Compliance Is Cost Effective: 3 Common Ways Cannabis Operators Get in Trouble
Free Book Preview Cannabis Capital
When looking at the cannabis industry, one prevailing character trait appears among almost all cannabis operators -- they’re risk takers. They have to be when you think about it, or they probably wouldn’t be in a federally-illegal industry that's more complex than most others. It’s a very specific landscape that largely attracts those who are willing to bet the farm on their own capabilities. Risk is inherent here.
Successful operators know how to weigh their risks though.
In the long game, skirting around regulations isn’t a risk-worth taking. My company, ONE Cannabis, views every decision through the lens of “compliance first, profit second.” We have clear reasons -- you can’t be profitable without first being compliant. That mantra is the reason I’ve operated for 10 years with perfect compliance, which has saved us untold amounts of money while boosting the confidence of our investors. It costs money to meet the regulatory guidelines required by various departments, which is why many cannabis entrepreneurs straddle the line of what is acceptable.
The best and easiest way to remain compliant is to hire compliance officers. Internal policing makes your business safer, healthier and more profitable while avoiding the headaches that come with citations and subsequent fines. Most multi-state operations have an entire department dedicated to ensuring compliance across the organization.
When compliance officers come around for on-site audits, there are a handful of issues that are very common in each state. Here are the top three.
When packaging is not made with the customer in mind.
The logic behind some of these infractions is understandable when you look at it from a business owner’s perspective. Take product packaging-- operators have to buy their packaging in bulk but compliant standards on those items can change every 18 months. Oftentimes, operators will purchase an order that adheres to regulations, only to have those regulations change shortly after. Suddenly, what was perfectly fine just a couple weeks ago is a money pit.
The logic behind the regulations is even more understandable, however-- cannabis products should be packaged with labels and child-proof measures in place for everyone’s good. Edibles are the biggest concern and the main reason why warning labels aren’t enough. Pets and children like chocolate but they can’t read.
Accept the packaging loss and keep moving. The fines for doing otherwise oftentimes are larger than the cost to improve the package. Recently, a popular Colorado edible brand was hit with a six-figure fine for this exact reason, costing them much more in the long run.
Many of these infractions are seen as “cost effective measures,” which usually prove to be incorrect. Dodging regulatory standards is never the answer for cutting costs. If you’re having trouble making it work, devote your time to securing access to better resources or partners that can invigorate your business model.
Skimping on security.
In the early days of legalization, regulation began and ended with product security and anti-theft. The original Colorado cannabis regulations, for example, were a 100-page love letter to cameras. As the conversation between regulators and operators moved forward, the process evolved. Now the guidelines are comprehensive and geared toward the safety of employees and customers. Security is still a priority, however, and an area in which operators tend to fall short.
A typical camera system will run about $14,000, which will get you 16 camera channels. How many cameras you’ll need depends on the number of point of sale (POS) stations and doors in the facility. It might be 17, in which case you will have to drop another $14,000 on one extra camera due to channel limitations. That’s an expensive investment for what some consider an unnecessary measure.
One of the more difficult tasks compliance officers have is convincing operators to invest in themselves. Outfitting your company with proper security will cut theft losses and reduce the risk of fines. Putting money into your business pays off in many ways, and it also boosts the quality of what you’re building.
Workplaces unsafe for employees.
Sometimes employees need you to step in for their own safety.
Like security, there’s instances when operators underestimate a risk. Ventilation systems are typically one of those risks. Most cultivation sites are prefabricated industrial buildings which might set empty for years before a grow moves in. In many cases, pesticides are sprayed but there’s nowhere for the residuals to go. You’d be surprised at how many employees don’t see this as a real danger to themselves -- they are entirely willing to be in unventilated rooms. Sometimes agricultural inspectors, or whichever department monitors those concerns in the state, show up and the issue becomes a battle.
It’s up to you as the owner to make sure that everyone is safe in their own workspace, regardless of their opinion on the matter. Compliance is not about the owners -- it’s about putting the proper safeguards in place so employees and the community around the business won’t suffer from negligence. It’s one of the costs of doing business and should be seen as beneficial to the operation.
Current legal states have an obligation to make cannabis a professional industry that adheres to a standard that will attract both talented specialists and tentative new buyers. As more states come online, they’ll be looking to mirror the regulations of legacy states. It will be up to seasoned operators to make sure that cannabis is a respected industry across the country.