Background Employee Screening in the Cannabis Industry
- Aug 25, 2023
In this episode of CannaCast, Eric Altstadter, Partner and leader of EisnerAmper’s Cannabis and Hemp Group, speaks with David Mederrick of Team Screening about some of the issues employers need to consider when hiring and vetting employees.
Thanks for tuning into this episode of CannaCast. I'm your host, Eric Altstadter, EsinerAmper's National Cannabis and Hemp Practice leader. Please welcome my guest, David Mederrick, founder and CEO of Team Screening. Team Screening provides background screening services to help employers make smart and fair hiring decisions. Team Screening's advanced technology platform makes background checks instant and easy, while providing a pleasant candidate experience. David is also the co-founder of HireIntelligently, a talent acquisition HR tech solution startup. Prior to launching Team Screening, David had a diverse career in the journalism, finance, and executive recruiting industries. David is also the co-founder of the Cannabis and Hemp Networking Association of New York, a group of which I am a member. Welcome, David.
Thank you for having me, Eric. This is my first podcast, so really excited to be here. And let's talk about some background screening.
That's great, David. So tell everyone what is a background search and what it served its objectives and goals?
Sure. So the purpose of a background check is to vet potential employees prior to bringing them into your company. A background check can help mitigate risk and hopefully contribute to creating a safe workplace. That's not to say that someone who has a criminal record should automatically be disqualified from getting the job, not at all. But it's my company's goal as a background screening vendor to legally and compliantly provide information so our clients, the organization can make a well-informed hiring decision. And lastly, I would say that someone could pass a background check and still stink at their job. We can't be held accountable for that, but a background check will certainly increase the odds of making a good, smart hire.
David, why is it important for cannabis businesses to vet their employees?
Yeah, Eric. So the cannabis industry is really one of the country's most transformative and fastest growing industries of our time, or at least of my time. And making informed hiring decisions is essential to helping any companies prosper and thrive. But now, we're talking, throwing in that we have this brand-new industry, which cannabis is relatively brand-new. The spotlight is shining bright on the industry. And like it or not, there are people who do want to see the industry fail. There is still a stigma surrounding it by a certain portion in the population, though thankfully that seems to be less and less every year. But just because of those reasons alone, it makes it even more essential for the cannabis industry to hire the best talents, to really build a strong foundation of people. And that will hopefully help to continually advance the industry down the right path.
Now, this industry is a legal and compliance heavy industry. Are the rules different in each state for cannabis?
Yeah, Eric. So first of all, it is very legally and compliance heavy. The laws are focused on protecting the rights of the employees essentially. And just for example, in the last decade, when it comes to employee background screening, there have been many lawsuits. Some pretty big companies have been sued or lost class action lawsuits. We're talking about companies like Chipotle, Hertz, Amazon, because somewhere along the background screening process, they made an error on their end, and they had to pay the price for that. So my company, as a background screening company, we have to be very careful, we have to be compliant every step of the background screening process, and our clients have to do the same. And we're here to help them and offer them a lot of guidance, but they also have to follow the laws and the processes on their end as well.
And then really, as a background check company, my company Team Screening, we have to comply with both federal laws, which really specifically are based under the Fair Credit Reporting Act, as well as any state or local laws, which usually come in one form or another of what's called Ban the Box. I don't want to get into that in too much detail. I'm happy to have a conversation if anybody wants to reach out and learn more about the different variations of Ban the Box. But to your point, the laws do vary from state to state. Our great State of New York, Eric, where we both live and work, really has some of the more stringent laws in place when it comes to background screening. Really, the laws are geared to protect the employee and to give someone who has a criminal record a fair chance to get a job.
In New York, it's actually called the Fair Chance Act, which was passed several years ago. So when it comes to background screening in New York and really being on top of the laws and regulations, I like to tell people if you can make it background screening in New York, you can make it anywhere. Maybe with the exception of California, which might actually be a little more strict when it comes to background screening laws. But fortunately, we do work with clients all throughout the country, and it's vital for us to continuously stay on top of all federal and local and state laws.
Now, there are differences in doing a background search for a cannabis company as opposed to doing searches for some of those other companies you mentioned earlier. What are some of those differences in the search for those entities?
Yeah, sure. So there are some differences, but also some similarities, and there are still a lot of unknowns out there. One ironic difference, at least here in New York when it comes to the card licenses, and that's Conditional Adult-Use Retail Dispensary licenses. For those who don't know, those were the first licenses handed out in New York, and those were awarded to justice involved individuals. So for the first time ever, we are doing many background checks where the applicant wants us to find the criminal record. So that's certainly a deviation from the norm. But to your point, the cannabis industry does have some different background check requirements depending on the state and also depending on the vertical within cannabis. And there are different requirements for a cannabis growers, processors, or retailers. And they can also vary dramatically from state to state as well. I think we'll probably touch on that a little bit later. But yeah, there's absolutely differences when it comes to screening cannabis and the mass market.
And you touched a little bit on why background checks of business owners are also important, especially in this industry as they prepare to file license applications. Can you just expand upon that a little bit more? Why is it so important for a business owner to have a background check?
Yeah. Background checks for cannabis business owners typically requires fairly robust screening, and we also see a demand for screening of the full team. So not just the appointed owner, but really the entire team that's going to be working with the owners, people want them screened. One difference between your typical background check for employment purposes and when it comes to background screening owners or licensees is it does involve fingerprinting. That is not something that my company or most background screening companies do, but it's certainly something that we can help facilitate.
But why is it important to screen business owners? There are really a lot of reasons that I can think of. For starters, the company is registered with the state. Most likely, there are investors involved and investments. In some instances, you may get funding from government agencies. And the owners, they're dealing with the financials, the fiduciary responsibilities, they're dealing with employees and hiring. So it is really important that we're getting people who could pass a background check for these positions.
And I hate to say it, but in any new industry, you're going to have people who try to take advantage of a new marketplace where the rules are in many instances still being formed. People are still getting their footing and learning as we go along and as things continue evolve and change. So for those many reasons, I think it's important to background check business owners in the cannabis space.
And what is badging and is it important to this industry?
Oh, yeah. So it's required in most, if not all states. I would consider badging to be a best practice. It's essentially issuing ID badges to employees in the cannabis industry, and they can be used to identify employees, track their access to cannabis facilities. And a big part of the badging process is passing a background check. But yeah, I do think it's important. It helps improve security, it helps companies manage the employees, keep track of employees. And again, just create a safer, more secure working environment.
You mentioned earlier, correctly, that there are a number of different types of licenses, in particular in New York state. And in every state, there are different licenses whether they be dispensaries, growers, delivery, consumption lounges. How different is the background check for the different licenses that someone can obtain?
Cannabis is one of the most heavily regulated industries we have in the US. And for people breaking into the industry, full compliance with the regulations is key. You want to avoid legal troubles, you want to avoid bad optics for the industry. So yeah, it's really important for this cannabis industry to have a pretty high level of background screening. And to your point, there are different requirements for various verticals within the cannabis space. One example is cultivators, right? So they have a ton of responsibility, and they would typically be subject to a more extensive background check. Regulations may require a thorough review of their criminal history. They're going to be involved in a lot of transactions, a look into their financial background would usually be advisable.
But then on the other side of things you have, let's say someone who's an employee at a consumption lounge where you might want to do some vetting. But certainly, we're not talking about looking to their financials or doing perhaps as robust as a background check for a cultivator. Another example would be delivery personnel. They're responsible for transporting the products. What's key there really is that someone has a clean driving record. You want to be able to ensure your drivers. And in order to do so, you have to make sure that their driving record is clean. And you may also want them to pass a criminal records check as well. So just to summarize, it's very important to screen in the cannabis industry, and there are different levels of requirements and different levels of background screening for the different verticals within the space.
David, how big is the current workforce in this industry and where do you expect it to go?
It's a great question. So the most recent statistics that I've come across show the current cannabis workspace at about 425K, 425,000, which is actually down a little bit from last year. I think last year, I saw numbers like closer to 440,000 in 2022. Some of this can be attributed to your normal economic factors like inflation, higher interest rates, but then there's cannabis related factors as well. Pretty significant drop in the price of cannabis has occurred over the last year.
Demand is down a little bit post-COVID. We've seen a little bit of a drop in demand. But in terms of where's the industry going in terms of workforce, I think growth is expected to come back this year from everything that I'm reading. Hopefully, we've avoided recession and the economy is seems to be getting on better footing, hopefully, like I said. And then with new states opening up, especially here on the East Coast, pretty significant states like New York and New Jersey, throw Connecticut in there. With these states opening up, there should definitely be a much higher demand and need for cannabis workforce.
David, how does federal legalization, or for a better way to call it, legality to federal level impact the work you do? And when do you foresee, if at all, federal legalization in this industry?
Well, okay, so two questions there. So the first question, how does legalization, federal legalization impact the work we do? I think it makes the work we do even more important. Once you have Fortune 500 companies involved in cannabis, I believe there will be higher standards, especially when it comes to HR, human resources and adhering to policies, specifically background checks. But also, things like sexual harassment training, employee handbooks, annual compliance training. A lot of these HR requirements are going to come even more into the fold once there is federal legalization. And then with federal legalization, banks will be able to get involved. And then banks have their own set of requirements, talk about KYC and AML. So really, I just think it ramps up the necessity to adhere to policies once federal legalization is in place. And as far as when do I foresee it, if at all, Eric, people have been predicting either the de-scheduling or rescheduling for the last 10 years. Unfortunately, it has not happened. It's very politically driven, which probably makes it even harder to forecast.
But from what I'm reading, from what I see if I had to take a guess, it really looks like the federal government has been reviewing cannabis's current legal status. Supposedly, they're going to make their conclusions by the end of the year, and then really goes to the current administration to review and make a decision. So we've been down this road before. But I do think, as early as 2024 or 2025, I do believe cannabis will either be rescheduled or de-scheduled, if I had to guess.
It's interesting. I think when we had the last election and we had a democratic president, a democratic house, democratic senate, we all thought, "Oh, this is done. It's going to happen," but it didn't happen, and that window closed. So we're back at square one. So like you, I'm not sure exactly when it's going to be. I might be a little bit more pessimistic than you are right now, but we'll see. And finally, David, in addition to your other work, you're a co-founder of an organization called the Cannabis and Hemp Networking Association of New York, a group of which I am also a member. Tell us a little bit about that group and this organization and what it does and how you came about creating that group.
Oh, thanks, Eric. Yeah. So CHNA, Cannabis and Hemp Networking Association, CHNA New York, something that's very near and dear to my heart, even as near and dear to my heart is background screening. But we are a nonprofit business networking group. We are comprised of professionals in New York, maybe some New Jersey, Connecticut people, but primarily New Yorkers who are professionals and doing work in the cannabis space.
The group was founded at the end of 2019. And really the goal was to build lasting relationships with other professionals in the space, share ideas, share market intelligence, help each other navigate the continual changes in New York, in the cannabis space. Hopefully, be able to support each other's businesses and provide business referrals, introductions. As my co-founder, Frank Manganella likes to say, "We are not an events group. We are really just a tight-knit, well-represented networking group." But we really work with a lot of local groups as well.
We're close with the Local 388. We worked closely with CUNY Queens College when they were closely looking into creating some sort of curriculum for their students within cannabis. And then we also have CHNA ventures, which is really pooling all the resources and the expertise of the group's members to help license holders with some of their needs.
So yeah, it's been really exciting. Like I said, I'm not sure if I mentioned it, there's roughly 30 members. And one unique thing about CHNA is we don't like to have a lot of overlap. So we'll have our CPA of the group, you know, Eric. We'll have our insurance person, our business attorney, our commercial real estate individual, our real estate attorney. So really not a lot of overlap. We would respect each person's profession and let them be that representative of that profession within the group. And please reach out. We're always looking to grow the group where we have open seats. So yeah, please reach out and would love to discuss more. You can come check out one of our monthly breakfast meetings. Always really productive and a great time and great group of people. So thanks for asking about that, Eric. I appreciate it.
Great. And thanks for joining me here today, David.
Thank you. This was great.
And thanks for listening to CannaCast as part of the EisnerAmper podcast series. Visit www.eisneramper.com/cannabis for more information and podcasts. Also, please visit www.teamscreening.com for more information about Team Screening and David. And join us for our next CannaCast podcast, we'll discuss other budding issues. Thank you.
Transcribed by Rev.com
Our CannaCast podcast addresses the burning issues impacting the cannabis sector. EisnerAmper professionals cover the tax, regulatory, financial, logistic and other key strains of the industry. We’ll also talk about budding developments with market leaders from the highest levels.
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Eric Altstadter CPA is an Audit Partner and Chair of the firm's Cannabis and Hemp practice with over 30 years of experience working with public companies and privately held businesses
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