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The Dangers of Starting a Legal Marijuana Business

February 13, 2014 by The Sawaya Law Firm

Medical marijuana worker

A man sits across from a desk at The Sawaya Law Firm pleading for help. It is his first day out of the hospital, recovering from 2nd and 3rd degree burns on his face, arms, and legs. The man had everything in place just a few days before. He had a secure job in the thriving legalized marijuana business, working as a hash oil extractor. Hash contains a high amount of THC (the active ingredient in marijuana), and is extracted using butane. The butane then must be boiled off to extract the THC. Without proper safety procedures in effect, the extraction created an explosion in the small shed the man was working in, and very nearly cost him his life. He sought out legal representation for a very common claim of workers’ compensation. However, there was one major problem: his employer did not have workers’ compensation insurance.

Medical and recreational marijuana use is growing at a rapid rate in the United States, especially here in Colorado. It is a thriving and lucrative business, and has proved to be very beneficial to the states that have been able to successfully regulate and tax consumption. The majority of “pot shops” in Colorado seem to be run very professionally, following all regulations set up by the state in order to continue to promote the benefits of legalized marijuana. Yet, as with all new industries, there will be growing pains among new business owners.

A license is required from the state in order for a business to sell marijuana legally, both for medical and recreational purposes. This was put in to place in order for Colorado to attempt to allow trustworthy owners to distribute marijuana. Once a license is obtained, it is up to the business owner to follow all state business regulations. That involves safe facilities, fair labor acts, employment protocol, earnings reporting, and many others. In the case of the man mentioned above, the employer had earned his license to sell, but failed immensely in the operation of the business.

Michael Sawaya, Managing Partner at The Sawaya Law Firm, believes the injury was inevitable.

sawaya_law_firm_marijuana_extraction2“The employee who was burned in the explosion was set up to fail by the lack of understanding on the business owner’s behalf. The injury was preventable. If the business had just set up a proper level of safety measures, this unfortunate situation could have been avoided.”

Three major violations are outlined below:

Safety

The employee described his work conditions as being far less than ideal. He worked in a shed bought from a local hardware store in order to keep warm. Typically, all the extraction was done in summertime prior to the recreational legalization on January 1, 2014. Due to higher demand, extraction is now a year-long process.

Butane is an organic compound, and a highly flammable, colorless gas. When the man was confined to the small shed, there was naturally a high concentration of the gas. Due to faulty wiring, a poorly constructed electrical system, and a lack of proper ventilation, the shed exploded when a light was simply turned on.

Unanswered questions about safety: Why had OSHA (Occupational Safety and Health Administration) not regulated this building? Was the owner honest to OSHA about all of the facilities in use? Did the owner understand the dangers, and was just hoping they didn’t happen to him? Is the butane extraction method safe at all, even under ideal working conditions?

Employee Classification (1099 vs. W2 Employee)

The worker was hired to join the company as an independent contractor. An independent contractor is, just as the title implies, someone who is hired to independently do a job or skill based on their own expertise on their own time. However, the extraction worker was required to show up between certain hours, have a business card with his name on it, and produce a certain amount of extracted hash oil within a days work. The employee should have been a W2 employee, not an independent contractor.

For example: If a plumber is hired to fix a pipe, he shows up to your house when available, brings his own tools, makes his own decisions, fixes the issue, and charges a commensurable rate. That is an independent contractor.

If you own a large business that requires a lot of maintenance, you may have a full-time plumber. This plumber is required to be on site at 8 am, take a lunch break, fix any issues that arrive plumbing-wise, report to a supervisor, and clock out at 5. That is a W2 employee.

Unanswered questions about employee classification: Did the employer purposely misclassify the employee in an attempt to save money? Was the employer not informed as to how the man should have been classified?

Workers’ Compensation Insurance

All public and private employers in Colorado, with limited exceptions, must provide workers’ compensation coverage for their employees if one or more full or part-time persons are employed.

In this case, the employer attempted to get away with not paying for insurance by hiring all employees as independent contractors. However, as learned previously, the staff was grossly misclassified. The employer believed by not having classified employees, he could save a few bucks on not having to insure them.

Unanswered questions about workers’ compensation insurance: Was the employee aware that there was no insurance before the accident? Was the employer simply uninformed, or were they completely aware of the risks in not having insurance? Is their enough government regulation on whether businesses are compliant or not?

Pursuing a Claim

In order to pursue a claim without insurance available, the owner’s assets are leveraged to pay for the medical bills and all associated costs of the injury. In this case, it is safe to say the business would essentially be run to the ground. The employee elected to keep his job with the company in order to keep an income, and trust the owner would pay all of his medical bills in good faith. It is important to realize there is no guarantee the business owner will incur all of these expenses.

Takeaways

This situation provides valuable lessons to employees and employers alike especially in brand new industries such as medical and recreational marijuana.

Treat safety as a priority. If you feel at risk of personal injury while doing your job, make sure management is taking every step possible to ensure your safety. It is not worth risking injury or your life for a paycheck.

Verify your classification. If you feel in even the slightest way you are an employee of a company and not an independent contractor, review your classification with your employer, and clarify your concerns.

Ensure you are protected by workers’ compensation insurance. Accidents are called accidents for at reason, meaning nobody meant for it to happen. No employee expects to be hurt on the job, but there is risk involved, and you need to know you have support. It is against the law for an employer to be uninsured if they have employees.

It is important to note not all marijuana businesses are run as discussed in the case, just as not all businesses in other industries are in complete compliance. In fact, Colorado has put in extensive measures trying to prevent these situations. As a responsible employee, the best thing you can do is to make sure you know the rules and regulations of running a business, and verify your employer is complying.

The Sawaya Law Firm is Denver’s personal injury law firm. With over 40 years of experience and a compassionate team prepared to listen to your story, The Sawaya Law Firm is here to help. Contact us anytime.

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