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Getting compliant in a new industry

Posted by Celia Daly on Oct 19, 2018 11:37:13 AM

There’s a joke we hear around the cannabis industry these days that cultivators, retailers, extraction professionals, etc. aren’t actually in the business of producing and selling cannabis - instead they’re in the business of compliance.

Okay, okay. Maybe not such a funny joke. But something in that does ring true. That’s because the emerging cannabis industry is mired in regulation. The cannabis plant’s status as a schedule one narcotic means that when states did decided to open up to this new market, they decided to do so under strict control.

Enter compliance. A term we’ve all come to know but what does it really entail? 

There’s the broadest answer that compliance means being compliant with the law - making sure that your business is following the regulations - tracking what needs to be tracked and securing what needs to be secure. But it’s more than being on board with what’s on the books. Compliance is also about being a good and responsible business owner. It includes fully understanding the regulations, how they apply to your organization and where to go when you’re not sure.

This plays out in two distinct but equally important areas. The first area is installed compliance. This includes the physical aspects of compliance - things like having the correct signage, ensuring your building is up to code and installing cameras in the areas they’re needed. And then there’s the static compliance, or on-going procedures/events to consider. This includes knowing how much your dispensary can sell or your cultivation can produce and developing standard operating procedures (SOPs) to remove the guesswork for employees.

 It might not feel like the most exciting part about the emerging market, but its critical to the success of any cannabis business. We’re at a point where the industry is under a microscope and businesses need to be sure they’re following the law closely to ensure that they’re not only being a good representative of the industry, but also avoiding interference from government bodies and, ultimately, keeping their business running.

But before you write compliance off as a minimum requirement to run in the background, also consider how compliance can work as a competitive advantage in this new industry. Most people in this space will tell you that federal prohibition is coming to an end sooner than we’d expect. The common consensus is that we’re talking about “when” and not “if” at this point. When that happens, the value of cannabis businesses is going to increase dramatically. Mergers and acquisitions are almost guaranteed. Being able to prove your business is not only currently compliant but has never had a violation could be the thing that tips the scale in favor of one business over another.

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 Figure 1: Compliance concerns by business area

Businesses that are getting started today are realizing there’s a long list of things to consider, depending on which area you’re working in (see figure 1), but regardless you have to start somewhere. In fact, it’s a whole lot cheaper and requires a lot less effort to get it set up correctly on day one than to retrofit and make changes once the business starts running. To do that, compliance experts from CannaAdvisors suggest beginning with these action steps to get your business on the right track:

 1. Find an attorney that you like: Emphasis on “that you like”. Don’t be afraid to shop around as there are many attorneys in the cannabis space who have no business being in the cannabis space. So, its not only important to find someone who knows what they’re doing but also someone who you feel comfortable asking about the little questions that come up, because they will come up. Ideally, you want your attorney to feel like a partner in the process.

 2. Find someone who wants to do compliance: This is critical. Find someone who loves details and is passionate about compliance - someone process-oriented and can turn those compliance objectives into standard operating procedures (SOPs) so everything runs smoothly.

 3. Create a culture of compliance: By prioritizing compliance and communicating the importance to employees, the business stands a much better chance of avoiding violations or worse. When we think about what happened in Denver this year with SweetLeaf, it’s clear that a culture that doesn’t prioritize compliance or that is interested in testing regulations can lead to the downfall of an organization. While some could argue that SweetLeaf was potentially within the regulations, they have also been stripped of their licenses. Exercise caution when playing with fire, folks.

 4. Get help if you need it, where you need it: Cannabis consultants can be hugely beneficial, but may not be critical to success based on your experience. If you are doing something brand new, it probably makes sense to hire someone who has experience to help with that piece. However, there will certainly be areas that you can manage on your own. We believe in you!

5. Don’t be afraid to ask a regulator: Regulators are usually very happy to get feedback from the people working with the rules they created. In this industry, many regulations are written quickly, and thus, poorly and so asking a regulator to explain can be not only beneficial to your understanding, but potentially in how regulators draft rules going forward.

Like this content but don’t want to read? We got you. Listen to CanopyBoulder’s Cannabis Business Podcast episode about compliance with CannaAdvisors.

Topics: cannabis companies, cannabis business, startup, frontier markets, compliance