Marijuana Business Magazine April 2020

Marijuana Business Magazine | April 2020 42 long-term potential that, if fulfilled, will result in an even sweeter equity payout. Margot Micallef, CEO at Gaby’s, an infused cannabis products company with headquarters in Santa Rosa, California, and Calgary, Alberta, said people coming into the marijuana industry routinely take base pay cuts in exchange for more equity. To illustrate the point, she referenced a recent hire whose base pay is 30% less than at his previous company. “He’s taking a much smaller cash position but looking at the upside of where he thinks the shares are going to go. When you’re a startup, you can’t pay people what a large, mainstream company that’s well established is going to pay,” Micallef said. “Generally speaking, I think they’ll get paid no more than what they’re making in mainstream (companies)—and, in some cases, less.” What candidates want in terms of base pay and equity also is a good litmus test for whether the candidate has the right mindset for the company, Micallef said. “We tell them what the value of the package is, then we ask them how they want it broken up,” Micallef said. “The more equity they want, the more suited they are for the space and for this business.” She added: “To a degree, it’s their call. It’s a mutual coming to terms. As long as it’s within reason, we will let them choose the percentages that they want. But it’s also a bit of a test to see if they have the right mentality for the post.” Many senior employees split their base pay and equity 50-50, but “some really gutsy people who really get it and who have done startups before and understand what the industry is going through and re- ally buy into the vision, they’ll do 70-30.” “It all depends on their circumstanc- es,” Micallef added. “If you hire a family person and they’ve got kids at home or in college, they’re going to need to have a bit more cash up front if they haven’t managed their shares. 50-50 is generally a really comfortable place to meet in the middle, if you will.” And if a candidate—even “somebody you want really badly”—demands too much base pay, it’s better to not hire them, Micallef said. “If you want somebody really badly, and they’re holding out for too much money, you just don’t hire them. If you can’t afford to, that’s the reality there,” she said. “There’s a cap on what we can offer because we are a startup, and investors don’t look favorably on companies that pay high salaries.” Schmults agreed, noting that many cannabis companies that lured top candidates with high base salaries find themselves struggling now. “If your senior team is making way above-market salaries, it’s tough to survive. At any company, people figure out what other people are making,” he said. “We work hard to have a tight range of clear delineations and keep people within that range. If I bring someone in at a much higher salary level, it usually doesn’t work out well and often causes all sorts of secondary issues. So the people coming here, if you look at total comp, equity is a big piece of that.” Beyond Pay While executives can be split about how much to pay candidates, there is greater agreement on the absolute necessity of providing health insurance and the increasing expectation for 401(k) plans. All of the companies interviewed for this package provide health coverage, while only Acreage Holdings and Cresco Labs provide 401(k) plans—although other executives said they were looking into adding that benefit to their compensation offerings as well. “You’re certainly going to struggle to compete if you’re not offering the basics around those benefits that people have come to expect,” said Scott Wells, chief people officer at Illinois-based Cresco Labs. For that reason, California retailer Harborside also is looking into adding a 401(k) benefit, said Peter Bilodeau, the company’s interim CEO. “I think any successful company has to have that eventually in its arsenal. The offset to that right now is we have stock options on a fast-growing company. We see some lifts there. But definitely …we have to be competitive on all fronts with mainstream industry the bigger we get,” Bilodeau said. “There’s a lot of highway ahead of us with lots of opportunities that probably most industries don’t have. So the sky’s the limit for bright, hardworking individuals who get on the right team.” Company culture and work environment are also important and shouldn’t be dismissed as fluff, said Ed Schmults, CEO at Calyx Peak, a Massachusetts company that currently offers health insurance and is planning to offer a retirement plan. “A big part of the sales effort is sharing the vision. Here’s the kind of culture we have. Here’s the kind of people we hire. Here’s how we think about our brands and our strategy,” Schmults said. “People will say that’s soft stuff, but it’s really important—particularly for senior people because they are probably at a stage in their career where they don’t want to work with a bunch of jerks, and they have choices and they can pick.” In fact, smart executives will tie culture to equity when trying to close a deal with an executive they want to hire. “Of course, you have to be comparable in salary. The equity upside is a big piece, and that’s a big piece of our compensation package. And then that goes right along with buying into the culture and the vision,” Schmults said. – Omar Sacirbey COMPENSATION CONTEMPLATION Omar Sacirbey is a reporter for Marijuana Business Magazine. You can reach him at omars@mjbizdaily.com.