The Value of Proactive Cannabis Compliance

June 8, 2020
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The Value of Proactive Cannabis Compliance

Compliance is never a one-time event that is magically achieved. Experienced operators understand maintaining compliant business practices requires an ongoing process of continuous improvement. Not only do rules change, but so do regulators, enforcement priorities, competition, and market dynamics. This causes companies to make organizational-wide changes to SOPs, Employee Training, and Management priorities on a regular basis. Proactive cannabis compliance creates strategies to tackle these complexities.

Unfortunately, much of the cannabis industry plans for compliance like they plan for natural disasters. Many say, “If it happens, we will react at that time.” However, savvy operators understand that “business as usual” can be smarter than that. 

Modeling Proactive Cannabis Compliance

After all, cannabusiness owners already obtain insurance for woeful disasters, a standard practice in any industry. Cannabis businesses can learn from best practices common in other heavily regulated industries. One key to operating effectively under heavy regulations? Being proactive about operational compliance management. 

Whether it’s oil and gas, pharmaceutical manufacturing, hospitals, banking, or nuclear waste, evolved industries that deal with heavy regulation ensure their foundational operations are solid. They work to embrace policies and procedures providing flexibility and ability to continually evolve. They create structures to prove their risk mitigation BEFORE disaster strikes.

Consistency and Oversight

Time and time again, iComply sees common compliance mistakes that can be easily mitigated and prevented. Unfortunately, many operators in the cannabis industry become stuck in simply operating due to high demand. They resist “compliance” – a complex buzzword they think they are managing effectively. Many businesses simply aren’t operating at an industry standard when it comes to compliance strategies. 

We find the most commonly lacking areas include the following. Many businesses lack attention to day-to-day operational consistency. As well, we find management often struggles disseminating adequate education about rules and regulations across the organization. Another missing component exists: the ongoing validation of the processes and people expected to carry out compliance. From budtenders, trimmers, and packagers, to executives, managers, and outside contractors, validation of their efforts goes hand-in-hand with keeping the organization in compliance. 

For example, a simple lack of oversight in signing manifests resulted in a year-deep books and records audit by regulators for one operator. 63 manifests were found without signatures. The operator found themselves looking at a $1,000 fine per missing signature! 

No one expects a $63,000 fine out of nowhere adding to their overhead and expense.

In another instance, an owner filed a change of modification of premises form too late, resulting in the seizure of two recently added flower rooms and around 20 lbs of product. While at the time, this seemed simple enough as a mere infraction, any good cannabis attorney can attest that low-priority violations often take the longest amount of time to resolve. This particular owner experienced 11 months of product shortage due to the administrative hold and inability to flower – resulting in hundreds of thousands of dollars in lost revenue. 

In both cases, these cannabis businesses found themselves facing the unforeseen costs of non-compliance – costs resulting from REACTIVE rather than PROACTIVE compliance.

Proactive Cannabis Compliance Requires Mitigation

Many cannabis businesses have not developed the operational sophistication, know-how, and systems to achieve 100% compliance 100% of the time. While this is ideal and what regulators expect, 100% compliance all the time becomes nearly impossible for a system with so many moving parts like a cannabis business. This is where mitigation plays an important role.

Risk Mitigation is a normalized investment and budget expenditure for other heavily regulated industries. Risk mitigation becomes instrumental in company’s ability to prevent the tremendous expenses of non-compliance – including the cost of attorneys that would be needed to reactively defend very valuable licenses from suspensions or revocations. 

Most regulated markets define their mitigating factors clearly. Similar to other industries, these factors are taken into account when inspections, subsequent investigations, audits, and case files are conducted with cannabis businesses. 

Common mitigating factors include:

  • a history of compliance
  • seniority and position involved in violations
  • preventative measures taken
  • corrective measures taken
  • training and education provided
  • the accuracy of SOPs
  • the likelihood of recurring violations. 

During most inspections, investigations, audits, and case files, regulators also consider the overall circumstances and deliberateness of violations. They also consider the opposite side of the regulatory enforcement coin – whether there are AGGRAVATING factors that worsen the severity of any infraction or violation.

This nuance could mean the difference between a slap on the wrist or being shut down.

Why Tolerate High Risk?

For licenses worth millions of dollars, it’s surprising to witness the amount of non-compliance risk tolerance cannabis businesses accept. For iComply, we’ve yet to walk into a 100% compliant facility since our inception in 2011. This speaks volumes about the risk tolerated in the industry. 

For instance, most heavily regulated businesses do not tolerate a risk level of more than 2%. As well, Colorado illustrates the future toward which emerging markets should head. In Colorado, 10% of cases reviewed by the Division endured some level of enforcement action!

As the cannabis industry continues to establish strong standards, the risk the industry tolerates will continue to decrease. This reality illustrates why iComply exists. We strive to reduce the costs and risk tolerance of cannabis businesses by focusing on proactive mitigation. From SOP and employee training reviews to inventory reconciliation, in-depth auditing, and employee training, we are committed to long-term success in effective and affordable compliance management services. 

The premise is simple: if you’re reacting to non-compliance, you’re already too late. 

We’ve helped hundreds of cannabis businesses analyze their liability, prioritize compliance remediation, and establish effective third-party validated mitigation in the most important areas of their business. 

Establishing a history of tight compliance management becomes critical to proactively mitigating the costs of non-compliance. This is the first line of defense for savvy operators who understand the value of investing in to consistently compliant operations, verified and collaborated with the most experienced compliance experts in the field. 

iComply takes our mission seriously. We provide the most comprehensive, transparent, and effective risk management services to professionalize the cannabis industry. Taking compliance management to the next level, we deal with the tedious details vital to the inevitable evolution of the cannabis industry worldwide. We encourage cannabis businesses to consider the costs of reactivity versus proactivity and to invest their hard-earned pennies to protect their dollars. 

After all, the best in class in every other heavily regulated industry does the same with third-party validating experts. The value of proactive cannabis compliance measures in dollars saved, time saved, and peace of mind for owners, investors, and operators.