Does an LLC Protect Cannabis Dispensary Owners From Personal Liability?

What This Page Covers

• What an LLC actually protects
• Payroll taxes and “responsible person” liability
• Personal guarantees (leases, loans, vendors)
• Mixing personal and business money
• Why cannabis businesses often can’t use federal bankruptcy
• Simple steps that reduce personal exposure

What an LLC Actually Does

An LLC separates business debts from your personal assets.
That protection can fail if you personally sign for obligations, don’t pay payroll taxes, or treat the business like your personal wallet.

Personal Liability Trap #1: Payroll Taxes

Payroll taxes are one of the fastest ways owners get personally hit.

What goes wrong (real life)

You run payroll and withhold taxes. Cash gets tight. You use the withheld money for rent, inventory, or a vendor.

To the IRS, withheld payroll taxes are not “extra cash.” They are trust funds. If they are not remitted, the IRS can pursue the people who decided which bills got paid.

Personal Liability Trap #2: Personal Guarantees

Cannabis leases and loans commonly require personal guarantees.

If you personally guarantee:

• a lease
• a loan
• certain vendor agreements

You can be personally responsible even if the LLC shuts down.

Personal Liability Trap #3: Mixing Personal and Business Money

If you pay personal expenses from the dispensary account (or deposit business money into your personal account), you weaken the separation an LLC depends on.

Real example

You pay your personal credit card, car payment, and groceries from the dispensary account with no documentation. In an audit or lawsuit, it becomes harder to prove the business is separate from you.

Personal Liability Trap #4: Sloppy Owner “Deals”

Undocumented side agreements, “silent partners,” and informal repayment arrangements create:

• tax risk
• banking risk
• licensing risk
• partner/investor dispute risk

If it isn’t documented, it’s hard to defend.

Personal Liability Trap #5: “We’ll Just File Bankruptcy”

Many cannabis operators assume bankruptcy is a safety net. For THC cannabis businesses, it often isn’t.

Why cannabis bankruptcy is different

Cannabis is still illegal on a Federal level. Federal bankruptcy is a federal court process. Many courts have dismissed bankruptcy cases where the plan depends on marijuana-related income or where administering assets would involve federally illegal activity.

What this means in practice

If your dispensary implodes financially:

• you may not have the same bankruptcy options other industries rely on
• creditors may have more leverage
• personal guarantees matter even more

(There are narrow fact-specific exceptions in some cases, but operators should not assume bankruptcy will be available.)

What Actually Reduces Personal Risk

• Pay payroll taxes first, not last
• Track owner pay as salary/draw/distribution (never random transfers)
• Keep separate accounts and separate cards
• Document owner loans and contributions in writing
• Know every personal guarantee you signed
• Don’t assume bankruptcy will save you

Go Here Next

• Why Did My Cannabis Bank Close My Account?
• What Is a Suspicious Activity Report (SAR)?
• Why Your POS Must Sync With Banking
• Cannabis Banking Rules
• Can You Mix Personal and Business Funds in a Dispensary?
• How to Structure a Cannabis Business to Protect Your Personal Assets
• What Would the SAFE Banking Act Change?

Source Material

• Internal Revenue Code §6672 (Trust Fund Recovery Penalty)
• IRS Trust Fund Recovery Penalty guidance
• U.S. Trustee Program position on marijuana assets in bankruptcy