2023 Compliance Trends and Outlooks
As the industry continues to mature and reach its first decade of retail marijuana (adult-use) sales, there are a number of cannabis compliance trends we’ve seen and anticipate for 2023. Some are positive trends in the cannabis industry that offer new opportunities and increased ROI for those willing and able to get ahead of these curves and proactively manage their businesses to position themselves in the market. Other trends represent risks and costs associated with compliance that can be avoided by proactive positioning.
Below, I break these trends down and offer my expertise in navigating them best to mitigate inherent risk and cost while explaining how one can best leverage these 4 major trends for a more successful 2023.
Growth in the hospitality sub-sector
As the marketplace sophisticates and consumers treat cannabis consumption normalizes, State legislatures like Nevada and Colorado are beginning to develop a very important sub-sector of the industry: Hospitality and Consumption.
These new license types will allow for the sale of cannabis in small amounts, at a higher premium, in select venues – similar to a bar or other space where alcohol consumption is allowed. Industry insiders know this sub-sector offers billions in additional revenue opportunities, including the ability to strengthen brand loyalty among consumers and to normalize the use and consumption of cannabis socially.
For those apt to the culture of cannabis, this new subsegment is not going to look like the dab bars of old or the membership-based consumption venues that popped up prior to these license types. If anything, cannabis enhances already fun and engaging activities in a social setting and we have historical models to look at. Amsterdam cafes, for example. Or anywhere alcohol is enjoyed around a social setting. Who may be the next Top Golf, Meow Wolf, or Starbucks of this new frontier?
As social equity becomes more important, this trend will be fascinating to watch as the culture of consumption is reclaimed by those who created it. The normalcy of everyday life blends into hospitality. Vegas, especially, will be interesting to watch as it vacillates between tourism and tasting room concepts while Denver is taking a more broad stroke approach to how these businesses will look.
From a compliance standpoint, the regulations consider concepts like last calls at two hours, mandatory responsible vendor training, and consumer waste disposal as new concepts for compliance. iComply is actively assisting a number of these hospitality operators who are actively seeking both capital and real estate to launch these new businesses into some of the first in this sub-sector. Contact us to find out more.
Oversupply and price drop to continue
MJ Business Daily most recently added Massachusetts to its growing list of oversupplied markets including Oklahoma, Colorado, Washington, Oregon, and California. Industry trends in the market are indicating that this is not likely to change as most States did not analyze supply and demand as it relates to price. Cultivators are especially hard hit without the ability to truly differentiate product quality as the market continues to commoditized all cannabis to the lowest price per pound. The industry is growing more for less and those with deep pockets are also reporting major losses from these oversaturated markets.
To adjust for oversupply, regulators could reduce plant counts or square footage in an effort to adjust the market and correct the glut. More than likely, however, the markets will adjust through competition – forcing many smaller operators to close their doors or, hopefully, sell their businesses to those who can produce at a lower cost. Smaller producers with good brand recognition may be able to weather the storm by growing less cannabis, at craft quality and branding, for a higher price – thereby reducing their overhead and maintaining their margins. Unfortunately, this means objectively explaining why and how craft cannabis is better to both consumers and retailers. The industry has a major opportunity to define quality beyond a simple “scratch and sniff” and visual analysis.
This trend represents both an opportunity and a challenge for industry operators. Those that are vertically integrated, for example, may not feel the pressure as keenly and may be able to buy cheaper than it takes to produce cannabis in house. Others may find salvation in selling to the newly forming hospitality sub-sector or by differentiating their cannabis as quality. From a compliance standpoint this means having SOPs that account for quality assurance and that contain quality standards and controls.
Consistency will be key here. The reason Coca-Cola, for example, is loved around the world, is because it is consistent around the world. Many cultivators fail to meet this bar or to have the documentation in place to prove their cannabis is superior, consistently. There’s a huge opportunity in that, but also a major challenge as the race to the bottom continues in 2023 and spreads to other markets with poor limitations on production.
Increased Regulation and Enforcement – especially for contamination
To the effect that regulators become more sophisticated, have a natural tendency to regulate fewer players, and gain more experience and control, the industry should expect to see greater enforcement in 2023. This is a natural tendency as markets mature, but one of the easiest areas we see major issues and easy enforcement – especially amid random sampling of final goods from the market itself.
Indeed, we’ve seen major increases in the last year we expect to get worse in 2023. Regulators are pulling products off shelves to randomly sample them for contamination and recalls are on the rise as a result. Some states offer “process validation” or the ability to test batches less often if one can document and prove independent sampling and consequential passing results over a period of time. If this standard does not exist yet in your state, consider it an inevitability which should be included as part of your sampling plan and SOPs.
SOPs are vital tools for ensuring that these samples are process validated and their documentation is often the first risk mitigation document to present to regulators in the event they call test results into question. This applies to all product types including edibles, liquids, topicals, prerolls, and concentrates. Another important factor mandated in some states and possibly coming to a state near you is requiring CAPA plans for corrective and preventative actions. This includes potential recall plans in the event of contaminated product enforcement.
Finally, trends around these issues create cause for consideration around material changes to the SOPs which can re-start the validation process, impact quality, and can cause failed testing to perpetuate. It is important to review SOPs at least annually for rule changes, material changes, and onsite accuracy to ensure compliance, reduce product liability, and to have the first line of defense as enforcement increases around random testing of final products, contamination, and recalls.
International Commerce Standardization
Globally, the rough patch of EU-GMP standards are normalizing between languages, practices, importers, and exporters. Supply competitors are catching up across Canada, Africa, South America, Asia, and Europe to supply demand markets such as Israel, Germany, and the UK. While these markets are relatively small compared to a single State in the U.S., new American companies should keep this eventual future in mind as the global commercial cannabis market continues to grow and standardize in 2023.
Though we may still be short of a global cannabis commodities index, the beginning stages are in play as countries look at demand and supply and subsequent global prices emerge. Generally, low cost countries are looking to produce cannabis at a quality standard that meets EU GMP and everyday more of these companies are achieving the ability to export their cannabis globally. Demand markets are setting the price and forcing competition for the lowest bidders who meet minimum requirements consistently.
It is especially critical as new operations are established in the U.S. to consider future competition amid federal legalization efforts. Most cannabis operations do not meet EU-GMP standards to export California cannabis to Amsterdam in the future, for example and this is due to the lack of major components and best practices needed in order to do so. For infuse products and flower, it means quality management systems development and implementation including stability studies for anticipated zones of export. It means a retrofit of existing systems, materials, and processes at cultivations and labs, and it means quality control on suppliers and vendors.
The U.S. is anticipated to fall behind these global trends for years even when legalization takes place because of these challenges. Savvy operators opening in new markets domestically are starting to see the eventuality of competing globally and are beginning to take the extra budget line item on buildouts to ensure future compliance to these standards. In 2023, operators can expect to hear more about these global markets and what it takes to build out or retroactively retrofit operations for GAcP and GMP compliance in cannabis.
Emerging markets are continuing to open as more States open their markets to medical and retail cannabis businesses. However, there is saturation occurring as demand shifts from a few States supplying cannabis to domestic supply chains, as COVID 19 comes to its conclusion, and as policies continue to push consumers to illicit competition due to high taxes, overburdensome regulation, and low prices – adding to secondary market diversion.
These anticipated 2023 trends can help proactive operators and owners in the business navigate the rough waters ahead. We’re certainly onboard with our clients to help them keep their businesses afloat and their compliance intact. Hopefully, through savvy operational compliance management, one can find refuge in the gaps between the waves and find their way to bluer oceans amid increasing competition. New market subsegments, mastering QA/QC and SOPs, and planning for the future will be critical as the market consolidates and corrects itself.