to somebody, and they ask me what I do, they immediately go, ‘I’ve always thought about that. How did you overcome the stigma?’ Because I didn’t grow up in cannabis. I came from the software world, so there is a deep fascination around it. And I’ll tell you, we just opened for our company a new Director of Legal position, and the amount of people that have applied from outside… and no one’s applied from the legal industry. I saw one resume; someone from a large city on the district attorney staff just applied. I wondered how many people they have prosecuted for cannabis.”
No doubt, I said, adding that law enforcement entering the industry remained a sore point for many for just that reason. That said, I assumed that staying on top of compliance was job number one for Würk. “The bigger thing for compliance for us is really around onboarding and ensuring that banking compliance is there for our customers, meaning there’s not any type of laundering going on,” Kenyon corrected me. “And we have a very strict compliance program that we put all of our customers through, and regularly test to make sure there’s nothing fishy going on in any of our accounts. And in doing that, we’ll move between $4 and $5 billion this year in payroll and taxes for the industry.”
I asked him to explain that part of the business. “We take the wire, we take the money from our customers, and then we process it and pay it out to the employees, and out to the tax departments around the country,” he explained. “We do that just as a typical payroll company would. We’re no different that way. Where we are different is we make each of our customers go through a compliance program to, again, ensure that we’re doing everything, so we don’t get flagged by auditors. And obviously, we aren’t dealing with big banks, because of federal legalization, but we have great banking partners around the country that allow us to move this money for these companies.
On the subject of cash and cannabis, I mentioned a few recent instances in which the California authorities – the cannabis tax regulator, local and state law enforcement – had relieved legal operators of their cash with no apparent due process. I wondered if situations like that could impact Würk.
“They could, but they haven’t yet because it’s usually just hitting one store,” he said. “But go back to the riots of 2020; you see a gas station getting looted or Louis Vuitton or whatever it was, but dispensaries got looted often around the country as well, but because of the lack of federal legalization and the lack of insurance, we’re trying to get the SAFE Banking Act passed. If we had that back then, these dispensary owners could have had insurance that protected them. I literally was going to have a meeting with an HR director who told me, ‘I can’t go because I’m going down to our store to help empty it out ahead of the riots they are expecting tonight.’ And that’s just not the way it’s supposed to be. It’s the same in Washington state. In the last seven days, there have been three people killed in cannabis robberies. And that’s not saying SAFE banking is going to prevent robberies, but it’s going to reduce them down to the normal level. Dispensaries are being targeted because of the amount of cash and because of the product.”
I mentioned the recent surge in lobbying efforts by MSO CEOs in support of SAFE and asked how the bill’s passage would impact Würk. “I was glad to see the major CEOs of the MSOs come together and have one common voice,” said Kenyon. “That hasn’t been the case over the last few years, so that’s a huge development for us. And SAFE banking – a great name, ironically – is just going to make the industry safer. Why politicians just don’t do that with the stroke of a pen, I don’t understand. I understand the More Act has a lot more behind it, like federal legalization, but SAFE banking. I mean, the banks want it, the industry wants it.
“But to your question overall, anything that’s better for our customers is going to be better for our company,” he added. “It will bring more competition for us, which I welcome. We’ve been in this industry for six-plus years, going on seven full years, and we have so much that we know and share with our customers to make their lives easier. A normal payroll company, name any of them, is not going to be able to come in here and service this industry the way we do, mainly because it doesn’t operate like any other vertical or any other industry. So, I welcome the competition, and I welcome more of it, because that will raise the bar. The higher my folks can go, the better it is for my company, my investors, my employees, and the industry.”
I added one of the slightly disturbing things in the coverage of the MSO CEO lobbying was the comment that while the CEO’s had brought up 280E, they were willing to throw it off to the side if the Senate is not inclined to give up those taxes. But for this industry to be truly competitive, for small businesses to even have a chance, 280E has to go away.
“Well, going back to SAFE banking, small businesses and midsize businesses don’t have access to capital at the same cost as the MSO does,” said Kenyon. ‘That’s just begging for a monopoly scenario.”
And it’s only going to get worse with interest rates rising. “Yes, exactly,” he replied. “It was bad with low interest rates. Imagine with high interest rates. I hadn’t thought of that, but you’re right, that’s going to increase the gap. I read somewhere last week that [one MSO] took out a loan at 4 percent. That’s unheard of, but the average cannabis company, if they can get access to capital, is looking in the high teens to low 20s, where the biggest MSOs are looking at the low teens to the high single digits. That’s an unfair advantage, but let’s go back to 280E. In California, they should rename it Enabling the Black Market, because it does not allow you to compete with the illicit market. And in California, the illicit market is larger – not just in overall size, but as a percentage of the market – than any other legalized state. There are other reasons why California is there, but the taxes and 280E just enable the illicit market to still be around, which is a shame.”
Ending 280E would help fix that, wouldn’t it? “It would allow them to scale,” he said. “Right now, it’s like they’re competing in the 500 hurdle, and they don’t even know how to run or jump. Again, this industry is tough, and the people in it are so tough that we will continue to chip away, but we need our politicians to enable this industry. This is no longer a taboo industry. This is mainstream. You see that 75 percent of registered voters now approve the use of marijuana. I mean, our politicians are years behind.”
The Future of Würk
“I think you’ll see two things from us in the coming year,” said Kenyon when asked if Würk has any other products like 401(k) in the offing. “One, continuing to provide world class integration to the best products out there. Two, bringing partners into this industry that haven’t been in the industry at all. For example, we just announced in the last quarter a multi-employer plan, which is a 401k plan, but what we had previously was, you could only put your employees into one bucket into one plan. So now we can bring all of our clients together and put them all into one group, kind of like health insurance. It lowers the cost to the company and the employee at the end, but it also gives them many more options. Doing things like that for the industry is what you can expect from Würk over the coming years.
“I hired a new COO last September, Deborah Saneman,” he added. “She spent 20-plus years in the payroll industry and was the outgoing president of the Independent Payroll Providers of America, and she has all the relationships. And you know, they had their annual convention a couple of weeks ago, and she was the most sought-out person there. She said, people didn’t pay attention to me when I was president., but now that they know I’m in cannabis, everybody wants to figure out, how do I get in cannabis? Is this the right time? They want to go out there and bring their products to cannabis and they’ve been scared, but now that they have an insider in cannabis, they’re able to go do that. You’ll also see many more integrations in the top software providers and then also bringing in mainstream offerings that you would expect to see in any other non-cannabis business.”
The new offerings can be something big or something small. “We offered a solution that no one has ever offered in cannabis,” said Kenyon. “Most employers have a state required poster in the break room or the kitchen showing all the state rules and how you notify the state if anything is being violated, and those posters are tough to keep up with. So now the HR department doesn’t have to worry about that, because as a law changes we send them out automatically to every dispensary at every location. On top of that, I’ve hired people all over the country for different positions, so I got to make sure I’m following all those rules. That’s not a big revenue generator for us by any means. It’s nothing, but it removes a headache for our customers. So, we’re always going to be looking for revenue or margin opportunities as a company, but we’re also looking at how to be good stewards to our customers in this industry, to make their life easier.”
Pre-pandemic, Würk had two main offices in the U.S.. “We had our headquarters in Denver, and then we had another office in the Scottsdale area, and 90 percent of our employees were in one of those two offices,” said Kenyon, who became CEO in January 2021 after serving as Executive Chairman and Board Member since 2018. “We did have some remote employees, but not too many. Now, post-pandemic, we just have our Denver headquarters, and only 30 percent of our employees work in the headquarters area. Everybody else is fully remote. It allowed us to go find the best talent around the country, and to be able to service our customers in the new way.
“But I think one of the questions you’re asking is, don’t you have to know the state-specific rules and policies, and we do,” he continued. ‘For instance, our tax specialists specialize in certain states. They’re generalists across everything, but if somebody has a complicated case, let’s say in Michigan, we have an expert in Michigan state law. We try to adapt to our customer needs, and more importantly, when I stepped in a little over a year ago, I said we have become a company of really good firefighters, meaning putting out fires for our customers, and I want to transition from being great firefighters to being Smokey the Bear. Let’s prevent, let’s get ahead of the fires. If there’s a new COVID law in California, we want to proactively message, you’ve got 90 days and here are the four steps you’ve got to do. Because if you do it afterwards, it’s going to take a lot more effort for us at Würk, but also for our customer. So, it benefits us to be more efficient, to be proactive, and it makes a relationship with the customer that becomes much stickier. The stickier you can be, the better.”
Is Würk headed toward becoming a publicly traded company? “We look at everything, every possibility for us, but right now we’re just focusing on continuing to grow properly,” said Kenyon. “We are profitable, which, if you’re familiar with this space, very few ancillary companies are profitable. We’ve built a self-sustaining business, and now we want to grow intelligently. If we do need access to capital, going public is one of the options, but we would weigh all options at that time. I’m proud to say the team is executing on all levers, and to be a profitable business as a software company in cannabis, we are unique.”
In that case, is M&A on the table, is it acquirable or acquiring? “Every company is acquirable,” noted Kenyon. “It’s like saying every job is replaceable, which I truly believe. But M&A activity seems to come in waves, and yes, we’ve had waves come at us. But if we do anything, it’s got to make sense for our investor base, and obviously our customer base as well.”
The company is reportedly profitable, but what about debt? Has it had to take on more debt in order to expand, or has it grown organically over time?
“Fair question,” said Kenyon. “In the beginning, we were, as most startups, friends and family. After that, we were lucky to have some of the biggest names and VCs in the cannabis space join us. Poseidon is one of the largest ones, with Emily and Morgan. They’ve been great supporters of ours from the very beginning. But the last few years, we focused in on becoming profitable, and when a software company starts to scale… Yeah, that’s where we’re at, and we are blessed to be there. But yes, we have zero debt, and we’ve done everything through equity. We did have a Series A, which was our last round. We’ve raised a little over $20 million since our inception, but we don’t have a need to go out and raise money unless there’s some big M&A deal that we would go to, or for some other reason.”
As our time wound down, I steered us back to the original 401(k) subject, and asked what sort of reception it got in the industry when first rolled out. “I’ll give you the short answer: Thank God,” said Kenyon. “Our customers are just like, ‘Thank you. This is one thing we can go now give to our employees, and it’ll make them so happy.’ There’s also frustration that it took so long, but at least we’re finally there.”
Is it expensive to institute? “It’s a cost per employee,” said Kenyon. “Before, when it was an individual per company program, it was way more expensive than it should be. What I would say is, the cost to the companies to offer this has probably dropped 10 to 20, maybe closer to 30 percent now that we’re able to offer it. The cost has also become much closer to non-cannabis.”
Interestingly, the same percentage of participants match outside of cannabis, according to Kenyon. “For my company, I survey my team every six months on what benefits they want most,” he added. “Would they want a larger 401(k) matching, or do they want zero-cost health insurance? They get the vote every six months so that we’re always staying on top of what our employees need or desire as part of their benefits package.”
Before we rang-off, however, Kenyon wanted to add a last thought. “I’m going to throw out one more point that I should have brought up when we talked about the great resignation,” he said. “What I’ve realized over the last 18 months is that we have startups within a startup industry. So, what I found over my career (and I’m older than I’d like to admit) is you either have the DNA to be in a startup community or you’re more of a corporate person. And even in the biggest MSOs, it’s still a start-up, so you have to have this mentality of, you have to do whatever, and you have to be flexible. This is not like working for the government nine to five, very well-defined and working within this box. There is no box, there are no boundaries, but it takes a certain mindset to be able to work in this industry. And I think where you see less of the great resignation is in the more startup friendly communities. Communities like Boulder, Colorado, communities like Boston, Seattle, Portland, because this is such a crazy industry, but if you’re used to working in crazy startups, you’re more suited for this.”
What about new people versus legacy people, I asked Kenyon as a final question. Among his clients, he must have a mix of people who are new, just coming in, and then also legacy people who have successfully made that transition from the traditional market into the legal market and might be struggling but are running their businesses. If that’s true, does he see a big difference?
“I think that the best companies have a balance of both the folks that have been here the longest to new blood coming in,” he replied. “I also think there are unbelievable brands coming out of California specifically, and I think we’ll continue to see that. But you’ve also seen, in my opinion, a wave of old-timers, pot enthusiasts, who were very vocal and a part of the community in the beginning, and they’ve kind sat out on the sidelines the last few years. I truly believe they’re going to come back in and make a big difference. They learned a lot when they came in, and now they’ve kind of watching, and now they’re going to come back in.
“Other states are just the opposite of California, and are just trying to make this [industry] like a machine,” he added. “There’s probably a happy medium, but I want the old timers to have a very influential voice in every conference and every company I go to. That still is there, and when that stops happening, that’s when I will start to be concerned about the industry.”
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