California Marijuana Dispensaries: AB5

California Marijuana Dispensaries: AB5 Worker Classification Rules

If you’re running a cannabis dispensary in California, you know the state’s labor laws are strict. Some dispensaries think paying workers as 1099 contractors protects them from liability, but that’s not true. In California, workers are assumed to be employees unless proven otherwise. Here’s how that affects your dispensary.

What is AB5?

In 2019, California introduced AB5, which created the “ABC test” to determine if a worker can legally be called an independent contractor. For most dispensary workers, like budtenders and delivery drivers, the answer is usually no.

The ABC Test:

To classify a worker as a 1099 contractor, all three parts of this test must be met:

– A: The worker is free from your control while doing their work.
– B: The work is outside your business’s usual activities.
– C: The worker has their own business in that trade.

Here’s where dispensaries have a problem: budtenders, drivers, and other employees are directly part of your core business—selling cannabis. This means they fail Part B of the ABC test. Even if they sign a 1099 contract, California law can override it if they don’t meet the ABC test.

Most workers in cannabis businesses are classified as employees in California.

Workers’ Comp: A Must-Have

Every California dispensary must have workers’ comp insurance, even for workers classified as 1099 contractors. If someone gets hurt on the job, your business is responsible for their medical expenses and lost wages, regardless of classification. A Los Angeles dispensary even faced a $150,000 fine in back wages and medical costs for misclassifying workers.

If your dispensary doesn’t follow the rules, here’s what could happen:

– Hefty Fines: You could pay thousands in penalties per misclassified worker.
– Owner Liability: You, the owner, can be personally liable if there’s no workers’ comp.
– Extra Audits: Cannabis businesses are already monitored closely, and misclassification can invite more state investigations.
– Lawsuits: Workers can sue, which could threaten the stability of a small business.

At PM Insurance Services, we’re here to help dispensaries stay compliant with these laws. Here’s how:

– Compliance Help: We’ll guide you on worker classification so you can avoid costly mistakes.
– Tailored Insurance: From workers’ comp to business interruption coverage, we offer custom packages to protect your business.

In California, most dispensary workers need to be classified as employees. Misclassifying workers brings serious risks, from fines to lawsuits. Workers’ comp is required no matter the classification. PM Insurance Services can help you stay compliant and protected.

Let’s Protect Your Business

Contact PM Insurance Services today to make sure your dispensary is fully protected and compliant with California’s labor laws!