This is the season of the year where cannabis business owners start to take a hard look at their end of year finances to decipher how profitable the company has been and whether and how their employees and other key personnel should share in that profit alongside the owners. Some marijuana and hemp employers do this with bonuses and others with equity or quasi-equity.
It is common in closely held (privately owned) companies to have some key employees who are almost irreplaceable. Often these employees started with the company shortly after its formation and have earned their implicit trust within the organization. Other times companies that are transitioning from “mom and pop” status into a larger enterprise and know they need to attract and retain key talent by including equity or quasi-equity in a competitive compensation package.
All of these potential compensation methods have pros and cons. I discuss a few of these general considerations below:
Profit. This is always the place to start your deliberations. Basic economics teaches us that all parts of the profit pie must equal 100%. If you start out with 100% economic ownership and give away 5% of the company’s profit to 10