Increasingly liberal state laws aside, the cannabis industry is on track to becoming one of the world’s most heavily regulated. No matter whether you are running a dispensary, lab, edible manufacturing firm or cultivation center, this business can be laden with peril, and compliance is one of the biggest traps.
Want to operate legally? The path ahead is strewn with stumbling blocks. Even in states with supposedly well-established frameworks, enterprises can face a patchwork of cannabis laws and regulations that seem impossible to decipher, let alone tripping over.
Fortunately, business leaders do not need to have law degrees to chart a course to sustainable governance. Here is an insider’s look at the different governance domains you will need to master to keep your company compliant no matter where you are domiciled or which part of the industry you specialize in.
The Major Regulatory Disciplines That Firms Need to Master
How can businesses make headway if states, counties, and cities all have unique laws? Smart business leaders do more than merely read up on local ordinances and seek reputable partners that can walk them through cannabis compliance and inspections. Although the rules vary, the majority fall under a few key areas of focus that operators should get to know:
Product Contents and Labeling
Consumers are not the only ones who desire high-quality cannabis products with known levels of THC and CBD. Depending on where your business cultivates, it may need to adhere to rigorous lab testing requirements that cover everything from cannabinoid contents to pesticides, foreign materials, and mold.
Fortunately for those confused by such standards, labeling laws are generally instituted at the state level. At the same time, however, companies need to be conscious of the fact that accurate labeling and lab testing demand consistent process and batch controls. Growers, edible makers, cannabis extraction enterprises and other processors must take the necessary steps to track their products throughout the complete lifecycle. To maintain high product quality, they should also invest in systems that permit the proper storage, packaging and regulation-compliant labeling needed to produce consistent products and minimize losses.
Local governments view cannabis businesses as cash cows, so they are highly taxed. This burden can pose significant challenges for companies that want to report their profits and losses accurately. So can the fact that cannabis firms pay many types of taxes that no other enterprises have to contend with.
Direct-to-consumer cannabis businesses remain, for the most part, cash-only. As such, companies need to go the extra mile to substantiate their earnings and exemption claims. As countless court cases and a long history of federal legal action have shown, failing to follow tax rules spells ruin for many otherwise promising organizations.
Many localities regulate the cannabis industry through strict zoning. In states like Colorado and California, for instance, this has resulted in a highly imbalanced distribution of dispensaries.
How might such inconsistencies impact compliance outlooks? Firms need to structure their business models to account for the fact that they might not be able to conduct certain activities in some areas. Different municipalities may outright prohibit certain forms of cannabis-related activities that remain legal just down the road. Such restrictions often stand even though they might appear to contradict state laws. For instance, under California’s 2016 Adult Use of Marijuana Act, places like Riverside County retained the right to ban all commercial cannabis activities in unincorporated areas pending the institution of a comprehensive regulatory framework. As such rules change, businesses have to plan their growth accordingly.
Environmental Controls and Workplace Safety
Cannabis cultivators must comply with a range of environmental rules that vary by state. In some areas, water use restrictions limit the growing and processing activities that firms can conduct. The use of certain pesticides may be prohibited, and even firms that rely on approved substances need to maintain detailed logs of how and when they apply them.
As with other firms, cannabis companies are also responsible for maintaining healthy working environments. For growers, this typically means keeping material safety data sheets on hand and ensuring that site safety features are in working order. Indoor cultivators that rely on high-powered lighting and irrigation may have to take special precautions with regards to wiring and fire suppression systems.
One of the worst sins that cultivators can commit is failing to control their inventory. Unlike other agricultural businesses that track products for their internal records, controlled substance producers have to maintain consistent positive control of their plants regardless whether they’re in a mature flowering state or mere clones. Since regulators want to ensure that cultivators aren’t improperly diverting any cannabis materials, this also includes the often-overlooked step of documenting all waste removal and processing activities.
Failing to stay up to date dramatically increases the chances of inspections, fines, and other business disruptions. Firms that work with third-party processors, such as waste removal firms, also need to ensure that these partners adhere to the same strict standards that they do.
Because dispensary operations are among the highest-profile pieces of the trade, they tend to attract increased regulatory scrutiny that can bleed over into other aspects of doing business as usual. For instance, Alaska, California, Connecticut, and other states have all implemented cannabis marketing laws similar to those imposed on the alcohol industry. In some places, like New Jersey, lawmakers have even gone so far as to restrict the colors of signage.
Dispensaries need to comply with a variety of facility rules. For instance, the City of Vallejo requires that medical dispensaries install locked waste facilities and minimum levels of exterior illumination within 90 days of receiving their cannabis licensing. Many cities also mandate that dispensaries provide their products in child-proof or nondescript packaging.
Dispensaries and other facilities have a variety of site security requirements that typically correspond to their chosen specializations. These regulations can also differ based on the location of the business.
It’s a safe bet that anyone who deals with cannabis in large quantities needs to institute some form of access controls. Whether these take the form of armed guards stationed at dispensaries, locked dumpster enclosures or security cameras, it is critical to understand what the specific rules are and invest in the necessary systems early on. For instance, cannabis facility design plays a crucial role in restricting and monitoring site access.
Putting It All Together to Push Towards Compliance
These are just some of the types of regulatory burdens that cannabis business owners must be willing to shoulder. Although the journey to compliance can be difficult, firms that make these issues core components of their business planning stand higher chances of tackling them successfully.
Creating and maintaining a compliant cannabis business is by no means impossible. By assigning responsible stakeholders to tasks like process logging and auditing, enterprises can serve their consumers faithfully and avoid regulatory fines that chip away at their bottom lines.
Moving forward is much easier with a competent partner. At American Cannabis Consulting, we specialize in helping firms defeat regulatory obstacles and build robust business models with the staying power to survive evolving legal landscapes.
Learn the lay of the land. Identify the best path to your business goals by getting an industry insider’s perspective. Refine your operating standards by chatting with our experts.