Here are steps you can take to ensure you’re running a compliant cannabis business
2019 has been a turbulent year for cannabis companies. On August 9th, 2019, CuraLeaf (CURLF), a multi-state cannabis operator based in Massachusetts, agreed to pay $250,000 to the state’s Cannabis Control Commission. The fine was a response to Curaleaf’s failure to disclose and seek approval for a change in its ownership.
Just over a month before that, in July 2019, CannTrust (CTST), faced intense regulatory scrutiny after it came to light that the Canadian-based cannabis operation had been cultivating product in grow rooms for months before those rooms for approved. The compliance failure hit Canntrust hard. It sent its stock value falling nearly 60% from its pre-revelation price and led to the ouster of its CEO, Peter Aceto, and that’s just so far. The Canadian Government is expected to announce further regulatory action against Canntrust in the coming months.
Due to their size, these major events take up much of the media’s attention, but they are far from the only examples. Cannabis companies have found themselves in hot water over an array of issues, such as pesticide use, improper labeling, and insufficient product-tracking. The penalties for these non-compliance events range from small or large fines to, in some cases, the revocation of the company’s state medical cannabis license.
The Feds Weigh In
Because cannabis is legalized currently only at the state level, most regulatory actions come from state and local governments, but that doesn’t mean they are the only agencies keeping an eye on the industry. Despite not having cannabis regulations of their own outside of total prohibition, the federal government has made it clear that they will step in when they believe there is corruption or a risk to public safety.
The majority of federal action on cannabis comes from the Food and Drug Administration (FDA). Both before, and particularly in the wake of CBD legalization in the 2018 Farm Bill, the FDA been particularly aggressive in sending warning letters to CBD companies who are mislabeling or making unproven claims about the efficacy of their products. These letters don’t carry much regulatory weight, particularly if businesses comply quickly, but they have cost at least one CBD company a lucrative partnership with national drug store chain, CVS.
In addition to the FDA, the Federal Bureau of Investigations (FBI) is also closely monitoring the legal cannabis industry. Instead of rooting out unfounded claims, they’re rooting out corruption, as FBI spokesperson Mollie Halpern explained in a podcast released this week by the Bureau.
As an increasing number of states change their marijuana legislation, the FBI is seeing a public corruption threat emerge in the expanding cannabis industry,” Halpern said, “States require licenses to grow and sell the drug – opening the possibility for public officials to become susceptible to bribes in exchange for those licenses.”
These actions simply reinforce that, even before they’ve made an official regulatory framework for cannabis, the federal government isn’t going to let the industry run unchecked.
Compliance Must Come First
From how it’s grown to how it’s packaged to how it’s sold, there isn’t a single aspect of the legal cannabis industry that doesn’t have some sort of rule or regulation with which to comply. Not only are the regulations numerous, they come from numerous governing bodies. Most cannabis businesses have to navigate a regulatory landscape that includes different, and at times contradictory, local, state and even federal laws.
Between the complexities of the regulations, the consequences for non-compliance and the recent string of news should make one thing clear to the cannabis industry: compliance isn’t just a concern for cannabis businesses, it should be the concern for cannabis businesses. It doesn’t matter how good your product or business model is, if your business isn’t compliant, you could see all your hard work stripped away with your business licenses. In this article, we’ll discuss some steps you can take to ensure that your cannabis business is, and remains, compliant.
Keep Your House in Order
Before we dive into compliance, let’s talk about the timing of that compliance. It’s simply a fact that running a compliant business from the start will save untold resources when compared to the crisis management costs associated with being found non-compliant by regulators. This means that you should carefully document your business’s activities, from your finances to your operations and everything in between. That way, you’ll always be ready — and able — to prove your compliance should regulators come knocking.
Stay up to Date on Regulations
This step as intuitive as it is important. You can’t run a compliant cannabis business without knowing the rules with which you’ll have to comply. Even before you’ve gone into business, you should be well-versed in all the applicable regulations, you should have a plan for complying with them. This will not only make running your business easier, a thought out compliance strategy may even help improve your chances of securing a business license.
But compliance education doesn’t end when you get your license. In fact, it doesn’t end ever. In these early years of the legal cannabis industry, lawmakers are constantly adjusting and amending cannabis legislation. For instance, in the two years after cannabis was legalized by referendum in California, state legislators rewrote the rules regulating the industry three times, finally approving permanent regulations in early 2019. And even with the new law in place, there is still uncertainty on the current and final wording. And through every rule change, it’s incumbent on cannabis business owners to remain compliant.
Know to Whom You’re Accountable
It’s not enough to know the rules you have to follow. You also need to know who enforces them. You should know what you need to report, by when it needs to be reported, and to whom you need to report it. Of course, the answer to this question will likely be multiple agencies and will depend on the type of business you run and where it is located. In California, distributors, retailers and laboratories are governed by the Bureau of Cannabis Control, while growers, processors and nurseries report to the Department of Food and Agriculture.
On top of that, California cannabis businesses may have to work with the Department of Public Health, the Department of Fish and Wildlife, Regional Water Boards, the California Department of Taxes and Fees Administration, the California Department of Insurance and more, and that’s just at the state level. Locally, you’ll likely need approval from planning and zoning committees as well as law enforcement and public safety agencies.
Remember That Compliance Goes Beyond Cannabis
There is no shortage cannabis-specific regulations that require time and resources to comply with, but that doesn’t let you off the hook for all the general regulations that all businesses must comply with. In fact, the increased regulatory scrutiny that comes with the cannabis industry only reinforces the importance of following every regulation, even general ones. These regulations may include HIPAA, OSHA, FCC rules, zoning ordinances and all applicable labor and tax laws, just to name a few.
Choose Cannabis-Focused Partners
From packaging to point of sale software, apart from perhaps the largest cannabis corporations, there are simply too many disciplines that go into it to have them all in-house. It’s simply a reality that you will need to partner with other businesses to help run yours. But when choosing your partners, choose wisely.
Any old accountant won’t necessarily know every financial restriction you face, just like any old advertising agency won’t necessarily know everything you’re not allowed to promote. It’s important that you choose cannabis-focused partners when the time comes. Like you, they work in the cannabis industry and will have a much better understanding of the regulatory compliance expected of you, because it’s expected of them, too. Not only can cannabis-focused partners help you remain compliant, their industry experience can also come in handy. For instance, here at MediaJel, we’ve built strong relationships with digital publishers and know which ones are open to running cannabis content. Allowing us to ensure not only that the ads we run for you are compliant, but that they’ll run at all.
If you have any questions about the cannabis industry, compliance or advertising, drop us a line. Let us show you how, together, we can take your business to new heights.