Cannabis Founders Are Discovering A Tax-Efficient Exit—Without Selling Their Companies

Pennsylvania-based Organic Remedies announced this week that it had become 100% employee-owned through an Employee Stock Ownership Plan (ESOP). The transaction reflected a broader conversation unfolding across the cannabis industry as founders began asking: what happens after years of building a successful business?

For much of the industry’s history, the answer seemed straightforward. Operators looking for liquidity typically sell to a larger multi-state operator (MSO), private equity firm, or strategic buyer. But with valuations remaining below their 2021 highs, and many founders seeking succession options without relinquishing their companies’ independence, ESOPs are emerging as an increasingly attractive alternative.

Organic Remedies’ decision places the Pennsylvania operator among a small but growing group of cannabis companies exploring employee ownership as a financial and governance strategy.

What Is An ESOP?

An Employee Stock Ownership Plan is a federally authorized ownership structure that allows employees to gradually acquire ownership of a company through a trust established on their behalf.

Rather than selling directly to an outside buyer, founders sell some or all of their shares to the employee trust. The trust finances the purchase using company cash flow, seller financing, third-party lending, or a combination of all three.

Unlike a traditional acquisition, management often remains in place, operations continue uninterrupted, and employees become beneficial owners over time.

In Organic Remedies’ case, founder Mark Toigo will continue serving as CEO alongside the existing leadership team while the company transitions into employee ownership.

“Transitioning to an employee-owned organization ensures that our mission and service continue while rewarding the employees who helped us build this special organization,” Toigo said in a statement announcing the transaction.

Why Cannabis Founders Are Looking Beyond Traditional Exits

Cannabis businesses face succession challenges unlike those of many traditional industries.

Federal prohibition has limited access to conventional financing, compressed valuations, and narrowed the pool of qualified buyers. Even as consolidation continues, many independent operators remain reluctant to sell businesses they spent years building due to regulatory uncertainty.

According to Darren Gleeman, Managing Partner of MBO Ventures, there is a false choice between remaining undercapitalized or selling outright to a larger operator. In his view, independent buyouts structured through ESOPs offer founders another option: achieving liquidity while preserving company independence and employee ownership.

The Tax Conversation

Much of the recent interest surrounding ESOPs stems from their potential tax advantages.

Lazear Capital Partners, which advised Organic Remedies on the transaction, argues that employee ownership can provide founders with a tax-efficient ownership transition while also addressing one of cannabis’ largest financial burdens: Internal Revenue Code Section 280E.

“More cannabis business owners are beginning to explore alternatives to a traditional sale,” said Brad Bennett, Managing Director at Lazear. “Simply put: an ESOP provides a tax-free sale to a guaranteed buyer at fair market value. Combined with the ability to eliminate the federal tax burden created by Section 280E, these advantages make ESOPs an increasingly attractive ownership transition strategy.”

Industry advisors note that the tax implications of ESOPs depend heavily on corporate structure and transaction design, making specialized legal, tax, and financial guidance essential before pursuing such a strategy.

Independence Versus Consolidation

The rise of ESOPs also arrives as consolidation continues across the cannabis sector.

Large MSOs continue acquiring assets, particularly from operators facing capital constraints or seeking liquidity. For many founders, however, selling to a strategic buyer also means surrendering operational control, local decision-making, and company culture.

Proponents of employee ownership argue that ESOPs provide another path—one that allows founders to monetize years of work without immediately integrating into a larger organization.

Gleeman argues that many acquisitions are driven less by strategic necessity than by limited financing alternatives available to independent operators. Employee ownership, he contends, offers founders a mechanism to access liquidity while maintaining operational independence.

Whether that model gains widespread adoption remains to be seen, but it reflects a growing effort among cannabis entrepreneurs to expand the industry’s menu of ownership transitions beyond traditional M&A.

Organic Remedies As A Case Study

Founded in 2018 by Mark and Jaime Toigo, Organic Remedies has grown from a 10-person startup into one of Pennsylvania’s largest vertically integrated medical cannabis operators, employing nearly 450 people across cultivation, processing, and retail.

After evaluating several succession alternatives, the company ultimately selected employee ownership to preserve its mission, maintain independence, and reward employees who helped build the business.

Lazear, which has advised on more than 250 ESOP transactions across multiple industries, believes interest in cannabis employee ownership is likely to increase as more founders begin considering long-term succession planning.

More Than An Exit Strategy

As cannabis matures, conversations about ownership are becoming just as important as conversations about cultivation, retail, or regulation.

For years, founders largely measured success by building companies attractive enough to sell. Today, some are beginning to ask a different question: what if the best exit isn’t selling at all?

Organic Remedies’ transaction suggests that for certain operators, employee ownership may offer a third path—providing liquidity, preserving independence, and aligning employees with the long-term future of the business.

Whether ESOPs remain a niche solution or become a more common ownership model will likely depend on how the industry’s regulatory, tax, and capital markets continue to evolve. But one thing is becoming increasingly clear: cannabis founders now have more options than simply holding on indefinitely or selling to the highest bidder.

As ownership models, capital formation, and succession planning continue to evolve, these conversations are becoming essential for operators preparing for the industry’s next chapter. IgniteIt’s next Cannabis Capital Conference, taking place September 18 in Denver, will bring together founders, investors, financial advisors, and industry leaders to explore emerging strategies—including ESOPs, M&A, institutional capital, governance, and other tools shaping the future of cannabis businesses.

For operators looking beyond today’s challenges and planning for tomorrow’s opportunities, understanding these options may prove just as valuable as choosing the right cultivation or retail strategy.