A No-Nonsense Comparison for Cannabis Employers Who Want to Stay Compliant, Retain Talent, and Avoid Regulatory Nightmares
If You’re Asking the Question, You’re Already Ahead
Cannabis employers often don’t get the luxury of choice. Between banking restrictions, 280E headaches, and constant regulatory changes, most decisions feel more like survival than strategy.
But when it comes to meeting your state’s retirement mandate, you do have two real options: enroll in your state-sponsored retirement program, or establish a private 401(k) plan built for cannabis.
And if you’re here reading this, you’re not ignoring the law. You’re trying to get it right—without wasting money, damaging employee trust, or triggering audit risk.
This is your side-by-side, cannabis-specific breakdown of what each path really means.
What Are We Actually Comparing?
Option 1: State-Sponsored Retirement Plan (Auto-Roth IRA)
This is the plan your state requires you to register for if you don’t already offer a qualified retirement plan. It’s typically a Roth IRA facilitated through a state-run portal, with auto-enrollment and basic payroll integration.
Option 2: Private Cannabis-Compliant 401(k)
This is a traditional employer-sponsored 401(k) plan—customizable, match-enabled, and managed by cannabis-vetted custodians and payroll providers who understand the unique operational landscape you’re in.
Side-by-Side Comparison
| Feature | State IRA Program | Cannabis-Compliant 401(k) |
|---|---|---|
| Compliance mandate satisfied | Yes | Yes |
| Employer cost | Usually free | $1,200–$3,500/year |
| Employee contribution limits (2025) | $7,000/year | $23,000/year (plus $7,500 catch-up) |
| Employer match allowed | No | Yes |
| Cannabis banking compatibility | Varies (some custodians restrict) | Yes (if properly vetted) |
| Employee experience | Basic access, limited flexibility | Full access, modern interface |
| Retention and recruitment value | Low | High |
| Federal tax credits available | No | Yes (up to $16,500 for new plans) |
| Payroll integration | Partial (may require manual input) | Full, with custom configuration |
| Long-term audit readiness | Moderate | High (if implemented correctly)Breaking Down the Real-World Impact |
Cost Implications
The state plan might be free on paper—but not if it triggers fines due to incompatibility or delayed implementation. You also can’t offer matching or vesting, which may limit your appeal to experienced hires.
The 401(k) costs more up front, but it offers higher employee contribution ceilings, potential tax credits (if you’re ancillary), and meaningful retention incentives. Many employers recoup the cost through lower turnover alone.
Compliance and Risk
Choosing a state IRA plan does not guarantee protection. Some cannabis businesses have had applications delayed or rejected due to financial custodians who won’t handle cannabis-linked funds. That delay can push you past your compliance deadline and trigger penalties.
In contrast, a cannabis-compliant 401(k)—if paired with a vetted provider—gives you a direct path to compliance with far less uncertainty. These plans are designed for your banking ecosystem and can often be implemented faster with better record-keeping tools.
Employee Trust and Transparency
Younger employees expect self-service, mobile access, and real-time updates. A state program provides basic access but rarely supports matching, customization, or additional services.
A well-structured 401(k) sends a stronger message: that your business is legitimate, stable, and willing to invest in its people. It can be a meaningful differentiator in a hiring environment where brand trust is hard to come by.
Still Not Sure? Ask Yourself These Nine Questions:
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Do we have five or more W-2 employees on payroll?
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Have we received any notice or deadline from our state retirement authority?
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Are we currently offering any form of retirement plan?
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Is our provider cannabis-compliant and able to accept payroll funds without interruption?
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Have we compared long-term employee retention value between the two options?
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Do we understand the penalty exposure if we delay registration?
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Can we automate deductions across both digital and cash-based workflows?
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Do we have an employee communication plan and opt-out process ready?
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Can we generate an audit-ready trail if requested by regulators?
If you're unclear on more than two of these, it's time to examine your options more closely.
Where Paragon
Choosing the right retirement path isn’t just a compliance decision—it’s a business decision. Paragon helps cannabis operators by offering support grounded in operational reality.
We don’t sell 401(k)s. We don’t run state portals. What we do is help you evaluate both paths with full context, connect you to trusted providers who understand the industry, and help you implement whichever solution aligns best with your stage, size, and strategy.
Here's how we support you:
A Diagnostic-First Framework
We start with a short intake to understand your state, headcount, cash flow, and growth plans. From there, we build a tailored recommendation showing you exactly what each path will cost, require, and return—no assumptions, no pressure.
Curated Cannabis-Friendly Ecosystem
We maintain a vetted list of providers, from custodians and TPAs to payroll systems and retirement advisors, all of whom have successfully supported cannabis clients. Think of it as a reference sheet, not a referral funnel.
Transparent Cost Modeling
We plug your data into side-by-side cost projections—including potential tax credits, 280E implications, and annual admin costs. You’ll see what each option really means for your business in year one, year three, and beyond.
Seamless Implementation Support
Whether you choose the state plan or a 401(k), we help with payroll setup, employee rollout, and regulator-proof documentation—without overhauling your tech stack or creating more complexity..
Choose the Path That Actually Serves Your Business
There’s no single “right” answer—but there is a right fit. The state plan might keep you compliant with minimal effort, but a cannabis-compliant 401(k) could return far more value over time—especially if you’re expanding, hiring aggressively, or serious about employee retention.
If you’re ready to get compliant, protect your license, and offer something your employees actually want, we’re here to help you map the path that fits your reality.
Schedule a 20-minute diagnostic call today. We’ll lay out both options clearly—so you can stop worrying about retirement compliance and get back to building your business.
