In cannabis, it sometimes feels like every financial conversation ends the same way: “If not for 280E, we’d be thriving.” That line gets repeated in boardrooms and investor decks across the country, and for good reason. Section 280E has choked margins, slowed growth, and kept great operators from building real wealth.

What most people don’t realize is that there is an entirely legal, proven way to make 280E irrelevant. It’s called an Employee Stock Ownership Plan, or ESOP.

The problem is that when people in cannabis hear “ESOP,” they often imagine a maze of red tape, confusing tax rules, and loss of control. Some think it sounds too good to be true. Others assume it’s only for Fortune 500 companies.

None of that is accurate. ESOPs have been part of U.S. tax law for fifty years. They’ve been tested, audited, and refined by Congress and the IRS many times over. What’s new is how we’re applying them to cannabis.

Let’s separate fact from fiction.

Myth #1: ESOPs Are Too Complex for Cannabis Businesses

Fact: ESOPs aren’t complicated; they’re structured.

Complex doesn’t mean chaotic. The ESOP process is built on structure—specific steps, professional oversight, and a framework that’s been refined for decades. Cannabis operators already deal with licensing, banking, and compliance frameworks that make ESOP implementation look simple by comparison.

With the right team of advisors, setting up an ESOP is no more difficult than selling to a private equity group. The difference is that an ESOP retains the value within your company, rather than transferring it to outside investors.

Myth #2: You’ll Lose Control of Your Company

Fact: ESOPs are designed to be flexible. You decide how and when ownership changes hands.

An ESOP doesn’t take your company away overnight. It lets you sell shares over time, at your pace, while continuing to lead. You remain the CEO, set the strategic direction, and determine when, or if, you step back. Employees become shareholders, but they don’t manage the business day-to-day.

Think of it as succession planning with stability built in. You can gradually transfer ownership without losing control of what you built.

Myth #3: ESOPs Don’t Deliver Fair Market Value

Fact: The law requires ESOPs to pay fair market value, which independent valuation firms verify.

When you sell to an ESOP, the price is based on the same valuation principles used in mergers and acquisitions. There’s no “friends and family” discount. And because ESOPs qualify for capital gains deferral under Section 1042, sellers often end up with more after-tax value than they would in a traditional sale.

You’re selling to your employees, not giving the business away. The transaction adheres to the same financial standards as any other corporate transaction.

Myth #4: ESOPs Create Too Much Debt

Fact: ESOP debt is paid with pre-tax dollars, and it pays for itself, and if the company is 100% owned by an ESOP, the company pays zero income taxes

Unlike conventional debt, ESOP loans are self-liquidating. The company makes contributions to the ESOP trust, deducts them from taxable income, and those contributions repay the loan.

In cannabis, that’s a game changer. Under 280E, many companies lose 60 percent of their profits to taxes. With an ESOP, those profits stay in the business. The Gleeman Model eliminates the 280E burden entirely. With tax pressure lifted, operators can shift their focus from survival to strategy. The money that once went to the IRS can now be used to fund expansion, new equipment, or well-deserved bonuses for their teams.

Myth #5: ESOPs Only Work for Big Companies

Fact: Most ESOPs are small to mid-sized, founder-led businesses.

Across the U.S., the average ESOP company has between 50 and 200 employees. These are construction firms, food producers, and professional services businesses, not global corporations. They succeed because ESOPs align ownership with culture, giving employees a vested interest in the company’s success.

Cannabis companies with EBITDA exceeding $ 2.5 million are ideal candidates. These firms are entrepreneurial, closely held, and value legacy and employee retention. Those are the companies that benefit most from employee ownership.

Myth #6: Employees Can’t Handle Ownership

Fact: Ownership doesn’t mean management. It means alignment.

ESOP participants don’t vote on business strategy or day-to-day operations. They hold shares in a trust and earn value as the company’s value increases. That structure provides employees with a tangible reason to care about the company’s performance. When people have a genuine stake in the outcome, they pay closer attention to quality, take ownership of their work, and seek ways to improve efficiency.

Myth #7: ESOPs Don’t Work in Highly Regulated Industries

Fact: ESOPs were created to function in regulated environments.

They fall under the oversight of the Department of Labor and the IRS, and every plan undergoes an annual valuation and compliance review. In contrast to the constantly changing rules in cannabis, ESOPs offer a level of structure and predictability that’s rare in this industry.

They’ve worked for defense contractors, banks, and utilities—sectors with far tighter oversight than cannabis. The framework is clear, tested, and fully compliant with federal standards.

Myth #8: Selling to Private Equity Is Easier

Fact: Private equity is not necessarily faster, and it often comes at the cost of your culture.

Selling to private equity usually means an aggressive timeline, leveraged buyouts, and a complete change in leadership. ESOPs, on the other hand, let founders exit gradually, keep jobs local, and preserve the company’s mission.

Private equity is designed for short-term return. ESOPs aren’t built for quick wins. They’re built to last. The best structure for you comes down to what kind of business you want to leave behind and who you want it to serve when you’re gone.

Myth #9: ESOPs Don’t Offer Real Tax Benefits

Fact: No other ownership model comes close.

A 100 percent ESOP-owned S-Corporation pays no federal or state income tax. Ever. Sellers can defer capital gains indefinitely. Combined, these two features make ESOPs the most tax-efficient structure available.

For cannabis operators paying crushing 280E rates, that’s not a minor advantage; it’s a survival strategy. Freeing up that much cash flow can double profitability and open the door to expansion or acquisitions that once felt impossible.

Myth #10: ESOPs Are “Too Good to Be True”

Fact: They’re underused and misunderstood.

Thousands of American companies are owned by an ESOP, which, together, employs more than 14 million people. Think Publix, W.L. Gore, or New Belgium Brewing. All are proof that when employees share in ownership, companies tend to last longer and grow stronger.

The only reason ESOPs sound extraordinary is that most cannabis owners have never seen one in practice. However, the model has already been proven in more than 10 cannabis companies.

The Bottom Line

ESOPs aren’t a tax trick or an accounting loophole. They’re the product of decades of bipartisan legislation designed to reward broad ownership and long-term growth.

Skepticism is understandable, especially in cannabis, where operators are constantly warned to avoid anything that sounds unconventional. But in this case, the “too good to be true” option is actually the one most deeply rooted in U.S. law.

For business owners still battling the 280E tax, ESOPs are no longer a fringe idea. They’re a lifeline. They transform a broken tax environment into an advantage, align teams through shared ownership, and enable founders to exit with both wealth and integrity intact.

Ignoring ESOPs isn’t cautious; it’s costly. The facts are there. The framework is legal. The opportunity is real.

The question now isn’t whether ESOPs work. It’s whether the cannabis industry is ready to use them.

The post Busting the Top 10 Myths About ESOPs: Why Cannabis Business Owners Can’t Afford to Ignore Them appeared first on Cannabis Industry Journal.