Management Value of Compliance
When we ask prospects and operators how they manage compliance, the answer often reveals gaps in compliance management. Many of our clients have discovered or already inherently understand the management value of compliance. However, the cannabis industry at large rarely considers the implications of poor compliance methodologies until it’s too late.
Most operators rely on a top-down methodology. The owner, attorney, or compliance officer mandates rules through management down to the lowest workers on the totem pole. Many simply hope the message comes through clear when it reaches their workers. This compliance management strategy often leaves much to be desired. For instance, when we ask new clients clients how many of their staff members have read and understand the rules and regulations they are supposed to follow, the gap widens even further. Many industry workers have not read all the rules and regulations, and further, they may not understand the implications.
This “top-down approach” creates a recipe for failure. We see this in the numbers. The cannabis industry has become plagued by high turnover, inefficiency, a lack of accountability, and transparency. These issues lead to greater risk and can put licenses worth millions of dollars on the line.
The other issue with this mismanagement exists because compliance doesn’t moves up the corporate ladder very often. The top-down approach often excludes the importance of integral team members who would benefit. Transparent and integrous compliance becomes important for entire teams, even for those who don’t necessarily need to use compliance strategies in their day-to-day jobs.
Ground-up Approach to Compliance Management
When we explain the iComply methodology to our clients, we take into consideration all stakeholders and emphasize the importance of a ground-up approach to compliance management. Employees, managers, owners, and other stakeholders all need to be on the same page when it comes to compliance strategies. This allows owners to effectively manage compliance, reduce turnover and risk, and create a culture that values compliance from the top-down and from the bottom-up. Consequently, folks like landlords, investors, partners, public markets, and employees become vested in the overall success and protection of the value in a licensed operation.
In every other heavily regulated industry, businesses accept as common practice acts of periodical compliance measurement. Owners and operators seldom think of the value of their compliance being validated along with their processes and people over time. The validation serves as a record of compliance over the history of a business. In addition, reporting macro and micro aspects of compliance over time creates clear ways to identify and mitigate risk. Effective compliance management protects everyone in the firm’s business sphere, reducing friction in professional relationships and equalling more profits for the company as a whole.
Landlord Value of Compliance Management
For example, many landlords in emerging markets feel wary of leasing to canna-related businesses for a number of reasons. Sophisticated operators may consider what it would be like to negotiate building leases when they bring a level of transparency to the table. If a cannabis business requires transparency in their operations, third-party validated measurement can create a huge win for both the cannabusiness and the landowner.
Third-party validation of compliance also often brings wary landlords off the fence. Transparency can open up ideal locations and facilities or allow business owners to leverage competitive properties for better terms and beat out the competition when making offers. Landlords looking to reduce risk can easily build compliance management into the price of leases as a requirement. This ensures their cannabis business tenants minimize the risks of non-compliance and tenant turnover.
Having clear, measurable methods to determine compliance management efficacy speaks volumes about any company. As well, establishing this standard in cannabis organizations creates legitimacy for the business owners as well as stakeholders like landlords, and even banks.
Banking Value of Compliance Management
Federal banking regulations inhibit the marijuana industry greatly. Often, markets seek to convince banks to take the risk in banking cannabis businesses. Many previously unavailable avenues for financing continue to become more and more available. This continues to occur largely because of strong business plans, sound operational practices, and concise compliance management strategies.
Banks have stringent compliance guidelines in their own industry. According to FINCEN guidance (technically dependent on the repealed DOJ guidance), banks must KYC (know your customer) by vetting stringent details. Banks also must submit SAR (suspicious activity reports) monthly to federal regulators on cannabis transactions and deposits.
Because of the complex regulations, banks understand what success can come from properly adhering to regulations. Compliance management and monitoring exists as a key consideration in the ongoing relationship for banks and their compliance departments. By establishing compliance management via third-party experts, like iComply, banks get the clearest view into the operational controls of each account.
This builds faith in cannabusiness as well. Financial institutions may feel safer with customers who value compliance, especially since the banking industry regulations require detailed compliance management as well. Validation secures a key operational necessity for cannabis owners, operators, banking institutions, and investors alike.
Investor Value of Compliance Management
Operators in the cannabis industry often find themselves at odds with financial institutions and investors. Although this happens for many reasons, we find that effective compliance management creates the most important bridge. Effective compliance management gets people of both worlds to agree. As well, compliance strategies allows everyone involved to be on the same page, prevent losses, and reduce the friction of combining operators and investors.
Accountability and transparency to the rule of law speaks loud and clear. Potential investors likely understand how training often becomes the first level of defense. Since most staff members aren’t reading the rules, cannabis businesses can incorporate detailed training programs to educate their staff more effectively. Training also helps employers reduce uncertainty among their staff and increase their level of safety. iComply works with our clients’ staff as part of our package. We often operate like a compliance helpline as well. This helps further reduce turnover (a huge and costly industry problem) thereby increasing profits and the investment potential of the business.
If investors themselves are not educated about the rules and regulations governing cannabis businesses, they walk into risky investments blind. Even if investors do have training in cannabis regulations, their return on investment depends on continued operations of the brand. This directly ties to the company’s ability to operate with consistency and quality. iComply often conducts compliance due diligence on investment deals. In addition to helping manage compliance, we can provide reports to investors and public markets regarding the operational reality of each cannabis business in the portfolio.
Risk mitigation should be a key consideration for cannabis business investors. Without accurate third-party validation, investors convinced of an operational reality that doesn’t match end up suffering the actual risk of the investments they make.
Value for Cannabis Business Operators
Cannabis business managers, operators, and owners live daily as the boots on the ground. They often need effective compliance measures, training, and reports to keep the business running smoothly. Through iComply, these stakeholders become empowered to effectively manage changes, personnel, and operational procedures.
iComply regularly meets with our compliance package operators to review findings, provide support, research questions, offer advice, and share best practices to deal with compliance challenges. We act as an interim compliance officers at times, getting staff ready for an audit by regulating agencies. We offer services steeped in robust experience to ensure compliance doesn’t fall through gaps during day-to-day business operations.
Compliance Management Value
By ensuring proactive measures and management of compliance, operators stop REACTING to non-compliance. This allows owners, operators, staff, and stakeholders to craft a culture of compliance that embraces accountability. As well, taking compliance seriously from the ground up increases employee retention and business profitability.
As challenges come up, our clients find themselves proactively positioned to quickly remediate and mitigate compliance issues. This leaves iComply clients more empowered. As well, their companies become more valuable by enacting compliance management over the long-run.
A cannabis business does not exist in a void. No single person, whether they are an attorney, compliance officer, executive, investor, landlord, or strategic partner, can manage a cannabis business alone.
However, the ramifications of compliance affect every single person involved. Effective compliance management ensures the business stays in business. Proactive compliance strategies ensure the brand stays valuable by avoiding inconsistencies, impurities, and non-conformance. As the industry continues to rapidly evolve, the value of effective compliance management becomes ever more important.
Like any other heavily regulated industry, these stakeholders would do well to trust qualified third-party validators, like iComply, to take the burden. We work to ensure compliance becomes adequately managed and communicated to every stakeholder in the business.