Cannabis Meets ESOP — A Game-Changer

LP’s Corporate Practice Group continues to push boundaries — this time at the intersection of cannabis and employee ownership. Kevin Slaughter and David Solomon represented the ownership group that created the first-ever ESOP-owned cannabis company in the State of Illinois. This transaction marked a significant milestone in a niche they’ve quietly dominated as LP has now advised clients on over half of all ESOP deals involving cannabis companies nationwide.

Selling to an employee stock ownership plan (ESOP) creates a unique liquidity and long-term succession planning opportunity for business owners who want to transfer ownership to their employees in a tax-efficient manner. ESOP-owned companies, once fully transitioned, can make an election to be taxed as an S-corporation and effectively operate tax-free, since an ESOP, which is a qualified retirement plan, is a tax-exempt shareholder. In the cannabis space, this is even more compelling since it eliminates the issue that most cannabis companies have to navigate: not being able to deduct ordinary business expenses under tax code Section 280E, which results in most cannabis companies paying corporate income taxes at rates north of 60%. This is why more owners of cannabis companies are now looking into forming an ESOP.

ESOPs aren’t for every cannabis company, but for founders seeking liquidity, employee engagement, and serious tax relief, they’re a powerful and underutilized tool.

Want to know if an ESOP is right for your business? Kevin E. Slaughter or David B. Solomon are happy to schedule a consultation.