Updated: Jan 25, 2019
For businesses in the cannabis industry, compliance is non-negotiable. Your cannabis business cannot risk non-compliance, because any non-compliance will lead to penalties that either severely harm operations or have the business shut down entirely. For example, in California, each compliance discrepancy can result in a fine up to $5,000. If there’s even one deviation from the regulations found, that may be enough reason for regulators to shut down a business for not being in compliance with the law.
Given the recent emergence of the cannabis industry, it's not surprising that the regulations that govern it are still in a developmental stage and prone to sudden changes. Do not assume that because you’re in compliance with one set of regulations today, you will be tomorrow, because those regulations may not remain the same. You must take the initiative to stay compliant instead of hoping to come across compliance updates. This means staying up to date on any press releases or changes on the state website, and joining relevant email lists. The more precautions you take, the better your position will be.
Any business that produces, manufactures, or sells cannabis products must not only follow federal and state regulations, but also local ordinances and requirements. This starts with having a business plan that properly reflects local laws and regulations. Identify and keep records of all laws and regulations that apply to a cannabis company’s operations, and develop and train on procedures to maintain and promote regulatory compliance. However, record-keeping and compliance must not end after obtaining local and state cannabis permits, but should be an ongoing effort. Compliance is not only a prerequisite to obtaining your cannabis license, but is also vital in keeping it.
Remain flexible as these laws evolve, and start with a compliance-centric business model, which entails developing standard operating procedures that keep your business structured and evolving those procedures alongside regulations. Adopting processes and software that keep you compliant means the difference between a successful cannabis business or one that gets shut down.
Remember that it's not enough to have stringent SOPs, you need to make sure your cannabis business is following them. Keep your staff and SOPs up to date. If a mistake brings a regulator to your business, you’ll want to show that the mistake was an anomaly and not due to poor business practices. Compliance programs (including standard operating procedures, manuals, and training) provide documented proof of your efforts to conduct business in accordance with applicable regulations. If a regulator, inspector, or auditor can view a company’s documented compliance efforts, they may work with a company to remedy minor regulatory violations instead of issuing penalties or fines that can cost much more than the license itself.
Conducting financial, security, and inventory audits will go a long way in preventing potential penalties. Be sure to file your taxes, even if you have uncertainty about the legality of your business. Tax agencies are more than likely to audit you and hold you responsible for past-due taxes, putting you at greater risk of non-compliance.
Compliance should not be a one-person operation. Harris Bricken, an international law firm operating within the cannabis industry since 2010, recommends having a compliance team to focus on your regulatory responsibilities and identify irregularities in your operation to correct them. Non-compliance can arise out of any aspect of your business, including customer verification, inventory tracking, and product labeling, but a compliance team can maintain a constant eye for any liabilities. Treat compliance as an asset: monitoring compliance will keep your businesses viable, avoid disruptions, stay competitive in a stringent regulatory system, and set yourself up for long-term success.
Security requires 100% compliance, which must be your number one priority. You will not get out of legal violations by arguing that you were unaware of or did not understand the regulations. Even 99% compliance still isn’t fully compliant. It’s all or nothing. Ignorance of the law is no excuse, especially not to regulators.
Ensuring compliance will require diligent hard work, and depends on having a really solid understanding of compliance requirements and having a compliance program in place. Non-compliance risks loss of profit, criminal penalties, and license revocation. Speak regularly with your legal counsel or industry consultants you’re working with to avoid incurring those penalties.