Tag Archives: compliant

Think Your Cannabis Business Complies with Temp and Part-Time Employment Regulations? You Might Be Surprised

By Stacy Bryant
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As a fast-growing cannabis company, ensuring your business stays compliant with regulatory agencies of all kinds—planning departments, the U.S. Department of Agriculture (USDA), Occupational Health and Safety Administration (OSHA) and so on—is critical for survival. But is your business also compliant with temporary and part-time employment regulations? Violating these often-overlooked regulations can land your company in hot water at best and force you to shut your doors at worst. Here’s what you need to know about risks, regulations, compliance issues and more.

The 30,000-Foot View: Part-Time and Temporary Employees 

Cannabis has proven itself to be a high-turnover industry. But in the ever-shifting, post-COVID landscape, many cannabis employers are seeing the financial and logistical benefits of hiring part-time and temporary workers.

Though the terms “part-time” and “temporary” are sometimes used interchangeably, the fact is, there are legal differences in the definitions of part-time versus temporary work. For starters, temporary employees must work for less than a year at a specific organization, and their work must have a defined end date. Temporary employees, or “temps,” often fill vacant roles in a temporary capacity, such as roles previously occupied by someone on parental leave.

Many full-time employees in the cultivation space are defined as “agricultural workers”

Part-time employees, on the other hand, can work indefinitely for a company—but they must work less than 40 hours per week. And, side note, if a part-time employee works more than 1,000 hours in a calendar year, they could be eligible for retirement benefits—so hiring managers, bear that in mind.

For employers, there are some tangible benefits in hiring part-time or temporary workers. For starters, there are often fewer upfront costs associated with hiring part-time workers (like workers’ compensation and healthcare). Establishing a strong part-time and temp employment strategy also allows for employers to quickly scale up or down based on market tendencies or shifts.

Understanding the Risks of Hiring Part-Time or Temporary Workers

While hiring part-time and temporary workers can help businesses stay agile and responsive to market demands or fill vacancies created by recent resignations, many businesses hire these types of employees without a full understanding of associated regulations. And it can get even trickier: many full-time cannabis industry workers in the cultivation space aren’t considered “employees” at all—they’re defined by the federal government as “agricultural workers.”

It’s essential that businesses classify part-time workers and independent contractors correctly. Attempting to claim a worker is part-time when they’re really a full-time employee (a practice known as “misclassification”) can save a business tax dollars in the short-term but lead to sanctions and hefty penalties down the line. For example, if a worker is misclassified and the Department of Industrial Relations finds out, they can sue the former employer for unpaid wages.

Potential fallout from noncompliance with classification or wage and hour issues includes massive fines, potential litigation and more. Federal agencies are extremely sensitive to cannabis business regulatory violations, it’s vital to adhere to proper staffing regulations and compliance. The wrong kind of attention can tank your business’s reputation and halt your operations altogether. I’ve personally worked with numerous cannabis businesses in their hiring and payroll initiatives, and I’ll say this: It may seem like a headache to cross all the “Ts” and dot all the “Is” in the beginning, but it will make a massive difference down the line.

Understanding the Regulations for Hiring Part-Time or Temporary Workers 

All employers must adhere to the regulations set forth by the Fair Labor Standards Act, which mandates that part-time employees must be treated the same as full-time employees. That means they must be paid minimum wage, be paid overtime should they exceed their determined hours, have the opportunity to take job-protected unpaid leave, and so on. I really want to stress how essential it is that employers classify their workers appropriately.

It’s also worth noting that many states have specific regulatory structures for employment, both full- and part-time.

In the heavily regulated cannabis industry, employers must exercise strict due diligence to meet all OSHA standards. Additionally, they must identify all occupational hazards and account for employees’ overtime and double time. Grow operations must also adhere to the Field Sanitation Provisions of the Occupational Safety and Health Act, which includes providing toilets, drinking water, hand sanitation facilities and hygiene information.

Avoiding Compliance Problems with Planning and Diligence 

There’s a lot more to hiring workers than businesses realize, especially in cannabis. Most companies don’t intend to be noncompliant with regulations—they simply don’t know the regulations, or they’re overwhelmed by hiring and growing so quickly. To make sure you’re compliant, you might consider building out your HR team, educating yourself as the business leader and reaching out to staffing and HR professionals in the space who can answer your questions. In this rapidly growing industry, which seems to shift and change every day, planting your feet firmly on solid regulatory ground will serve to benefit you in the event of federal legalization, massive business growth or initiatives you may want to undertake in the future.

3 Pillars of Cannabis Banking Compliance

By Mark Lozzi
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Few people will disagree that financial compliance isn’t the most exciting topic within the cannabis industry. But compliance is, and always will be, the engine grease to the legal cannabis market. Cannabis operators have the arduous task of dealing with multiple layers of compliance, both operational (maintaining and adhering to regulations enforced by the state licensing board) and financial. These compliance measures include managing everything from seed-to-sale systems for all plant-related activity to on-site requirements like facility access points and alarms systems to name a few.

With complex compliance requirements for the business, the last thing cannabis operators want to think about is financial compliance. We created Confia on this notion. Just as cannabis regulators impose the tracking of plants through the supply chain via a seed-to-sale system, we have developed a storyboard similarly designed to follow the money, which is the equivalent of a transaction-to-deposit system.

Having experience in regulatory technology, artificial intelligence and machine learning, we’ve been fortunate enough to work with some of the world’s largest banks across multiple countries. This experience has afforded us the luxury of working alongside regulators, chief compliance officers and chief risk officers, understanding how risk is perceived by financial institutions and how it ought to be mitigated. It was this access and knowledge that allowed us to effectively reform, enhance and improve the antiquated BSA programs with a technology-enabled process. Leveraging technology is a necessity, almost a requirement, for the cannabis industry as legalization nears and banking access begins to broaden.

Jamming cannabis requirements into an existing BSA program doesn’t scale well. BSA programs are very manual, descriptive and process oriented. So, we’ve taken our prior experience and success in banking to form Confia, distilling the complexities and simplifying the deliverables surrounding cannabis banking compliance. To best articulate cannabis banking requirements, I break it down into three pillars.

Pillar One: KYC-Enhanced Due Diligence

The first pillar is the client-onboarding bucket or KYC – Know Your Customer. In the complex world of cannabis banking, banks must know and understand their clients to great depths. It’s not enough to simply know that the client exists; you also have to understand whether or not that client could be a potential risk to the bank, and one step further, the financial system. Cannabis is a high-risk industry, so the KYC requirement is escalated to a deeper diligence and review, called Enhanced Due Diligence (EDD).

Cannabis is a high-risk industry so extra due diligence is needed

Banks need to know and understand their customers’ story, and all the key parties (officers, directors, and those with key decision-making powers or access to the bank accounts) within that organization. This includes reviewing personal, business, and legal history – not to mention watchlists and negative news presence. An initial onboarding review must then be followed with daily screening and monitoring of all watchlists and adverse media. Typically, banks do KYC refreshes every three years. In cannabis, a full refresh should be done annually with the daily monitoring systems in place.

The high-risk nature of the industry also requires a level of diligence on all parties to a transaction, even if one of the parties, whether a payer or recipient, is not a client of your bank. Unlike traditional banking sectors, reliance on other banks’ KYC programs is far less defensible in the cannabis industry.

Pillar Two: Transactional Monitoring & Detection

Tracking and monitoring the actual financial transactions comprises the second pillar required for cannabis banking. At Confia, we have focused on streamlining processes, so the cannabis operator can seamlessly support the compliance obligation for every transaction. A bank must demonstrate supporting documentation for every cannabis transaction, and gathering such information is a large undertaking in and of itself and can pose future issues if not done properly, see the pitfalls for lack of compliance. Banks are obligated to understand the nature and reason for each transaction, the source of funds, ensure cannabis licenses are in good standing for all parties, and collect evidence such as accounting records and seed-to-sale data.

Core to transaction monitoring in the traditional sense, is the overarching support through anomaly detection. Relying on information is important, but testing those inputs keeps everyone honest. It is important to evaluate transactions from a holistic point of view relative to peers and relative to the general contents of a transaction. This anomaly detection layer is your last line of defense, and as new information is collected, it continues to refine itself.

Pillar Three: Filing and Reporting Requirements

The third component to compliant cannabis banking is regulatory filing and reporting. Once a client is onboarded, the account requires an initial suspicious activity report or SAR-Initial within 30 days of that client being approved by the bank. Then, a report must be filed every 90 days after that for all the transactions of that cannabis operator. Banks must file the SAR-Initial and the Continuing-SAR reports for each cannabis client they have.

The high-risk nature of the industry requires a level of diligence on all parties to a transaction

Solutions like Confia automate the filing process and support the filing with transactional data evidenced on our distributed ledger of record. This provides immutable audibility and simplifies the process for all parties involved.

Compliance Requirements After US Legalization

The anticipation of federal legalization and banking reform bills has many operators hoping for easier banking. Yet, in my opinion, regulatory oversight and audits will likely increase after such reform or legalization. As other financial institutions start to support cannabis, it will inadvertently create greater opportunity and expose the financial system to nefarious or illegitimate transaction activity. This is why cannabis banking will be carefully monitored by regulators, and more so, why banks will be slow and pragmatic in standing up their internal cannabis banking programs. Some banks may forever avoid the cannabis industry due to the known pitfalls of an industry specific program, while others may simply mitigate the possible exposure to reputational risk.

Choose Wisely: Pitfalls for Lack of Compliance

Financial compliance is the responsibility and duty of the banks, but the real losers and result of non-compliance always fall on the cannabis operators. Regulatory action against an institution may result in the bank shutting down its cannabis program or may require them to complete a remediation of all their cannabis transactions for a certain period from its clients. At the end of the day, regardless of action, the cannabis operator is the one being punished. Operators either lose their bank account and have business massively disrupted, or they are asked to provide all the compliance docs for a historic period, which is a huge undertaking and operational distraction, ultimately impacting business and productivity. So, choose your banking partner wisely.

Summarizing Key Banking Requirements

In summary, banking in the cannabis industry will undoubtedly remain a high-risk industry, with or without legalization. Although banking opportunities may expand as US policies change, there will be continued compliance and regulatory requirements for the foreseeable future.

  • Onboarding and ongoing screening are critical
  • Evidence for every transaction is a significant portion of compliance and must not be dismissed
  • Evaluating activity with broader strokes is essential in mitigating against money laundering
  • Managing the staggered filing timelines and due dates for each client

Compliance is the most crucial factor in cannabis banking at this point. It cannot be overlooked or taken for granted. Cannabis operators must take an active role in evaluating the compliance programs of their financial providers. To open a bank account is one thing, but the consideration and effort that goes into keeping a bank account is the difference that will protect your business in the long run.

Colorado to Bolster Hemp Testing Rules, Rollout Delayed

By Aaron G. Biros
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Earlier this year, the Colorado Department of Public Health and Environment (CDPHE) announced a plan to introduce new testing rules for the state’s growing hemp industry. Under the new regulations, hemp products must be tested for residual solvents, heavy metals and pesticides, in addition to making sure they contain less than 0.3% THC.

The CDPHE are planning on a gradual rollout to prevent any supply chain issues or a lab testing bottleneck, similar to what we’ve seen in other states launching new testing requirements in years past, such as Arizona or California. Well, the Colorado rollout appears to be hitting similar snags and because of supply chain issues related to instruments and consumables in laboratories, the implementation of those testing rules is somewhat delayed. What was originally supposed to be implemented over the summer was pushed back to an October 1 deadline, and that deadline has now been pushed back to 2022.

The pesticide testing list to be implemented January 1, 2022

As a result of supply chain shortages and the learning curve to test for such a wide range of pesticides, Colorado is opening hemp testing to out-of-state labs in an effort to stay on schedule with the rollout. Dillon Burns, lab manager at InfiniteCAL, a cannabis testing company with locations in California and Michigan, just completed an audit with the CDPHE in their work to get certified and start conducting hemp testing for businesses in Colorado.

Burns says they’re well-acquainted with the list of pesticides because of how similar the list is to California’s requirements. “For the pesticide testing rules that were supposed to go into effect on August 1st, it’s basically the same list as California just with slightly different action levels,” says Burns. “I would say these action limits are generally stricter – they have much lower LOQs [limits of quantification].”

The pesticide testing list (continued) to be implemented January 1, 2022

Come January 1, 2022, they are expecting an additional 40 pesticides to be required under the new rules. “But currently, it’s still unclear when these regulations will actually go into effect,” says Burns. The full pesticide testing list is currently slated to be implemented on April 1, 2022.

The supply chain issues referenced above have a lot to do with what the state is asking labs to test for. Previously, most of the pesticides tested for under Colorado’s adult use and medical cannabis programs could be analyzed with an LC/MS. A handful of pesticides on the new list do require GC/MS, says Burns. It’s entirely possible that a lot of labs in Colorado just don’t have a GC/MS or are in the process of training staff and developing methods for using the new instrument. “Cleanliness of these instruments is such a priority that it takes time to acquire the right skill set for it,” says Burns.

Dillon Burns, Lab Manager at InfiniteCAL

The new testing rollout isn’t just another compliance hurdle for the cannabis industry; these rules are about protecting public health. Dillon Burns said he’s seen hiccups in California with the amount of new hemp farmers getting into the space. “The hemp products we’ve tested in California often fail for pesticides,” says Burns. It’s a lot easier in most states to get a license for growing hemp than it would be for growing adult use cannabis. “You’ll see a lot more novice growers getting into hemp farming without a background in it. They’ll fail for things they just haven’t considered, like environmental drift. We see a lot of fails in CA. Hemp is bioaccumulating so it presents a lot of problems. If they’re not required to look for it, they weren’t monitoring it.”

When asked how the market might react to the new rules, Burns was confident that Colorado knows what they’re doing. “I don’t anticipate that [a testing bottleneck] happening here. The regulators are reasonable, supportive of the industry and opening it up to out-of-state labs should help in preventing that.”

Best Practices for Training New Hires and Documenting Operations

By Dede Perkins
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Let’s just say it. There is an undeniable chaos in the cannabis industry. It doesn’t matter if you’re a big or small operator, it’s likely that you don’t have a documented system for creating and managing ever-changing SOPs or for consistently training all employees on the most current versions of those SOPs. This chaos is often the result of rapid growth, mergers and acquisitions, and the ever-present turnover in our industry. When department leadership changes, and it often does, established policies and procedures are often left behind. In some cases, this is a positive sign of growth. As a company outgrows SOPs and as it develops more sophisticated ways to cultivate, extract, process, manufacture, package and sell cannabis and cannabis products, inevitably, the old ways of doing business need to be replaced. For those operators who have prioritized operational excellence, whether they want to position their company for new investment, merger or acquisition, or just want to create a consistent and standardized, branded product, it’s critical to get control of SOPs, training and documentation.

Food processing and sanitation
By standardizing and documenting safety procedures, manufacturers mitigate the risk of cannabis-specific concerns

As with most big goals, to obtain operational excellence, you need to break the goal into manageable steps. Assuming you have accessible quality policies and procedures in place, properly training employees when they first start work and on an ongoing basis as policies and procedures change is the number one key to successful operations. When employees know how to do their job and understand what is expected of them, they are positioned for success. When employees are successful, it follows that the company will also be successful. Documenting operations is a second important step in obtaining operational excellence. While training and documentation appear to be different, in best-practice organizations, they are inextricably linked.

One Set of SOPs

Those of us who have been in the cannabis industry for a while have experienced firsthand or heard stories of facility staff working off of two sets of SOPs. There’s the set of SOPs that are printed or digitally available for the regulators, let’s call them the “ideal” set, and then there are the SOPs that actually get implemented on a day-to-day basis. While this is common, it’s risky and undermines the foundation of operational excellence. Employees often know there are two sets of SOPs. Whether they express it or not, many are uncomfortable with the intentional or unintentional deception. When regulators arrive, will they have to bend the truth or even lie about daily operations? Taking the time to establish and implement one set of approved SOPs that is compliant with both external regulations and internal standards is good for employee morale, productivity and ultimately, profits.

What’s the best way to get control of a facility’s SOPs? Again, break it into manageable steps:

  • First, task someone with reviewing all SOPs that are floating around. Determine if any are non-compliant, which ones need to be tossed and which ones need to be revised so they work for the company as well as outside regulatory authorities.
  • At a minimum, establish a two-person team to draft, review, publish and distribute the final SOPs. Ensure that at least one member of the team has management level authority. Assign that employee the responsibility of reviewing the SOPs before “publication” and distribution.
  • Archive, delete, or actually throw away outdated or non-compliant SOPs
  • Revise or create new best-practice SOPs that are in compliance with external regulations and internal standards
  • Establish a system to update SOPs when external regulations and internal standards change
  • Use a naming convention that distinguishes draft SOPs from final SOPs, for example, “Post-Harvest Procedure, FINAL”
  • Inform employees that they will be retrained on the new SOPs and that approved SOPs will always have the word “Final” in the title
  • Store the final SOPs in an easily accessible location and give employees access, not only during training, but on an ongoing basis

Centralized Repository for Final SOPs

Storing final, approved SOPs in one easily accessible, centralized location and giving employees access sounds simple, but again, this is the cannabis industry, so this often doesn’t happen. Many of us have or are currently working for an organization that stores SOPs in multiple places. Each department may have its own way of updating, disseminating and storing SOPs. Some SOPs are stored in a printed binder stuffed in a drawer or left on a bottom shelf. Others are stored digitally. Some use both systems, which creates confusion. Who knows if the digital versions or the printed versions are the most current? Surely someone knows, but often the front-line staff do not.“Once you’ve established a single set of compliant SOPs and have stored them in one accessible location, it’s time to train your employees.”

Establishing a centralized repository for final, approved SOPs is the foundation of operational excellence. It lets employees know that operations are organized and controlled, and it reassures regulatory authorities and external stakeholders—think insurers, bankers, investors—that the company prioritizes compliance and organization. And external stakeholders who believe that an organization is proactive and well-run tend to be more forgiving when the inevitable missteps occur. Companies that are organized, have effective training systems, regularly conduct internal audits to identify potential issues and take identifiable action steps when necessary to remediate issues, receive fewer deficiency notices, violations and fines than their less organized competitors.

Train Employees

Many states require cannabis operators to provide a specific number of training hours prior to an employee beginning work, and a specific number of continuing and refresher training hours annually. Once you’ve established a single set of compliant SOPs and have stored them in one accessible location, it’s time to train your employees. To do so, set clear expectations and decide who is responsible for what. Is the HR manager responsible for initial onboarding and training? Are department managers responsible for ongoing and annual training? Create a training responsibility chart that works best for your company; write it down and share with all stakeholders.

Documenting all key areas of operation on a recurring basis will help you keep track of a large facility and workforce

The next step is to figure out how to train your employees. Individuals have different learning styles, so ideally, you’ll offer multiple ways for them to master the requirements of their position. Assign written materials and if possible, attach short videos showing the best way to complete a task. Follow up with a quiz to determine comprehension and a conversation with a department lead or manager to answer questions and review the key take-aways. Ideally, the department manager or lead employee will work with the employee until they are competent and comfortable taking on new assigned tasks and responsibilities.

Sum It Up 

Operational excellence begins with:

  • Knowledge of and access to current external rules and regulations and internal standards
  • One set of approved and easily accessible policies and SOPs that comply with both external and internal standards
  • An initial training system with clearly assigned roles, responsibilities, and goals
  • An ongoing training system with clearly assigned roles, responsibilities, and goals
  • Systems to:
    • Test knowledge before employees begin unsupervised work
    • Stay up-to-date with all changes to external rules and regulations and internal standards
    • Control policy and SOP revision process
    • Inform all stakeholders when policies and SOPs change
    • Test that employees understand new standards
    • Document all key areas of operation on a recurring basis
    • Address deficiencies and evaluate whether SOP revisions are warranted
    • Document and implement necessary remediation when necessary

For those of you rolling your eyes and thinking you don’t have time for this, ask yourself, “Can you afford not to?”

For those of you committed to operational excellence and doing what it takes to get there, congratulations on being a visionary leader. Your efforts will pay dividends for your own company and will help the cannabis industry grow into a well-respected, profitable industry that improves lives.

Current Trends in Banking for Cannabis-Related Businesses

By Paula Durham, CFE, CCCE
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Cannabis is still federally illegal and is included on Schedule 1 of the Controlled Substances Act (CSA), along with such other substances as heroin, fentanyl and methamphetamines.1 It is a federal crime to grow, possess or sell cannabis.

Despite being federally illegal, 36 U.S. states and the District of Columbia have legalized the sale and use of cannabis for medical and/or adult use purposes,2 and both direct and indirect cannabis-related businesses (CRBs) are growing at a rapid rate. Revenue from medical and adult use cannabis sales in the US in 2019 is estimated to have reached $10.6B-$13B and is on track to reach nearly $37B in 2024.3

Because the sale of cannabis is federally illegal, financial institutions face a dilemma when deciding to provide services to CRBs. Should they take a significant legal risk or stay out of the market and miss out on a significant revenue opportunity? So far, the vast majority of financial institutions have been unwilling to take the risk, resulting in a dearth of options for CRB’s. Until recently, cannabis business operators had few options for financial services, but times are changing.

This piece will discuss current trends in banking for cannabis-related businesses. We will cover differences in legality at state and federal levels, complexities in dealing in cash versus digital currencies, Congressional actions impacting banking and CRBs and how banking is changing. The explosion of state legalization of cannabis over the past several years has had a strong ripple effect across the US economy, touching many industries both directly and indirectly. Understanding the implications of doing business with a CRB is both challenging and necessary.

Feds Versus States

Money laundering is the process used to conceal the existence, illegal source or illegal application of funds.4 In 1986 Congress enacted the Money Laundering Control Act (MLCA), which makes it a federal crime to engage in certain financial and monetary transactions with the proceeds of “specified unlawful activity.”5 Therefore, CRB transactions are technically illegal transactions under the MLCA.

Financial institutions therefore face a risk of violating the MLCA if they choose to do business with CRBs, even in states where cannabis operations are permitted. In addition, financial institutions could also face criminal liability under the Bank Secrecy Act (BSA) for failing to identify or report financial transactions that involve the proceeds of cannabis businesses operating legally under state law.6

Federal authorities continued to aggressively enforce federal cannabis laws

In short, because cannabis is illegal at the federal level, processing funds derived from CRBs could be considered aiding and abetting criminal activity or money laundering. States, however, began legalizing cannabis in 1996, and by 2009, thirteen states had laws allowing cannabis possession and use.7 Despite this legislation, federal authorities continued to aggressively enforce federal cannabis laws.8 That changed under the Obama administration when, shortly after being elected, President Obama stated that his administration would not target legal CRB’s who were abiding by state laws.[9] In an attempt to provide clarity in this murky environment, beginning in 2009, the Department of Justice (DOJ) issued three memos designed to guide federal prosecutors in this area. However, none of the DOJ memos issued from 2009 through 2013 addressed potential financial crime related to the legal sale or distribution of cannabis in states allowing the use of medicinal or recreational cannabis.

To assist financial institutions in navigating potential financial crime implications of banking CRBs, the Financial Crimes Enforcement Network (FinCen) issued guidance in 2014 that clarified how financial institutions could conduct business with CRBs and maintain compliance with their Bank Secrecy Act requirements (2014 Guidance).9 According to the 2014 Guidance, financial institutions may choose to interact with CRBs based on factors specific to each institution, including the institution’s business objectives, the evaluated risks associated with offering such services, and its ability to manage those risks effectively.

The 2014 Guidance requires those who choose to provide services to CRBs to design and implement a thorough customer due diligence review that includes, in part, analyzing the licensing of the entity, developing an understanding of the business operations of the entity, and ongoing monitoring of the entity.9 In addition, financial institutions are required to file a Suspicious Activity Report (SAR) for every transaction they process for a CRB, should they choose to accept the business.

Although the 2014 Guidance does outline a path for financial institutions to engage with CRBs, it does not change federal law and, therefore, does not eliminate the legal risk to financial institutions.10 By its very nature, the 2014 Guidance was a temporary fix, subject to changing views of different administrations, evidenced by the fact that all three of the DOJ guidance documents noted above were rescinded by then Attorney General Jeff Sessions on January 4, 2018.12 The DOJ enforcement posture could change once again in a Biden administration. Biden is on record as favoring decriminalization, and Attorney General candidate Merrick Garland has stated that if confirmed he will deprioritize enforcement of low-level cannabis crimes. Garland also believes using limited government resources to pursue prosecution of cannabis crimes states where cannabis is legal does not make sense.12

Because of the uncertainty and high risk, most banks remain unwilling to serve CRBs. Those that do serve CRBs charge exorbitant fees (fees of $750-$1,000 or more per account per month are not uncommon), pricing many smaller operators out of the financial services market.

Cash is King – Or Is It?

Cannabis operators have discovered the old adage “cash is king” is not necessarily true when it comes to the cannabis space. Bank-less CRBs are forced to utilize cash to pay business expenses, which can be particularly difficult. Utility companies, payroll companies, and taxing authorities are just some of the providers that are difficult, if not impossible, to pay in cash. For example, cannabis operators have been turned away from IRS offices when attempting to pay large federal tax obligations in cash. Likewise, cannabis operators have been unable to utilize payroll processing companies to administer payroll and benefits for their businesses because the processors won’t take cash. CRBs can’t use Amazon or other online retailers because online providers cannot accept cash.

Because dealing in cash is so difficult, CRB operators look for workarounds such as using personal credit/debit cards to purchase business equipment and supplies. This doesn’t eliminate the cash problem, however, because the credit card holder will likely have to accept cash as reimbursement. Such transactions could be considered an attempt to hide the source of the cash, which is, by definition, money laundering.

CRBs often have large sums of money onsite

Some bank-less CRBs try to skirt the system by obtaining bank accounts in the name of management companies or other entities one step removed from the actual business. While operators often choose this route in an effort to streamline business and operate out of the shadows, it again runs afoul of banking laws. Transferring cannabis related financial transactions to another entity is actually the very definition of money laundering – which, as noted above, is defined as the process used to conceal the existence or source of “illegal” funds.

In addition to the difficulties in making payments or purchasing business supplies, operating in a cash-heavy environment poses significant safety risks for cannabis operators. CRBs often have large sums of money onsite and transport large sums of cash when purchasing product or paying bills, making them a target for robbery. In 2017, there was a spate of dispensary robberies across the Phoenix Metro area, including one at Bloom Dispensary that took place during operating hours.13

Managing all that cash increases the cost of doing business as well, in the form of increased labor, insurance, and security costs. Cash must be counted and double counted, which can be time consuming for staff, not to mention the time it takes to deliver physical cash payments to hither and yon. Ironically, lack of banking significantly decreases transparency and clouds the waters of compliance, as operating strictly in cash makes it easier to manipulate reported financial results.

Potential Congressional Solutions

In recent years Congress has undertaken several efforts to pass legislation designed to address the state/federal divide on cannabis, which would likely clear the way for financial institutions to provide services to CRBs, including:

  • R. 1595 – Secure and Fair Enforcement Banking Act of 2019 (“SAFE Act”);
  • 1028 & H.R. 2093 – Strengthening the Tenth Amendment Through Entrusting States Act (STATES Act); and
  • 2227 – Marijuana Opportunity Reinvestment and Expungement Act of 2019 (MORE Act).

The climate in Washington DC, however, did not allow any of these initiatives to pass both houses of congress. Had any been sent to the White House, President Trump was unlikely to sign them into law.

The cannabis industry has new reason to believe reform is on the horizon with shift in political leadership in the White House and Senate. Newly anointed Senate Majority Leader Chuck Schumer recently committed to making federal cannabis reform a priority, and President Biden appears committed to decriminalization, reviving the hope of passage of one of these pieces of legislation.

The Changing Banking Landscape

Even though there is little in the way of formal protections for financial institutions, and with the timeline for a legislative fix unknown, an increasing number of banks are working with cannabis operators.

According to FinCen statistics, there were approximately 695 financial institutions actively involved with CRBs as of June 30, 2020. It is important to note that these statistics are based on SAR filings, which banks are required to file when an account or transaction is suspected of being affiliated with a cannabis business. However, some of these SARs may have been generated on genuine suspicious activity rather than on a transaction with a known cannabis customer.

Number of Depository Institutions Actively Banking
Cannabis-Related Businesses in the United States
(Reported in SARS)14

There are arguably more banking institutions offering services to CRBs than ever before. The challenges for CRBs are (1) finding an institution that is willing to offer services; (2) building/maintaining a compliance regime that will be acceptable to that institution; and (3) cost, given the high fees associated with these types of accounts. 

How CRBs Get Accepted by Banks

The gap between CRBs’ need for banking and the financial services providers’ sparse and expensive offerings to the sector has created an opportunity for third-party firms to intervene and provide a compliance structure that will satisfy the needs of the financial institutions, making it easier for the CRB to find a bank.

These third-party firms perform extensive BSA-compliant due diligence on applicants to ensure potential customers are following FinCen guidance required to receive banking services. After the completion of due diligence, they connect the CRBs with financial institutions that are willing to do business with CRBs and provide checking/savings accounts, check writing capability, and merchant processor accounts. These firms often provide additional services such as armored car and cash vaulting services. Some of these firms also offer vendor screening, pre-approving vendors before any payments can be made.

One such firm, Safe Harbor Private Banking, started as a project implemented by the CEO of Partners Credit Union in Denver, Colorado, who set out to design a cannabis banking program that would allow Partners to do business with Colorado CRBs.15 The program was successful and has since expanded into other states who have legalized cannabis. Other operators include Dama Financial and NaturePay.

While these services offer hope for many CRBs, the downside is cost. These services perform the operations necessary to find, open, and maintain a compliant bank account; however, the costs of compliance are still high, pricing some small operators out of the market.

Is Digital Currency an Answer?

 Digital currency is also making its way into the cannabis world. Digital currency, or cryptocurrency, is a medium of exchange that utilizes a decentralized ledger to record transactions, otherwise known as a blockchain. One of the largest benefits of blockchain is that it is a secure, incorruptible digital ledger used for, among other things, financial transactions.16 Blockchain technology offers CRBs a transparent and immutable audit trail for business and financial transactions. Several cannabis-specific cryptocurrencies have sprung up in the past several years, including PotCoin, CannabisCoin, and DopeCoin, to name a few.

In July 2019, Arizona approved cryptocurrency startup ALTA to offer services to the state’s medical cannabis operators.17 ALTA describes itself as a “digital payment club where cash-intensive businesses pay each other using digital tokens instead of cash.”18 ALTA members purchase digital tokens that are used to pay other members using a proprietary blockchain based system. The tokens are redeemable for US dollars at a stable rate of 1:1, and CRBs do not need a bank account to participate in the ALTA program.

ALTA proposes to pick up members’ cash and exchanges it for tokens, which are then used to pay other members for goods and services. Tokens may be redeemed for cash at any time.18 The company has been approved by the Arizona State Attorney General, and one of the first members they hope to enlist is the Arizona Department of Revenue (ADOR). Enlisting ADOR into the program would allow dispensary members to pay state taxes digitally rather than hauling large amounts of cash to ADOR offices.

Similarly, Nevada recently contracted with Multichain Ventures to supply a digital currency solution to the Nevada cannabis industry. Nevada Assembly Bill 466 requires the state create a pilot program to design a “closed loop” system like Venmo in an effort to reduce cash transactions in the cannabis sector. Like ALTA, Nevada’s proposed system will convert cash to tokens which can then be transacted between system participants.19

While both proposals are promising for Arizona and Nevada CRBs, the timeline as to when, or if, these offerings will come online is unknown. Action on cannabis reform at the federal level may render these options moot.

Looking to the Future

Although states are legalizing cannabis in one form or another in growing numbers, the fact that cannabis is still federally illegal poses a significant barrier to accessing the financial services market for CRBs. While most banks are still reluctant to offer services to this rapidly growing industry, there are more banks than ever before willing to participate in the cannabis industry. Recent changes in leadership in Washington DC offer a positive outlook for cannabis reform at the federal level.

As the “green rush” continues to envelop the country, financial services options available to CRBs are slowly growing. Many new options are now available to help CRBs find a bank, develop compliance programs, and manage the cash related problems encountered by most CRBs. However, these solutions may be out of reach for the budget-conscious small operator. Also, there are a number of cryptocurrency solutions designed specifically for CRBs; however, when, or if, these solutions will gain significant traction is still unknown.


References

  1. Controlled Substances Act, 21 U.S.C., Subchapter I, Part B, §812.
  2. “State Marijuana Laws”; National Conference of State Legislatures, February 19, 2021.
  3. “Exclusive: US Retail Marijuana Sales On Pace to Rise 40% in 2020, near $37B by 2024”. Marijuana Business Daily, June 30, 2020.
  4. Kaufman, Irving. “The Cash Connection: Organized Crime, Financial Institutions, and Money Laundering”. Interim Report to the President, October 1984.
  5. S. Code § 1956 – Laundering of Monetary Instruments.
  6. Rowe, Robert. “Compliance and the Cannabis Conundrum.” ABA Banking Journal, September 11, 2016.
  7. “History of Marijuana as a Medicine – 2900 BC to Present”. ProCon.org, December 4, 2020.
  8. Truble, Sarah and Kasai, Nathan. “The Past – and Future – of Federal Marijuana Enforcement”. org, May 12, 2017.
  9. FIN-2014-G001, BSA Expectations Regarding Marijuana-Related Businesses.
  10. Cannabis Banking Coalition Statement.
  11. Sessions, Jefferson B. “Memorandum for All United States Attorneys”. January 4, 2018.
  12. “Attorney General Nominee Garland Signals Friendlier Marijuana Stance”. Marijuana Business Daily, February 22, 2021.
  13. Stern, Ray. “Robbers Hitting Phoenix Medical Marijuana Dispensaries: Is Bank Reform Needed?” The Phoenix New Times, April 11, 2017.
  14. FinCen Marijuana Banking Update, June 30, 2020.
  15. Mandelbaum, Robb. “Where Pot Entrepreneurs Go When the Banks Just Say No.” The New York Times, January 4, 2018.
  16. Rosic, Ameer. “What is Blockchain Technology? A Step-by-Step Guide for Beginners.” com, 2016.
  17. Emem, Mark. “Marijuana Stablecoin Asked to Play in Arizona Fintech Sandbox.” CCN.com, October 25, 2019.
  18. http:\\Whatisalta.com\
  19. Wagner, Michael, CFA. “Multichain Ventures Secures Public Sector Contract with Nevada to Supply Tokenized Financial Ecosystem for the Legal Cannabis Industry”, January 26, 2021.

A Guide to Outsourcing Your Cannabis Delivery Service

By Claudia Post
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If you are interested in adding a new delivery option for your cannabis dispensary, choosing a third-party service is a great move. Generally speaking, the most significant selling points of third-party delivery services are overhead cost and convenience.

Not only will third-party delivery services run your entire courier operation under a single platform, but they will also streamline your sales process with the latest technology. In addition, working with a third-party vendor will help you avoid financial risk with workers’ compensation and auto insurance expenses.

Please consider the following points to build a successful partnership with a third-party cannabis delivery service.

Research Your Local Market Regulations

Before you can outsource a delivery option for your cannabis dispensary, you need to research if it’s legal to do so in your given market. Whether medical or adult-use, each state has unique regulations for delivery services. In addition, individual counties and municipalities within these states also have their own rules concerning cannabis delivery on a more granular level.

As an illustration, Denver, CO, has had an adult-use cannabis market since 2013, but the city just passed legislation approving delivery services. So, starting in late summer 2021, third-party vendors will be the only businesses allowed to deliver cannabis in Denver legally. As can be seen, just because cannabis is legal in a particular state doesn’t mean delivery is always an option.

How Do I Vet a Potential Delivery Partner?

You must be discerning when starting a partnership with a third-party cannabis delivery service. As these delivery companies will be representing your brand in the field, you want to make the best choice possible. Luckily, there are some specific parameters you can follow in vetting a potential delivery partner.

License: Perhaps the most critical part of vetting a delivery partner is ensuring they have the appropriate license. Especially in hotbeds like California, countless unlicensed cannabis businesses are in operation, including delivery services. Therefore, asking to see their paperwork should be the very first step in vetting.

App & User Experience (UX): Taking a good look at the User Experience (UX) provided by a third-party vendor’s app or website is a great way to vet them. In the end, delivery services are all about convenience. If their ordering software is robust and offers flexibility and great reporting, they will likely provide you the springboard to retain your repeat buyers. 

Payment processing can be a challenge in retail

OSHA Certification: Another critical factor to consider when vetting a delivery partner is OSHA training. Those companies who have taken steps to train their employees on safety protocol appropriately will likely make good partners.

How Does Online Ordering Work with My System?

Payment processes for cannabis dispensaries are incredibly complex. Moreover, since cannabis is still federally illegal, major credit cards and banks do not accept charges from dispensaries. Because of such complexities, the prospect of accommodating deliveries might prove to be a challenge.

Enter Scarlet Express. Third-party cannabis companies like Scarlet Express can integrate with your established system to seamlessly add delivery payments. They even offer customizable software that integrates with your menu provider and POS system while also importing essential brand elements like logos and colors.

If you are a small cannabis dispensary that has never developed online ordering, certain third-party vendors can also help you build out an eCommerce page on your website.

What About Compliance & Seed-to-Sale Tracking?

Compliance is one of the essential elements of running a successful cannabis business. However, compliance regulations can get tough to follow when you begin dealing with third-party delivery companies, namely because cannabis products change hands several times before they are finally sold to the consumer.

PlantTag
A plant tagged with a barcode and date for tracking

The state has thoroughly vetted any third-party delivery service that has received a license. Therefore, not only are they up-to-speed on compliance protocol for your given market, but they are also trained on the appropriate seed-to-sale software. With these controls in place, you can trust they assume legal responsibility for cannabis products after leaving the dispensary.

To operate compliantly, third-party delivery services time-stamp their orders, which can then be tracked through GPS in the delivery car. Finally, all cannabis products are stored within a secure lock box that is only opened at the time of delivery.

Adding a delivery option for your cannabis dispensary is a great way to entrench yourself with your clients. Working with a third-party delivery service is a painless way to expand your business.

When considering a partnership with a cannabis delivery service, be sure to thoroughly vet them and make sure they share your goals and vision. In doing so, you will ensure an invaluable partnership that will continue long into the future.

Unnecessary Obstacles for the Canadian Edibles Market

By Steven Burton
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The edible cannabis market in Canada is still green. Delayed by a year from the legalization of dried flower, the edibles and extracts market poses significant opportunities for manufacturers. Edibles and extracts typically have higher profit margins than dried flower (“value-added” products) and consumer demand appears to be high and rising. So, what is causing trouble for cannabis companies trying to break into edibles and extracts? Below are four observations on the market potential of edibles in Canada.

Canada’s Edibles Market: The Numbers

In 2020, Canada – the largest national market in the world for cannabis products – grew more than 60%, largely as a result of the introduction of new products introduced in late 2019, often called “Cannabis 2.0,” which allowed the sale of derivative products like edibles. Deloitte estimates that the Canadian market for edibles and alternative cannabis products is worth $2.7 billion, with about half of that amount taken up by edibles and the rest distributed amongst cannabis-infused beverages, topicals, concentrates, tinctures and capsules. More recently, BDSA forecasts the size of the Canadian edibles market to triple in size by 2025 to about 8% of the total cannabis dollar sales.

Source: BDSA

In December 2020, the Government of Canada reported that edibles made up 20% of total cannabis sales; Statistics Canada data shows that 41.4% of Canadians who reported using cannabis in 2020 consumed edibles. While sales have gone up and down over the course of the COVID-19 pandemic, there are clear indications that there is a substantial demand for edibles and extract products, which can be consumed more discreetly, with greater dosage precision and with fewer adverse effects (as opposed to smoking).

While sales of regulated edibles products continue to grow, edibles, extracts and topicals sales in Canada are facing a similar problem as dried flower sales: inventory growth is outpacing sales. Unsold stock sitting in inventory is growing at a dramatic pace, showing a clear lag in demand for these products on the legal market. How do we understand this contradiction?

1) Complex Regulatory Standards are a Major Barrier

Cannabis edibles compound the already existing problems around the conceptualization of cannabis products regulation. How should it work? Edibles can be considered in any of the following categories:

  • Cannabis as a pharmaceutical with medical application. Requires strict dosage and packaging requirements;
  • CBD as a nutraceutical with health benefits claimed. Requires specific nutraceutical regulations be followed;
  • Food product to be consumed. Must comply with food safety regulations around biological, chemical, physical hazards through a risk-based preventive control program. A full supply chain and ready-to-recall based system of regulatory standards need to be followed.

Incorporating elements from each of these three regulatory regimes into a single regulatory standards body is a confusing logistical and compliance challenge for both the regulators, and the producers and retailers of the product.

In mid-2019, the Government of Canada released the Good Production Practices Guide for Cannabis. This merged cannabis-specific regulations with food safety-specific regulations. Rigorous food safety requirements were combined with equally rigorous cannabis production and processing requirements, resulting in extremely laborious, detailed and specific regulations. These span everything from building design and maintenance, to pest control, to employee sanitation, to traceability – at all levels of the process. Navigating these regulations is a challenge, especially for many smaller producers who lack the necessary resources, like automation technology, to devote to understanding and tracking compliance.

2) Low Dosage Regulations Give an Edge to the Illicit Market

When edibles were legalized, THC dosage was capped at 10mg per package. For more experienced consumers, especially those who are dealing with chronic pain and other medical needs, this limit is far too low – and the unregulated market is more than able to fill this gap. One analyst from Brightfield pointed out that the dosage restriction, in combination with other regulations, will make it harder for the edibles market to grow in Canada.

It also makes the unregulated market almost impossible to beat. Barely more than half of cannabis consumers in Canada buy exclusively from government-licensed retailers, while 20% say that they will only buy unregulated products. According to a Deloitte report, 32% of legacy cannabis consumers said that unregulated products were better quality, and 21% reported that they preferred unlicensed products because there were more options available. Almost half of respondents also reported that quality was the biggest factor that would cause them to switch to regulated sources, and 28% said that higher THC content would prompt them to switch.

3) There is a Big Price Disparity between Legal and Illicit Edibles

As a result of dosage requirements and other factors, price per gram of regulated edible product is much higher than that of flower, unregulated edibles and edibles available through regulated medical distributors.

If you take the BC Cannabis Store’s price for Peach Mango Chews as an example: a 2pc package is $5.99. Since the dosage limits at 10mg per package, that’s the equivalent of $0.60/mg or $600/gram. A quick Google search reveals that an easily available edible from a medical cannabis distributor contains 300mg of THC and sells for $19.00, a price of $63.00/gram.

That means that not only is 10mg too low a dose for many users to achieve the result they were looking for, but the dosage restriction also makes the products less attractive from both a nutrition and cost standpoint. Deloitte reportsthat higher prices is the reason that 76% of long-time cannabis consumers continued to purchase from unregulated sources. The regulated industry as a whole is missing its legal market opportunity, where consumers prefer a lower price product with a greater range of dosage availability.

4) The Range of Products Available is Too Limited for Consumers

For most of 2020, chocolate edibles were the dominant product in this category in the Canadian market, garnering 65% of all edibles sales. But is this reflective of consumer wants? Despite a demand for other kinds of edibles like the ever-popular gummies, there are still only a few edible brands that offer the range of products consumers are asking for. According to research from Headset, there are 12 manufacturers in Canada making edibles but only two of them produce gummies. In comparison, 187 brands make gummies in the United States.

While some of this delay is likely due to the long licensing process in Canada and the newness of the market, there are other factors that make it challenging to bring a variety of products to market. The province of Quebec, Canada’s second-largest province, has banned the sale of edibles that resemble candies, confections, or desserts that could be attractive to children – giving yet another edge to unregulated sellers who can also capitalize on illegal marketing that copies from existing candy brands like Maynard’s.

When companies do want to introduce new products or advertise improvements to existing product lines, they are restricted by stringent requirements for packaging and marketing, making it harder to raise brand awareness for their products in both the legal and unregulated markets. Industry players are also complaining about government restrictions on consumers taste-testing products, which further compounds challenges of getting the right products to market.

In the meantime, illicit producers have also shown themselves to be savvy in their strategies to capture consumers. It is not uncommon to find illicit products packaged in extremely convincing counterfeit packaging complete with fake excise stamps. New consumers may assume the product they are purchasing is legal. Availability of delivery options for higher dosage, lower price illicit products is also widespread. All of this adds up to significant competition, even if it were easier to meet regulatory requirements.

Conclusion: Significant Room for Growth Remains Limited by Government Regulations

These four challenges are significant, but there are a number of opportunities that present themselves alongside them. A year and a half into the legalization of edibles, cannabis companies are getting a better picture of what Canadian consumers want and low dosages are proving to be desirable for Canadian consumers in some areas.

Some of the many infused products on the market today

In particular, sales of cannabinoid-infused beverages far outpaced other edibles categories last year, likely tied to the availability of these products in stores over the summer of 2020. BDSA’s research has shown that, in contrast with American consumers, the lower THC dosage for cannabis beverages is an advantage for Canadian consumers. Major alcohol brands like Molson Coors and Constellation Brands are investing heavily in this growing product area – though there the dosage limits also apply to how many products a consumer can buy at a time.

At the same time, the large quantity of unsold cannabis flower sitting in storage also poses an opportunity. While its quality as a smokeable product may have degraded, this biomass can be repurposed into extracts and edibles. Health Canada has also shown some responsiveness to industry needs when it shifted its stance to allow for Modified Atmosphere Packaging (MAP), which will help improve shelf life of products.

While strict regulatory obstacles remain, challenges will continue to outweigh opportunities and the illicit market will remain a strong player in the edibles market. As regulations become clearer and producers become more accustomed to navigating the legal space, barriers to entry into the regulated cannabis market and specifically the extracts and edibles market, will decrease. Meanwhile, those getting into the edibles market will do well to be wary of the challenges ahead.

How Effective is Your Internal Auditing Program?

By David Vaillencourt
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The word “audit” evokes various emotions depending on your role in an organization and the context of the audit. While most are familiar with and loathe the IRS’s potential for a tax audit, the audits we are going to discuss today are (or should be) welcomed – proactive internal quality audits. A softer term that is also acceptable is “self-assessment.” These are independent assessments conducted to determine how effective an organization’s risk management, processes and general governance is. 

“How do you know where you’re going if you don’t know where you’ve been” – Maya Angelou

Internal quality audits are critical to ensuring the safety of products, workers, consumers and the environment. When planned and performed periodically, these audits provide credible, consistent and objective evidence to inform the organization of its risks, weaknesses and opportunities for improvement. Ask yourself the question: do your clients/vendors rely on you to produce reliable, consistent and safe products? Assuming the answer is yes, what confidence do you have, and where is the documented evidence to support it?

Compliance units within cannabis businesses are typically responsible for ensuring a business stays legally compliant with state and federal regulations. This level of minimum compliance is critical to prevent fines and ensure licenses are not revoked. However, compliance audits rarely include fundamental components that leave cannabis operators exposed to many unnecessary risks.

Internal quality audits are critical to ensuring the safety of products, workers, consumers and the environment.

As a producer of medical and adult-use products that are ingested, inhaled or consumed in other forms by our friends, family and neighbors, how can you be sure that these products are produced safely and consistently? Are you confident that the legal requirements mandated by your state cannabis control board are sufficient? Judging by the number of recalls and frustrations voiced by the industry regarding the myriad of regulations, I would bet the answer is no.

What questions do internal audits address? Some examples include:

  • Are you operating as management intends?
  • How effective is your system in meeting specified objectives? These objectives could include quality metrics of your products, on-time delivery rates and other client/customer satisfaction metrics.
  • Are there opportunities to improve?
  • Are you doing what you say you do (in your SOPs), and do you have the recorded evidence (records) to prove it?
  • Are you meeting the requirements of all applicable government regulations?

There are potential drawbacks to internal audits. For one, as impartiality is essential in internal audits, it may be challenging to identify an impartial internal auditor in a small operation. If your team always feels like it is in firefighting mode, it may feel like a luxury to take the time to pull members out of their day-to-day duties and disrupt ongoing operations for an audit. Some fear that as internal assessments are meant to be more thorough than external assessments, a laundry list of to-do items may be uncovered due to the audit. But, these self-assessments often uncover issues that have resulted in operational efficiencies in the first place. This resulting “laundry list” then affords a proactive tool to implement corrective actions in an organized manner that can prevent the recurrence of major issues, as well as prevent new issues. The benefits of internal audits outweigh the drawbacks; not to mention, conducting internal audits is required by nearly every globally-recognized program, both voluntary (e.g. ISO 9001 or ASTM Internationals’s Cannabis Certification Program) and government required programs such as 21 CFR 211 for Pharmaceuticals.

Internal Auditing is a catalyst for improving an organization’s effectiveness and efficiency by providing insight and recommendations based on analyses and assessments of data and business processes. Additional benefits of internal audits include giving your organization the means to:

  • Ensure compliance to the requirements of internal, international and industry standards as well as regulations and customer requirements
  • Determine the effectiveness of the implemented system in meeting specified objectives (quality, environmental, financial)
  • Explore opportunities for improvement
  • Meet statutory and regulatory requirements
  • Provide feedback to Top Management
  • Lower the cost of poor quality

Findings from all audits must be addressed. This is typically done in accordance with a CAPA (Corrective Action Preventive Action) program. To many unfamiliar with Quality Management Systems, this may be a new term. As of Jan 1, 2021, this is now a requirement for all cannabis licensed operators in Colorado. Many other states require a CAPA program or similar. Continuing education units (CEUs) are available through ASTM International’s CAPA training program, which was developed specifically for the cannabis industry.

Examples of common audit findings that require CAPAs include:

  • Calibration – Production and test equipment must be calibrated to ensure they provide accurate and repeatable results.
  • Document and record control – Documents and records need to be readily accessible but protected from unintended use.
  • Supplier management – Most standards have various requirements for supplier management that may include auditing suppliers, monitoring supplier performance, only using suppliers certified to specific standards, etc.
  • Internal audits – Believe it or not, since internal audits are required by many programs, it’s not uncommon to have a finding related to internal audits! Findings from an internal audit can include not conducting audits on schedule, not addressing audit findings or not having a properly qualified internal auditor. Are you looking for more guidance? Last year, members of ASTM International’s D37 Committee on Cannabis approved a Standard Guide for Cannabis and Hemp Operation Compliance Audits, ASTM D8308-21.

If you are still on the fence about the value of an internal audit, given the option of an inspector uncovering a non-conformance or your own team discovering and then correcting it, which would you prefer? With fines easily exceeding $100,000 by many cannabis enforcement units, the answer should be clear. Internal audits are a valuable tool that should not be feared.

Five Things Every Cannabis Business Needs Before They Open

By Tim Allen
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When it comes to small business opportunities these days, few phrases give people the old dollar-sign-eyes more than “legal cannabis”.

From states like Michigan where it’s been approved for both medicinal and adult use, to places like South Carolina where legalization has been a popular topic for ballots and voters, cannabis is slowly turning into one of America’s biggest businesses.

You don’t need us to tell you that – Investopedia reports that (as of Nov. 2020) over 340,000 American jobs were devoted to the handling of plants at various stages along the retail cycle, and the industry was estimated at over $13 billion as of 2019.

Not bad for a plant that’s still technically illegal under federal law, huh?

If you’ve read this far, it probably means you’re hoping to be among the lucky ones who can strike it rich with their own cannabis business. A noble undertaking, but are you really prepared to make your mark? In a field as competitive – and occasionally complicated – as cannabis can be, you really need to lead with your best foot forward, and make sure you’re as well prepared for the various challenges of a fairly new industry as possible.

With that in mind, below is a list of the five things you’ll need to double-check and make sure you actually have access to before embarking on your new business venture.

The right shelving & equipment

You see this a lot with smaller businesses as well as, er, ‘independent growers’. A lot of people assume that they can just buy some greenhouse shelves, line the walls of their business with it, and call it a day, right?

Offering rare or unique cannabis strains is a great way to differentiate

This approach leads to problems more often than not. Even above and beyond the inherent concerns of helping your plants grow safely (and productively!), the sort of equipment you use should reflect the sort of business you’re trying to run. A cannabis retail outlet, for example, is going to need different sorts of shelves and tables than a dispensary or growing facility, as the work being done is completely different.

It will take a little research, but it helps that a lot of businesses these days are starting to offer shelving specifically designed for various cannabis operations. Check to see if any of the big warehouse suppliers near you have gotten into the cannabis game yet – Shelving Inc, Metro, and Rack & Shelf are a few of the bigger shelving names with cannabis offerings as of this writing.

Strong branding

Long gone are the days when all you needed to be successful in cannabis was a booth at the shady flea market, a pun name and a big sign that said “Head Shop” to throw off the authorities.

Far too many cannabis businesses launch themselves headlong into a business plan without stopping to think of a good name, or just settling for the first one they think of. With as crowded as the playing field is quickly becoming, it might honestly be worth it to pay someone to help you come up with a decent logo and branding – it’ll go a long way towards helping you stand out against everyone else using a green font. Places online like High Hopes specifically offer these services for cannabis businesses, so you know they’ll be able to figure out what you’re about more quickly.

An understanding of your consumer base

The exact sort of work your cannabis business performs is going to affect what your potential customer base can be – and vice versa.

Brands are embracing contemporary design more and more

Early on in the planning stages, make sure to figure out exactly who you’re going to sell your products to, as this will inform nearly every other decision your business makes. Do you want to sell directly to the customer, or to work as a distributor for CBD/cannabis retail outlets? Are you prepared to manage and run your own storefront, or are you just going to rent warehousing space to sell your plants to other retailers? If so, do you know who the businesses are in your area that you could work with? Or, if you are planning on entering the retail space, do you know how many other cannabis businesses could be operating in your desired geographical area? Finding an audience may be the hardest part of opening any business, but it’s important work.

Banking that understands your industry

Maybe the biggest drawback to being involved in an industry as comparatively new as cannabis, is that a lot of the old methods of doing business aren’t quite available to you. Many financial institutions of various sizes are limited in the ways they can help finance cannabis businesses, from not understanding the regulations and needs of your industry, all the way to being unable to assist cannabis businesses with banking in the first place.

Finding the right banking services can be challenging

It might be advantageous to look into banks, credit unions or financing companies in your area that specifically offer banking services (like business accounts and the like). A few examples include Aery Group from New Mexico, or Seed to Sale in Michigan. (It’s important to note that many of these companies, such as Aery Group, can only service the state they’re located in due to different state-by-state regulations – check ahead to make sure you find a place that can help you!)

Knowledge of the needed licensing and regulatory requirements

Getting a license to open any business is a tricky prospect on a good day, but for an industry as wide-ranging and varied as cannabis, getting licensed can require a lot of homework.

Even if you’re lucky enough to be setting up shop in a state that allows for the sale of cannabis, the licensing process can vary widely from state-to-state. In New Mexico, for example, it can take months to acquire a license simply due to the amount of paperwork, research and submissions required to cement your business. Before going too far down the rabbit hole of opening your business, make sure to take the time you need to completely research and understand the various local and state regulations you’ll need to adhere to for your business to get off the ground.

Obviously, there’s going to be a lot of other hurdles and requirements that come with starting a business – but by remembering these five things, you’ll be off to a much better start than many others.

Cannabis & Chemicals: Why Glove Sourcing is Vital

By Steve Ardagh
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Freya Farm, a pesticide-free cannabis producer and processor located in Conway, Wash., was recently forced to issue a recall after the chemical o-Phenylphenol, listed under CA Prop 65, was found on its products. Testing traced the antimicrobial compound, known to cause cancer, back to the FDA-compliant food grade gloves used by Freya during packaging.

The reason this could happen with FDA-compliant, food grade gloves needs urgent attention. The production and manufacturing of food contact gloves is largely unsupervised, with limited and infrequent checks on gloves imported into the US. After initial approvals, non-sterile, FDA-compliant food grade gloves are not subject to ongoing controls. This may lead to lower grade and cheap raw materials being used in sub-standard production facilities and processes.

Why “Food Safe” Gloves Aren’t Always Safe

The quality and safety of disposable gloves are limited to Letters of Compliance and Guarantee on the general make and model of the glove, not necessarily the glove you are holding in your hand. There are few controls on the consistency of raw materials, manufacturing processes and factory compliance for both food contact and medical examination grade gloves. Therefore, the opportunity exists for deliberate or accidental contamination within the process of which the Preventive Controls Qualified Individual (PCQI) may not be aware.

Read more about this in Disposable Gloves: The Unregulated Cannabis Threat, previously published in the Cannabis Industry Journal.

The Cost of Recalls

In the words of Freya Farm, “Nothing ruins your day like testing your product, confident it will be clean, only to find it contaminated with some crazy, toxic chemical.” In tracing the issue, the gloves were the last thing Freya Farm tested, as they never suspected something sold as food safe could be the culprit.

A recall of this type can be expensive, as fines range up to $200,000. Since this incident, Freya Farm has implemented a responsible sourcing policy for gloves using supplier Eagle Protect to protect its products, people and brand reputation.

Glove inspection includes five factors of quality controls

Eagle Protect, a global supplier of PPE to the food and medical sectors, is currently implementing a unique proprietary third-party glove analysis to ensure a range of their gloves are regularly checked for harmful contaminants, toxins and pathogens. This Fingerprint Glove Analysis mitigates the risk of intentional or accidental physical, chemical or microbiological glove contamination by inspecting five factors: the use of safe ingredients, cross-contamination potential, cleanliness, structural integrity and dermal compatibility.

Harmful toxins and contaminants in gloves have been identified in many peer reviewed scientific studies. This is now a real issue for companies producing consumer products, especially in industries such as organics and cannabis whose products must be handled by gloves and test clean.

Three key areas that can be tested for in a glove analysis to ensure safe product handling include:

  • Dermal compatibility tests for toxins and chemicals will flag any toxic chemical, such as o-Phenylphenol
  • GCMS testing for consistent quality and safety of glove raw materials
  • Cleanliness tests for pathogens inside and outside the surfaces of gloves – particularly pathogens also required in cannabis testing, such as E. coli and Salmonella, mold and fungus and pesticides.

For cannabis producers responsible glove sourcing is vital, especially as the COVID-related demand for single-use gloves exceeds supply, with poor quality, counterfeit and even reused gloves flooding the market. For producers with a product that rests very much on its quality, it’s important to focus on quality and not just cost when procuring gloves.