There is perhaps no more important element to running a successful cannabis business than compliance. Maintaining an impeccable compliance record is critical in protecting your business license, as well as your working capital.
Every few months, the media covers a new story of a cannabis company losing its license over compliance infractions. Looking at Colorado’s Sweet Leaf, who repeatedly sold too much product to out-of-state buyers, or Canada’s CannTrust cultivating plants at unlicensed grows, it’s no secret that compliance infractions are bad for business.
While we should pay attention to such high-profile cases, compliance goes far beyond headlines and into the very fabric of daily operations for cannabis businesses. Whether it be a Budtender correctly labeling a product at the time of sale, or a Cultivation Technician tagging a plant with an RFID chip, compliance is a standard in the cannabis industry.
As an industry consulting agency, MOST wanted to walk you through some essential compliance criteria for the cannabis business.
Understanding State Cannabis Markets
To grasp how compliance works in cannabis, you must first understand the infrastructure of individual state markets. Importantly, as there is no federal oversight of the legal cannabis industry, it is up to respective state regulatory agencies to develop compliance protocols. This regulatory environment makes the cannabis industry a challenging place to do business - especially when attempting to operate in multiple U.S. states.
A great place to start with compliance is studying the rules and regulations of the state in which you plan on operating. For both medical and adult-use cannabis, each state has a dedicated agency that carefully crafts compliance standards. To illustrate, the Virginia cannabis market is regulated by the Virginia Board of Pharmacy, while the Washington industry is run by the Washington State Liquor and Cannabis Board.
Once you have become familiar with the regulatory agency in your specific cannabis market, we recommend visiting their website to study pertinent information. For example, on a website like that of the Cannabis Compliance Board of Nevada, you can find all sorts of helpful compliance info on license applications, plant counts, consumer education, product labeling, and much more.
The Role of Compliance Departments
Whether you run a single dispensary or a sizeable multi-state company, your cannabis business must have a compliance department. First, these important teams must study the rules and regulations of your cannabis market down to the finest details. After that, your compliance department is charged with implementing state law within your business.
To ensure the uniform application of compliance standards across your cannabis business, compliance departments develop standard operating procedures (SOPs). These critical documents function as blueprints for legal business activity within your operation. By carefully following compliance SOPs, your employees will ensure no rules are broken.
Depending on the size of your company, compliance departments are overseen by dedicated personnel such as Compliance Managers and Compliance Directors. Often, these people transition to cannabis from other highly regulated markets such as the medical and financial fields.
Training & Employee Teams
Once your compliance department has developed protocols for your business, you must integrate these systems into your employee hiring and training.
The first thing to consider regarding employees and compliance is the screening requirements set forth by your state regulatory agency. For example, anyone that wants to work in the Colorado cannabis industry must first acquire a MED (Marijuana Enforcement Division) Badge. To obtain a MED Badge, people must pay $100 and fill out a Marijuana License Employee Application. As part of this process, Colorado employees must disclose any felony convictions received within three years of the application.
Once your employee team is in place, your compliance department must train them to follow compliance protocols. To illustrate, Budtenders must follow detailed procedures with every customer, including checking IDs and medical cards. On the cultivation side, compliance teams must ensure that meticulous records are kept throughout the harvest process - including both the wet and dry weight of all cannabis plant materials.
Security, Inventory, Track & Trace
Security is an integral part of any successful cannabis compliance program. Most state regulatory agencies require detailed security plans as part of the cannabis business license application process. These plans include essential information on security cameras, door locks, product storage, cash transport, and employee background checks.
Once conducting business at your cannabis company, it’s critical to keep track of inventory through appropriate track and trace protocols. Please note, each state chooses its own seed-to-sale tracking software that communicates info on product inventory and plant count between businesses and state regulatory agencies. Franwell’s METRC is by far the most popular seed-to-sale platform in use today, although some states have opted to use programs such as Biotrack THC and MJ Freeway.
Accounting & Payroll
Regarding cannabis accounting and payroll, the semi-legal nature of the cannabis industry creates a very precarious position concerning compliance. As most large banks will not work with cannabis companies, accounting departments must develop creative ways to manage finances without breaking any laws.
Because cannabis is still federally illegal, major banks and credit card companies will not honor transactions made at dispensaries. As such, accountants and compliance teams must work together to develop sales protocols that circumvent these hurdles. Dispensaries have been forced to use error-prone third-party POS software or depend entirely on cash transactions. Neither of these options is ideal from a compliance standpoint. Accounting errors can be detrimental come tax time, and large sums of cash invite criminal activity.
Employee payroll has its own set of challenges for cannabis companies. To this end, cannabis companies must look for creative ways to pay their employees in an all-cash business. Luckily, companies like Green Space Accounting have come online to help solve these problems specifically.
Compliant Cannabis Marketing
Just like alcohol and tobacco, cannabis is considered a highly regulated industry. Therefore, marketers in the cannabis industry must follow particular compliance protocols. As seen in nearly every facet of the cannabis industry, these rules and regulations are unique to each state market. However, you can rest assured that most protocols are designed to keep businesses from doing things like intentionally advertising to minors.
One of the most important factors to consider with compliance and marketing in cannabis is product packaging. For example, California has precise criteria for compliant cannabis packaging, including opaque and child-proof containers. Therefore, marketing teams must keep these rules in mind when designing packaging materials.
A final point to consider about compliant cannabis marketing is that specific counties and municipalities have unique regulations on advertising. These rules are often at odds with state and neighboring communities, making a complicated situation even more confusing.
For more information on developing an effective, compliant strategy, download our cannabis marketing e-book.
Compliance is one of the most critical factors in running a successful cannabis business. Yet, for hopeful investors and entrepreneurs, the nuances and challenges of compliance are often overlooked when devising a cannabis business plan. At MOST Consulting, we strongly advise you to consider compliance in every facet of planning and running a cannabis company. Whether it be sales, marketing, security, or operations, playing by the rules is the best way to protect your cannabis business.