Tag Archives: protection

Cannabis Receiverships: A Viable Alternative to Bankruptcy

By Oren Bitan
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Doing business in California’s legal cannabis industry remains a risky endeavor. The majority of the industry is still unlicensed, tax rates at the state and local levels are high (notwithstanding a recent reprieve from California’s cultivation tax) and there are not enough licenses to meet geographic demand throughout the state. Outside financing remains difficult to secure for equipment, tenant improvements, account receivables and working capital because, under the federal Controlled Substances Act (CSA), cannabis remains a Schedule I narcotic. Therefore, entrepreneurs, investors and lenders who have stakes in state-sanctioned cannabis enterprises expect to see returns that justify the higher level of risk, which places additional financial pressure on cannabis businesses. In addition to the industry specific challenges, the United States economy is on the verge of a recession that may further hamper the industry notwithstanding the industry’s resiliency during the pandemic when it was deemed to be an “essential” industry that benefited from consumer spending of stimulus monies.

These outside pressures increasingly lead to ownership disputes and creditor defaults that result in litigation and the need for restructuring. In some instances, business partners cannot agree about control and finances of the licensed businesses and in other instances unpaid creditors file suit to enforce their interest in a company’s assets. And sometimes a local municipality discovers wrongdoing by an operator and initiates a health and safety lawsuit to cease the illegal condition.

Bankruptcy reorganization is an option typically utilized by struggling businesses to shed or restructure debt. Cannabis businesses, however, cannot take advantage of bankruptcy remedies because bankruptcy is a product of federal law and federal law still prohibits the sale of cannabis.

As a result, stakeholders in legal California cannabis enterprises must consider alternatives to bankruptcy to collect what they can on their loans and investments in the event the enterprise becomes insolvent or requires restructuring. A well-established alternative to bankruptcy is a state court remedy – the appointment of a receiver over the assets of a business or over the entire business operations. Through the receivership process, stakeholders may obtain many of the same protections available to them through bankruptcy

A. Federal Illegality Bars Access to Bankruptcy Protection

Over the past ten years, bankruptcy courts have routinely prohibited licensed cannabis businesses from seeking bankruptcy protection because cannabis remains illegal at the federal level under the Controlled Substances Act (CSA). Bankruptcy trustees are typically charged with managing and operating property in the same manner that the owner would be bound to do if in possession thereof. Because cannabis remains illegal at the federal level, trustees are not able to manage and operate licensed cannabis businesses.

B. Receivership as an Alternative to Bankruptcy

Under California law, a receiver is a neutral agent of the court appointed to preserve, control, manage and ultimately dispose of property that is subject to the litigation before the court.1 The receiver, therefore, holds property for the court, not the parties to the litigation.

Appointment of a receiver is a statutory provisional remedy. Other than corporate dissolutions under Code of Civil Procedure section 565, the law does not have a specific cause of action to appoint a receiver. Thus, the proponent of a receiver must have a valid cause of action in an underlying lawsuit.

1. The Appointment of a Receiver

The appointment of a receiver rests within the trial court’s discretion. Code of Civil Procedure section 564 contains the broadest statutory authority to appoint a receiver. Subdivision (b), details twelve possible situations in which a receiver may be appointed, most of which are beyond the scope of this article. The most common of these is a lender’s request to appoint a receiver when a borrower defaults on a loan and the lender seeks the appointment of a receiver over its collateral. The statute, however, clarifies that the situations listed in the statute are not exclusive: a court may appoint a receiver “[i]n all other cases where necessary to preserve the property or rights of any party.”

The receiver’s powers are limited by the statute under which the court appointed the receiver and those conferred by the court. The appointment order should, therefore, detail the duties the receiver owes to the court, and actions that the court authorizes the receiver to take to perform those tasks. The order should also specify the property that will be part of the receivership estate.

2. The Receiver’s Powers

The receiver has general statutory powers.2 The statutory powers include (i) commencing or defending litigation; (ii) taking and possessing property of the receivership estate, (iii) receiving rent, collecting debts, and making transfers, and (iv) acting in accordance with the court’s instruction with respect to the property.3 But the court’s authorization is necessary to sue the receiver and for the receiver to commence litigation.4 In the foregoing scenarios, the receiver is immunized personally from tort liability, but not in his or her official capacity as receiver.5

In addition to taking possession of property, the receiver may dispose of receivership property with the court’s approval.6 If the receiver is an equity receiver, the receiver may take possession and satisfy creditors from all the debtor’s assets.7

The court may further authorize the receiver to issue “certificates of indebtedness” to raise money to administer the receivership estate.8 This device permits the receiver to provide liquidity to the estate and gives the certificate holder an interest-bearing priority claim against the receivership estate.

3. Liquidating Cannabis Assets Through a Court Appointed Receiver

After the court appoints the receiver, the receiver should have sufficient powers to, among other things: (i) take over the management of the company; (ii) open bank accounts; (iii) borrow money by issuing receivership certificates; (iv) manage all of the company’s property; (v) hire counsel and other professionals; and (vi) sell the receivership estate’s assets for the benefit of the creditors. To maximize repayment to the creditors, the receiver may hold an auction to sell the assets and assist in facilitating the cancellation of company’s state license while the buyer of the assets secures its state license after the local license is transferred.

State cannabis licenses may not be sold or transferred.9 Yet, to maximize recovery for the creditors, the receiver may need to participate in the regulatory process to maintain a license during the pendency of the receivership and to assist in the amendment of a license while a prospective buyer seeks to obtain its own license. To do so, the receiver will first need to qualify as a licensee under state law to join as a licensee on the license and further the licensee as a going concern. Next, the principals of the prospective buyer will themselves need to qualify as licensees under the license. Then, once the sale of the company’s assets (including any interest in the license) to the buyer closes, the receiver and the company’s original owners will terminate their capacities as licensees of the license, leaving only the new owners as licensees. Thus, the proposed order should be written with attention to ensure the receiver has powers to further the foregoing and not diminish the value of the receivership estate.

After the conclusion of the sale of all assets, the receiver will need to obtain a discharge from the court of his or her duties as receiver. The receiver may do so by the parties’ stipulation or by motion. Together with the request for a discharge, the receiver should seek approval to pay: (i) any lenders to the receivership estate; (ii) professionals that the receiver hired; and (iii) him or herself for his or her services. Upon the court’s approval, the receivership will be terminated.

The conflict between federal and California law regarding cannabis continues to be an impediment for stakeholders in California’s cannabis market. Because of this conflict, stakeholders in California’s legal cannabis market lack access to vital traditional institutions, such as bankruptcy remedies. As a result, stakeholders must be prepared to consider alternatives such as a court appointed receiver, which can be a useful alternative to both secured creditors and unsecured creditors. Stakeholders who pursue a court appointed receiver will benefit from a long-established body of law and experienced professionals.


References

  1. Cal. Rules of Ct., r. 3.1179(a).
  2. Cal. Civ. Proc. Code §§ 568-570.
  3. Free Gold Mining Co. v. Spiers, 136 Cal. 484, 486 (1902); Steinberg v. Goldstein, 129 Cal. App. 2d 682, 685 (1954).
  4. Vitug v. Griffin, 214 Cal. App. 3d 488, 493 (1989).
  5. Chiesur v. Superior Court, 76 Cal. App. 2d 198, 201 (1946).
  6. Helvey v. U.S. Bldg. & Loan Ass’n, 81 Cal. App. 2d 647, 650 (1947).
  7. Turner v. Superior Court, 72 Cal. App. 3d 804, 812 (1977).
  8. Cal. Civ. Proc. Code § 568.
  9. See e.g., Cal. Code Regs. tit. 16, § 5023(c).

Mitigating Counterfeiting in the Cannabis Industry

By Norbert Korny
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According to projections, counterfeiting and piracy could reach $2.3 trillion in the US alone, bringing the economic cost to $4.2 trillion globally by 2022. The pandemic made the billion-dollar problem even worse. Products that you directly ingest or place in contact with your body have become a target for counterfeiters introducing some serious side effects.

More than 70% of the CBD products purchased at unlicensed CBD shops in the Los Angeles area failed after-market laboratory testing according to the SC Labs report brought by the United Cannabis Business Association (UCBA). More than half of the tested samples labeled as hemp or hemp-based did not qualify as hemp. Perhaps the biggest concern is the level of contamination which in some cases, were several hundred times the allowed limit.

With the rise of synthetic cannabinoid agonists, some of them having a structure similar to THC, it is hard to keep track of the complete list. The majority of these chemicals are produced in Asia without standards or regulations. The most extreme case has been a version of synthetic cannabis laced with rat poison that led to several deaths.

Last year in Florida, synthetic THC was to blame for daily emergency calls to Poison Control. Poisoning cases linked to counterfeit cannabis edibles tripled between 2019 and 2020.

Vaping is growing rapidly in popularity. An illicit market has emerged and with it a rise in Vaping-Associated Pulmonary Illness (VAPI). Over a hundred cases have been reported in California contributing to over a thousand reported cases nationwide. 

Consumers pay a harsh and unnecessary price with their health, risking long-term damage or even death. If you don’t know the source, it is very difficult to identify counterfeit cannabis products. Still, some telling points can help you identify the fakes:

  • Authentic-looking products available at dubious prices perhaps bought at a gas station or a convenience store.
  • Packaging that matches a reputable brand, without the brand’s logo and missing required details such as an amount of CBD and THC per serving.
  • Missing laboratory testing information
Authentic-looking counterfeits can have labeling that mimics a brand’s look, but could be missing key information.

Legitimate product manufacturers and brand owners suffer financial losses, as well as something even more precious – trust and reputation.

Essential elements of a brand protection program

Are you running a business in the cannabis industry? It is your top-quality product the customers want and not some third-rate knockoff. How can you provide your customers with the means to verify that their product is genuine? Let’s weigh several methods.

1. Provide images and videos of an authentic item on your website

Pros:

  • Customers can visually compare the details of the product.

Cons:

  • Customers need to know your website and navigate to a specific page with product details. You need to capture several details of the product.

2. Label each item with a unique product code. Optionally use a hologram image as an additional anti-forgery

measure

Pros:

  • Customers can verify a single product code instead of several visual details.

Cons:

  • You must be able to generate unique product codes and maintain a database of these codes for later verification.
  • You need to implement a solution for customers to authenticate their product codes.

3. Use a product number authority like ProdNum to issue and validate unique QR product codes for you

Validating a product using QR Code

Pros:

  • Customers don’t need to retype an alphanumeric product code, merely scan a QR code with a camera to get instant verification.
  • The manufacturer doesn’t need to implement and maintain a custom solution.

Cons”

  • You need to arrange printing of the QR codes on the package or stickers you will attach to each product.

The inevitable drawback of a profitable cannabis business is the fact it attracts counterfeiters. Businesses and customers joining forces in the never-ending battle against counterfeiting is a winning scenario for both.

Registering Trademarks in the Cannabis Space

By Mike R. Turner, Joseph Sherling
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As the legality and availability of hemp and non-hemp cannabis products continues to grow, having strong, recognizable brands will become increasingly important in order to stand out from the competition. Unfortunately, strong brands invite knock-offs and can require aggressive policing. Registering your trademarks makes policing much easier, but registration of marks used to sell hemp and non-hemp cannabis products requires strategy and forethought.

Why Register?

Trademark rights flow from use, so a registration is not required for enforcement. However, “common law” rights based on use alone must be proven in each instance, and you must show that your use of the mark has been sufficient such that consumers recognize and associate it with your goods or services. This can be difficult, expensive and time consuming. Also, common law rights are territorially limited. Even if you can prove such rights in Oregon (for example), you may have no right to prevent use of your mark in other states. State trademark registrations are similarly limited, but are presently all that is available for marks used exclusively to sell non-hemp cannabis products.

By contrast, a federal trademark registration provides the registrant a nationwide, exclusive and presumed right to use the mark in association with the designated goods and services. In addition, counterfeit use of a federally registered trademark can lead to statutory damages. That is, you don’t have to prove an amount of harm—a court may simply award damages based on statute. Yet another benefit is the ability to file based on an “intent to use.” You can thereby reserve a mark nationwide for up to three years before you must show use. Federal registration is available for marks used to sell hemp products, but with some strict limitations as discussed below.

Use in Commerce Requirement

Federal registrations are issued by the United States Patent and Trademark Office (the Office) once an application is approved and use in commerce is demonstrated. To satisfy the “use in commerce” requirement, an applicant must show that a mark is being used in association with the sale of goods or services that are legal to trade under federal law. Sale of products not legal under federal law simply does not count to establish trademark use for purposes of federal registration. This is where the vast majority of federal trademark applications for use with cannabis products get rejected. A search of the federal registry shows that, of over 8000 trademark applications for products containing cannabis extracts, only about 1,300 have resulted in registrations. But these 1,300 illustrate that there is a path to success.

Allowable Goods

The Office traditionally rejected all applications for use with products containing any cannabis extracts under the Controlled Substances Act (CSA). The Agricultural Improvement Act of 2018, commonly known as the Farm Bill, created an exception to the CSA for hemp, defined therein as cannabis extracts containing < 0.3% THC by dry weight. Based on this, the Office began allowing applications provided they designate only goods having 0.3% THC content or less. But even that limitation isn’t sufficient for some types of goods.

FDAlogoUnless specifically disclaimed, the Office will assume the presence of CBD in products containing cannabis extracts, regardless of THC quantity. On that basis it will reject applications for hemp products that are ingestible (food, drinks, nutritional supplements, etc.), or that claim a medical or therapeutic purpose, under the Food, Drug & Cosmetic Act (FDCA). The FDCA requires Federal Drug Administration (FDA) endorsement to add “drugs” to such products, the FDA classifies CBD as a “drug,” and the FDA has authorized only a few products that include CBD. Thus, an allowable good that is ingestible or therapeutic must not only contain the low THC disclaimer, but must also state an absence of CBD. Notably, the Office has not been rejecting products on the basis that they contain CBG (cannabigerol) or other naturally occurring non-THC, non-drug cannabinoids.

Are the Goods Sold Really Allowable?

Of course this scheme of word-smithing designations to obtain allowance of federal trademark registrations invites error, if not fraud. Registrations are subject to cancellation if use of the mark with the designated goods is not maintained, or if it can be shown that the registration was fraudulently obtained. Thus, critical to a claim of use is that the applicant offers products that actually meet the designation description. The Office does not check for THC levels or CBD presence, and most purveyors of hemp products don’t either. Indeed, there is not even a standardized method for measuring these things. However, studies show that more than half of hemp products either purposefully or accidentally misrepresent their actual THC and CBD levels.i Though legally untested, this presents a potential problem for many existing federal registrations.

If a mark registered for use with goods having < 0.3% THC is found to be used only with products that actually have a greater amount of THC in them, the registration could be canceled. The same fate could befall a registration for goods claiming to have no CBD that, when tested, actually do contain more than trace levels. Even if non-hemp cannabis products are legalized under federal level, registrations obtained with THC and/or CBD limitations would still require the registrant to use the mark with products meeting such limitations.

Keeping Evidence for Insurance

So long as a registrant has maintained use of the registered mark “in commerce” in association with the designated goods, the registration is insulated from attack based on claims of non-use or fraud. The fact that the registrant also uses the mark for goods that are not legal on the federal level is of no consequence to the registration. Thus, it is wise to include in the product lineup under the brand to be protected at least some good that meets the present requirements for federal trademark registration.

One option is to include a product where the only cannabis extract is from hemp seed oil. Without even testing it, you can be reasonably assured that such a product will contain little or no CBD or THC. Another option short of testing is to obtain a certification or warrant from your supplier that particular ingredients truly are hemp, i.e., have < 0.3% THC by dry weight. This could be relied on as evidence should no original product be available for testing to show that use was legitimate at the time registration was obtained. If you can’t obtain such a certification, testing the occasional sample and keeping records over time would also work. Product samples can now be tested for THC content for around $100 per sample, with results back in about a week.ii

Zone of Natural Expansion

Though non-hemp cannabis products cannot be covered directly by federal registrations, a federal registration for CBD/hemp products can have spillover benefits. This is because the scope of a registration may expand to cover things similar to what is designated. The question comes down to likelihood of confusion. Imagine a company holds a registration covering LOOVELA for “nutritional supplements containing hemp seed oil having no CBD and < 0.3% THC by dry weight.” It would be logical for a consumer to assume that non-hemp cannabis products sold under the LOOVELA mark would likely be made by the same company. Thus, provided the company actually sold products complying with its designation, it could assert the CBD-based registration to prevent sale of LOOVELA branded non-hemp cannabis products. Also, should such products be legalized federally, the company would likely be the only applicant able to obtain an additional federal registration for LOOVELA for use with them, because any competing attempt would be confused with their pre-existing registration for CBD/hemp products.

In conclusion, it should be noted that the law in this space is evolving rapidly and is nuanced. Every situation is unique in some way, and there are many reasons an application may fail or a registration may be attacked that are not addressed above. But there is value in obtaining a federal registration for your hemp brands, and there is an overall strategy to be employed for brand protection in the cannabis space.


The content above is based on information current at the time of its publication and may not reflect the most recent developments or guidance. Neal Gerber Eisenberg LLP provides this content for general informational purposes only. It does not constitute legal advice, and does not create an attorney-client relationship. You should seek advice from professional advisers with respect to your particular circumstances.

References

  1. See, e.g., Bonn-Miller, Marcel O., et al., “Labeling Accuracy of Cannabidiol Extracts Sold Online,” Journal of the American Medical Association, Vol. 318, No. 17, pp. 1708-09 (Nov. 7, 2017); Freedman, Daniel A. and Dr. Anup Patel, “Inadequate Regulation Contributes to Mislabeled Online Cannabidiol Products,” Pediatric Neurology Briefs, Vol. 32 at 3 (2018).
  2. See, e.g., www.botanacor.com/potency/

Keep ‘em Safe: Cash, Records, Products, People – Technology Helps Cannabis Businesses Succeed

By Dede Perkins
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It wasnt that long ago that cannabis was underground, sometimes literally, and operators protected what was theirs any way they knew how. Before legalization, cannabis operators needed to secure their plants, cash, supplies and equipment not just from people who wanted to steal them, but also from law enforcement. The legacy cannabis market is now transitioning into a legal one, and licensed operators are joining the industry at an incredible rate, but security is still part of the success equation. Like before, operators need to protect plants, products, equipment and cash, but they now also need to protect records, privacy and data, and do so in a manner that complies with state regulations.

Cannabis regulatory authorities set security guidelines that cannabis business owners must follow in order to obtain and renew operational licenses. For instance, there are state-specific security regulations regarding video surveillance, camera placement, safes, ID verification, and more. While security measures help protect the business, they also protect the public. Its a win-win for everyone involved. Here are five best practices and techniques to protect cash, records, products and people.

Hybrid cloud storage

State regulations call for reliable video surveillance footage that is accessible, in most cases, 24/7 and upon demand by cannabis regulatory authorities and local law enforcement acting within the limits of their jurisdiction. SecurityInfoWatch.com reports that video data is the industrys next big investment, meaning there will be an increased demand and need to store video surveillance footage. Most states require video surveillance footage to be retained for a specific amount of time, often 45-90 days or longer if there is an ongoing investigation or case that requires the footage. While some businesses only retain video data for the state-required length of time, others choose to keep it longer.

Storing data on-site can become expensive and precarious. Best practices call for a hybrid cloud storage solution model as it provides on-site and both public and private cloud data storage solutions. This model provides users with the ability to choose which files are stored on-site and which files live in the cloud. Doing so improves file accessibility without impacting or compromising on-premises storage. In addition, its helpful to have two methods of digitizing data, for safetys sake. In the event an on-site storage method crashes—though hopefully this wont ever happen—theres a version available off-site via the cloud. That said, with cloud-based storage solutions come cybersecurity threats that must be managed.

Cybersecurity

Dispensaries are prime targets for burglary. Defending a storefront requires a comprehensive security plan

Due to the ongoing COVID-19 pandemic, more businesses are online than ever before. Unsurprisingly, cyberthreats are on an upward trend, including in the cannabis industry. Earlier this year, MJBizDaily reported that a data breach exposed personal information of current and former employees of Aurora Cannabis. The incident involved unauthorized parties [accessing] data in (Microsoft cloud software) SharePoint and OneDrive”. Although this breach involved only employees, confidential customer information is also at risk of being compromised during a data breach. 

On a separate occasion, an unsecured Amazon S3 data storage bucket caused a large-scale database breach that impacted almost 30,000 people across the industry, according to the National Cannabis Industry Association. The breach included scanned versions of government-issued ID cards, purchase dates, customer history and purchase quantities. Unlike the Aurora Cannabis breach, this one included customer data. 

Just like other more established industries, the cannabis industry needs to protect and secure confidential data. If you dont have a cybersecurity expert on your team, consider hiring a consultant to evaluate your risk or partnering with a credible cybersecurity technology company to implement proactive solutions. Before signing a contract, do your due diligence. Does the consultant and/or technology company understand the compliance regulations specific to the cannabis industry? Do their solutions meet the regulations in the state(s) where your facility operates? Taking the time to protect your companys data before a breach occurs is proactive, smart business.

Smart Safes 

A smart safe like this one can helps secure cash handling

Smart safes help secure cash handling, which given the difficult banking environment for cannabis companies, means theyre on the list of best practice security technology products. What is a smart safe? A smart safe is a device that securely accepts, validates, records and stores cash and connects to the other cash management technology solutions such as point of sale systems. They connect to the internet and provide off-site stakeholders visibility into a facilitys cash position.

A high-speed smart safe counts cash by hand faster than a human and is an overall more secure way to deliver cash bank deposits. At the end of the night, making a deposit at a physical bank location can be dangerous, exposing your cash and the individuals responsible for making the deposit to unsecured threats. Using a smart safe reduces that threat and also helps cannabis operators comply with financial recordkeeping and documentation requirements. Due to federal cannabis prohibition, many cannabis businesses lack enough insurance to fully cover their exposure to cash theft, which has led to a trending industry-wide investment in smart safes.

Advanced access control

Best practice access control means more than a ring of keys hanging off the facility managers belt. Advanced access control gives cannabis business owners and managers the ability to manage employee access remotely via the cloud. This feature can limit access areas within a facility, enabling an individual to revoke access instantly from a remote location making it a useful tool in the event of a facility lockdown or emergency. A mobile app and/or website can be used to lock or unlock secure doors, monitor access in real time and export access logs.

Advanced access control devices arent a standard in the industry yet. Although many state regulators dont require cannabis businesses to utilize advanced electronic access control, using this technology is a best practice and may be required in the future.

Compliance software 

Understanding the ramifications and keeping up with state-mandated compliance is challenging. While state regulations can be found online, theyre often in pieces, leaving operators unsure about whether or not they have them all. Once an operator is confident that they have the most current version of all the laws, rules, and regulations that apply to their cannabis business, making way through the dense legal jargon can be exhausting. Even after multiple readings, it can be unclear about how to apply these guidelines to the operators cannabis business, which is one reason cannabis businesses work with a trusted legal counsel to meet compliance requirements. For trusted advisors and cannabis business licensees and operators alike, cannabis compliance software solutions are designed to not just check boxes for a cannabis business, but to help everyone involved understand how the regulations apply to the operation. These solutions improve accessibility so that employees at all organizational levels understand the rules and requirements of their position and the products they work with.

In addition, compliance software can help licensees and operators establish and implement best practice SOPs to meet regulatory requirements. Because the cannabis industry is young and many operators are moving fast, many cannabis businesses are vulnerable to security breaches and threats. Prioritizing security and compliance can help cannabis leaders protect against potential threats. Investing in the latest and most innovative security technology solutions—beyond what is required by state regulations—can help operators outsmart those who seek to steal from them and position their companies as industry leaders that prioritize safety and compliance, protecting not just cash and products, but the people who work in their facilities and the customers who purchase their products.

Implement These Tips to Quickly Fortify Cannabis Dispensaries

By Heather Bender
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Based on the recent string of cannabis thefts in Portland, Oregon, the spotlight is shining even brighter on the need for enhanced security measures at cannabis dispensaries throughout the country. According to the Oregon Liquor Control Commission, the Portland metro area alone has experienced more than 120 cannabis shop burglaries since March 2020, resulting in a reported total loss of more than $500,000 in cash and products.

Robbing a cannabis dispensary is as lucrative as robbing a bank. Cash is king in the shops until the Secure and Fair Enforcement (SAFE) Banking Act is passed to prohibit federal banking regulators from penalizing depository institutions that provide banking services to legitimate cannabis businesses. Until the Act is passed, it is widely known that all transactions must be done in cash—which makes cannabis dispensaries a prime target for thieves.

Dispensaries are prime targets for burglary. Defending your storefront requires a comprehensive security plan.

While many security protocols—such as product traceability systems and security cameras—are mandated by each individual state, dispensary owners should take measures to actively secure their product, protect their employees and preserve their businesses as theft increases.

One of the quickest and most cost-effective ways to fortify shop security is by implementing rolling security doors. After determining what level of security is needed, consider these four tips to help deter criminal activity and ensure the safety of both employees and products.

Tip 1 – Defend The Storefront
Designed to prevent against looting events and burglaries, heavy-duty rolling steel doors offer cannabis business owners robust security. They can be retrofitted into existing buildings, are exterior mounted and are ideal for storefront defense—including protecting glass windows, which can be expensive to replace. Unlike more common rolling grilles, thieves can’t see merchandise when the rolling door is lowered. In addition to the door giving the building a secure look, blocking sight access is key to deterring criminals.

Heavy-duty steel doors must also be lift- and pry-resistant. Manufacturers put the doors through rigorous testing, and some security doors even meet Department of Defense forced entry standards, which can provide up to an hour of protection against violent attacks against the door to gain entry. Look for rolling security doors that can withstand heavy impact and resist pry attempts with common tools, as well as doors that are lift resistant. Some manufacturers offer doors with robust slide locks and rigid heavy-duty bottom bars, enabling the doors to withstand up to 4,500 lbs of lifting effort.

Tip 2 – Protect While Allowing Visibility and Airflow
If product visibility is desired, but more robust security is needed at the storefront—beyond a security measure such as impact glass—a heavy-duty security grille is an excellent choice. Security grilles are easy to custom order and don’t require structural modifications to fit individual spaces. They are easily installed behind storefront glass, are compact enough to remain out of sight when not in use and require little maintenance.

Strong rolling service doors can protect delivery entrances well

It’s important to work with a manufacturer to select a rolling grille that provides dependable, increased security. Choose grille curtains with rods that are spaced closer together and have heavier links. Security grilles with these features are harder to lift and pry than standard rolling grilles.

Rolling security grilles are also an ideal solution to protect counters inside the dispensary. They can be easily concealed in small headspaces where there is limited ceiling room.

Tip 3 – Fortify A Store Within A Store
For cannabis dispensaries located within high-end retail shops, it is important to consider additional security measures to separate the dispensary from the rest of the store.

A metal grille can be a good barrier for a store within store

A store within a store may be subject to different hours of operation as states often dictate specific operating hours for cannabis dispensaries. Altered operating hours necessitate an easy way to secure only a small section of a larger store.

If aesthetics are of concern inside retail shops, a woven metal mesh grille will provide both beauty and security without imposing looks while securing cannabis products as customers browse throughout the store. Manufacturers offer a variety of patterns and even logo designs as a way to bring more creativity to a grille’s aesthetics—making them rolling pieces of art.

Tip 4 – Secure Deliverables
Dispensary owners sometimes overlook the fact that thieves target deliveries. Deliveries that are made at the back of the store or in receiving areas may be the most at risk. It is of utmost importance to be aware of how deliveries are timed, who is present during them, and how the product is handed off.

Robust rolling service doors provide the best security for delivery entrances and are more secure than traditional rolling sectional doors. Made from slats of formed galvanized steel, aluminum or stainless steel, these rolling doors are completely customizable to meet existing building designs and are ideal for areas with limited overhead room.

Robust Protection
By closely evaluating the levels of security needed, the layout of the building and where deliveries take place, security updates and enhancements are easily implemented with the right rolling doors. Every door is made for a specific opening, so each one is custom-made for its application. Choose a knowledgeable manufacturer that will help determine which rolling closure suits the dispensary’s needs.

Important Security Considerations When Designing Cannabis Facilities

By Heather Bender
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The cannabis industry is growing so quickly that even COVID-19 can’t slow it down. Before the pandemic, the industry amassed $13.6 billion in U.S. legal cannabis sales in 2019 – a figure that is expected to more than double to $30 billion in the next five years, according to New Frontier Data.  In states where cannabis is legal for medical or recreational use, dispensaries have been deemed necessary, essential businesses – especially when it comes to calming stress and anxiety in our ever-changing times.

Cannabis legalization and newly budding dispensaries have expanded across the U.S., which may come with an unfortunate counterpart – a higher incidence of crime. Despite lower prices in states that have legalized cannabis, as compared to states where it is still illegal, theft has run rampant across grow operations, warehouses and, most often, dispensaries.

Heavy-duty security doors at the front of the dispensary block sight access and provide a visual deterrent.

Dispensaries can be targeted more frequently. Robbers may perceive them as an easy target, because they are businesses that have larger amounts of cash on hand. Many dispensaries only accept cash because payment processors and financial institutions aren’t willing to work with them. This is primarily because cannabis is still deemed an illegal substance under federal law, and the actions of financial institutions are governed by federal, not state, laws. Once the Secure And Fair Enforcement (SAFE) Banking Act is approved, cannabis businesses will be able to work more easily with banks, in turn reducing the amount of cash on site and erasing the dollar signs in opportunistic thieves’ eyes.

However, cash isn’t the only high thieves seek when they break into dispensaries. There’s also the product itself. Protecting it – and providing peace of mind to the facilities’ owners and occupants – is a concern for dispensaries, grow operations and warehouses. Robbers are motivated by the opportunity to make even more fast cash through reselling the product found onsite.

To eliminate such easy targets, security requirements for the cannabis industry are a necessity. They are also involved, complicated, and vary from state to state. A number of security specifications apply between state laws and local ordinances. Inventory must be properly surveilled and managed at all stages of transportation and storage. Any discrepancies in inventory can result in large fines and other penalties. To aid in understanding security compliances, the National Cannabis Industry Association (NCIA), a national trade association, recommends that start-ups obtain attorneys to guide businesses through their state’s laws and regulations.

This is why, especially for new business owners, it is critical to consider the best, most advanced security solutions – especially when it comes to doors and points of egress – that are easily integrated into buildings during the design phase. These solutions protect the products, properties, and people throughout the cannabis supply chain.

Understanding State Security Regulations
While there are no federally recognized security requirements for the cannabis industry, there are similar requirements across all states that have legalized cannabis, including:

  • Maintaining strict access control throughout the facility – this is especially important for grow operations and warehouses
  • Functional alarm systems
  • Documented standard operating procedures
  • Video surveillance systems – many states mandate very precise requirements, such as length of storage time and even video resolution specifications
  • Notifying appropriate regulatory agencies immediately or within a strict timeframe after a security incident or theft
  • Securing all records and record storage

While these are common, state-mandated security requirements, it is critically important to know and understand all rules, regulations, and laws concerning the industry within the business’s specific state. Making sure the business is compliant with all aspects of state laws for security and preventing violations, including the hefty financial penalties that can accompany them, is key.

States require cannabis facilities to implement sophisticated security features for several reasons. One of the most obvious is the fact that the industry supplies a high-value product and is a cash-intensive business. Integrating security features into the building can be a challenging task for architects and designers. To help tackle these challenges, manufacturers have introduced products to the cannabis industry, creating easier, more effective and aesthetically pleasing security solutions.

Integrated Designs For High Level Security
Security shouldn’t be a constraint when considering design aesthetics. Certain elements can be discretely tucked away, including cameras and security doors by way of specifying a concealed rolling door, conveniently disguised in the ceiling during operating hours. These doors can even close under alarm eliminating the need for manual intervention. Other security measures, such as bullet resistant glass, are hidden in plain sight.

Rolling doors like this one can be conveniently disguised in the ceiling during operating hours.

Untrustworthy employees, smash-and-grab thefts or meticulously planned heists mean secure building design is of the utmost importance. In order to have the most effective security, there needs to be design vision – a clear intent for incorporating advanced security into the facility, whether visible or not.

Suggested security measures include video surveillance around the outdoor perimeter of the property as well as inside the facility. Physical barriers, such as specialized entrance locking systems – including fingerprint-scanning biometric technology – and security doors that may also include intrusion detection and automatic closure systems are recommended. All systems may be paired with 24/7 visual monitoring by security personnel.

Many state regulations also require restricted access to specific areas within dispensaries, grow operations and warehouses, with employee names and activities logged for reference. These necessary measures aid in inventory monitoring and control, further reducing the likelihood of internal theft.

When specifying building security, it’s important for architects to consider what type of building they are designing. There are differences in providing security for dispensaries versus warehouses and grow operations. Dispensaries and storefronts are frequently out in the open and in locations that are well-known to consumers. Warehouses and grow operations are usually tucked out of the way, rarely publicized, and less noticeable.

Rolling Grilles And Doors Deter Dispensary Theft
With a high-value product and cash on hand, dispensaries in particular have unique security challenges. And because they are retail businesses, egress and fire codes must be strictly adhered to, in addition to special security regulations.

Rolling grilles can be an effective deterrent against dispensary theft

In light of this, security doors require special consideration. They are necessary to provide secure protection against theft but shouldn’t distract from the architectural vision of the building or interior design.

Rolling security grilles are the ideal solution to protect the counter inside the dispensary and may also be ideal for the front of the store. They fit in small headspaces where there is limited ceiling room and can be easily concealed when not in use.

Even heavy-duty rolling doors used to protect the glass storefront of the dispensary and prevent intruders from entering the building’s dock area can be hidden when not in use. If building code allows, architects may specify a rolling door that coils up into the door’s header, residing behind an exterior soffit. These robust security doors’ lift-resistant bottom bars also can be obscured from sight.

Heavy-duty security doors at the front of the dispensary block sight access and provide a visual deterrent. They give the building a secured look when in use, but heavy-duty rolling doors don’t need to be imposing to customers during the dispensary’s operating hours.

Robust Visible Protection For Grow Operations And Warehouses
Grow operations and warehouses usually opt for more visible security doors to deter criminal activity. They also have different design considerations because of building layout and production needs. For instance, larger grow operations house plants and supplies which require heavy equipment to move throughout the facilities.

A heavy duty steel rolling grille

Heavy duty rolling security doors can be made with up to 12-gauge steel with interlocking slats and tamper resistant fasteners – making them stronger than standard garage doors. They provide high-end security at loading docks and limit access to restricted areas inside.

Rolling doors can also be used to block employee access to off-limits areas common in grow operations and warehouses. Because they are heavily reliant on utilities and infrastructure, such as water mains and humidity and temperature controls, warehouses and grow operations are ideal applications for rolling doors. If unauthorized personnel with ill intentions access these utility areas, it could spell disaster with ruined crops and damaged or unsafe products – turning into substantial financial losses. From a design standpoint, these doors do not need to be concealed. In fact, their visibility signals restricted access areas and hints at the security measures taken to protect these facilities.

Enhanced Security Features
Whether designing a dispensary, a grow operation facility, or a warehouse, rolling doors may be paired with automatic protection features to enhance the building’s security and help workers feel safe. These automatic closing systems allow the security doors to be immediately activated by a building alarm or the push of a panic button in emergency situations. The doors also feature advanced locking systems – some of which are hidden in non-traditional locations – providing further tamper resistance.

Some rolling door manufacturers offer in-house architectural design groups to guide architects and designers in choosing the ideal security doors. These groups can address and solve any design dilemmas that arise during the project. Every rolling door is built to a specific opening, making each product unique to that area of the project. Because of this customization, manufacturers can meet virtually any specification.

Meeting Insurance Requirements
Selecting the correct rolling door along with other advanced security features aids in meeting insurance requirements. Each insurance company has individual minimum-security conditions in its policy. Many insurance companies will not provide theft insurance if cannabis businesses do not have adequate security or cannot demonstrate they have it.

Planning Leads To Integrated Protection
The technical and legal aspects of securing dispensaries, grow operations, and warehouses can be overwhelming and, at times, confusing. Legal counsel, state agencies, industry associations, and manufacturers encourage new cannabis businesses to use them as resources as they unravel the nuances of the industry’s security regulations.

By combining robust security features such as video surveillance, proper access controls, rolling doors or grilles and automatic closure systems, cannabis facilities can meet state and insurance requirements and deter theft. With thoughtful design consideration and planning, these security features also have the capabilities to seamlessly blend with interior and exterior design aesthetics.

Why You Should Consider Parametric Insurance to Protect Your Outdoor Cannabis Crop

By Evan Stait
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In May 2019, there were 4,400 reports of tornadoes, hail and high winds across the U.S. That’s the highest number of similar weather incidents on record since 2011. This increasing number of weather incidents has a huge effect on the cannabis industry, which has turned more frequently to outdoor cultivation since legalization.

While outdoor cultivation can develop the flavor of the cannabis crop, much like wine, it also brings with it some unique challenges. Each component of the weather – wind, rain, temperature – plays a role in whether a crop succeeds or fails. While conditions one year may easily lead to a bumper crop, the conditions the following year may not be as favorable. And as the weather becomes more volatile due to climate change, growers are ever more at risk, especially when they aren’t insured.

Evan Stait, author and commercial account executive for HUB International

Unfortunately, traditional crop insurance isn’t available for outdoor cannabis cultivators, primarily because of a lack of data on yield performances – and the impact the weather has on yields. Insurance companies don’t create policies until they have the data to back the policy. But meanwhile, the growers are assuming all the risk.

Enter parametric insurance. Parametric insurance is a program that pays out after a certain parameter is met. In the case of cannabis growers, the parameters are weather-related. The policy is triggered when the weather varies from the average – if there is too much rain during a specific period of time, for example, or an occurrence of large hail. Because the policy is related to average weather, it has to be tailored to the specific growing region – which means the parameters for Colorado won’t be the same as a policy for Maine.

For cannabis crops, coverage can be created for the following parameters:

  • Rain (recorded in inches of rainfall over a period of time)
  • Wind (recorded in miles per hour)
  • Early freezing (using recorded temperatures)
  • Hail (measures intensity and size of the hail)
  • Drought (for non-irrigated plots)

Once a parameter has been set, the policy starts to pay out at the strike point, or the average measurement specified in the policy. Coverage continues to pay out until the exhaust point, or the entire limit of the coverage is paid out. It works well because it’s straightforward: The further away from the average, the more the likelihood of catastrophic loss.

Parametric insurance isn’t for everyone. It’s a program designed to fill gaps that exist within the traditional insurance system. Nor is it designed to stand alone. But it can protect outdoor cannabis cultivators from weather risks that are truly beyond their control, especially given the hardening property insurance market.

In addition, it works for two simple reasons:

  1. Simplicity: Recorded weather events leave no room for ambiguity or dispute. You don’t even need an adjuster to guide the claims process. The official weather data proves what happened.
  2. Correlation: There is a high degree of correlation between measurable weather events and potential damage to outdoor crops.

Parametric coverage is not widely available. Many insurance professionals may not even know of it. But with the property insurance market hardening and a growing need to protect you and your cannabis business from weather-related disaster, parametric coverage may be your best bet. Make sure you speak to a broker who knows about it.

Cannabis & COVID: Changes, Advances & Opportunities

By Laura Bianchi
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The onset of the COVID-19 pandemic sent shockwaves around the world, and they’re still rippling today. Businesses had to quickly pivot from in-person transactions and services to virtual operations, or close down until stay at home orders and other restrictions eased or lifted. While it varies from state to state, due to statutory and rule based operating requirements, requiring facilities to be open a certain amount of hours per week, many were deemed essential. These circumstances create a huge set of complex challenges for anyone in business to navigate, from workers and their families to management and owners, let alone vendors and ancillary businesses.

The bright side is being in an industry where plot twists are not uncommon. Cannabis is legal and highly regulated state by state, illegal on a federal level, so it’s always full of strategic problems to solve. With so many people, businesses, ever-shifting regulations, and financial interests at stake, the need for strategic legal services are the constant. From a purely business and regulatory standpoint, the pandemic has provided some in the cannabis industry with quantum leaps forward in operations and service, and many of them may likely become the new norm.

For people with anxiety (#everydemographic2020) and other debilitating medical conditions, perception is shifting towards the importance and benefits of cannabis as a medicine and alternative therapeutic treatment option, on pace with a larger global trend towards personal and shared wellness. There’s more freedom for consumers to participate recreationally in states with adult use programs too. Extended families and friends in other states may not have the same access to cannabis. We live in a socially driven world, and the awareness of the medicinal properties of cannabis has rapidly grown nationwide across broad demographics. The gateway drug stereotype and stigma is slowly but surely fading away.

Momentum and shift in consumer behavior, need and the shifting perspective of healthcare providers is affecting more state regulators. They’ve worked with the cannabis industry to modify and adjust operational rules as needed to ensure medicinal access during the ever-changing COVID climate. Although current rules and regulations haven’t been lifted in any way, this is a step in the right direction. However, recreational states are less likely to consider that portion of the cannabis market essential and look for ways to prioritize medical dispensaries over recreational.

Medical Cannabis Businesses Deemed Essential

The most immediate problems to solve in many states were social distancing and waiting areas – where to keep patients/customers? There are state guidelines and regulations for operations during COVID, plus CDC general safety and sanitation considerations for workers and consumers alike. Lawyers and regulators are working to make sure that these stores are open and operating safely, have established safety protocols, number of customers allowed inside the store, minimum hours of operation, and to allow for special elderly hours and accommodating patients with compromised immune systems.

One of the biggest operational changes has been an increase in the facilitation of online ordering and curbside pickup to help keep patients safe. Employees are wearing gloves and PPE as an added precaution. This puts the health of the patients and employees first, while still allowing businesses to operate.

More and more patients are not all that enthusiastic about making in-person appointments that may put them at risk. In every state, people waver between venturing out for necessities so they’re buying larger quantities and stocking up when they can, and cannabis is no different. Cash-paying customers must still pay in-person. As federal regulations continue to hinder additional payment options and protections, demand for change grows on both sides.

Staffing in a Pandemic

Like all employers, it’s easier for larger cannabis companies to accommodate employees who are sick or may have been exposed. It’s often more difficult for smaller operations. For many employees, the decision to go into work sick means rent and food, because the employer can’t offer additional sick pay.

In most states, employees have to have some type of state card to work in a store. It’s hard to find replacements and pay for sick leave. There’s no call for a temp agency solution due to clearance needed by cannabis employees. If the business has to shut down, it might not be able to bounce back. So in some states, cannabis businesses have suffered setbacks, but not to the extent as other industries such as hospitality, food and beverage, and tourism.

Crunching the Numbers

The cannabis industry is also excluded from PPP loans and other federal aid. True plant-touching cannabis companies can’t access those funds, adding extra financial stress to operations. The irony is for the majority of cannabis operations nationwide, the biggest change was not the increased regulatory requirements for social distancing, sanitation and safety, it was handling the incredible increase in product demand under circumstances that include financial and staffing stress.

One Arizona-based dispensary was averaging around $300K a month before COVID-19. Today, business has more than tripled to nearly $1 million a month. In mature legal state Colorado, a record $155 million in recreational product sales for June reflects a six percent increase over the previous month’s sales. The Colorado Department of Revenue collected $33.6 million from the industry in June. Colorado’s medical dispensary sales record was set in May, just shy of $43 million, dropping down to about $40.8 million in June. Both are still setting records for business volume. For 2020, revenue already exceeds $203.3 million, in contrast to roughly $302.5 million in cannabis-related revenue in 2019.

Heightened Supply, Demand & Opportunities

Heightened demand and the search for new market ventures means investors are taking notice. People sheltering or working from home are spending more time online, too. Many are searching for healthcare; others for promising investment opportunities. Legalization has been a long journey, state by state. Everyone inside the cannabis and hemp industries has learned to roll with the punches – expect ongoing legal needs, and to do strategic short- and long-term planning. How to anticipate change and pivot on a dime. It’s a must.

With the healthcare system struggling or strained in many areas of the country, non-essential primary care has shifted to telemedicine. Federally, the DEA granted permission to do so that extends for the duration of the COVID-19 public health emergency. The problem? State-level regulations may prohibit the prescription of Schedule III drugs via telemedicine, or limit the amount and refills. For essential healthcare, limited appointments or emergency-only availability remains a concern. Innovative new cannabis products help fill that gap.

There will be more challenges as elections approach and beyond. For those in cannabis, we’re used to being ready for anything. Stay tuned.

Cannabis Businesses Remain Ineligible To Receive Federal Financial Assistance

By Steve Levine, Megan Herr
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In our previous post, we touched on the fact that state-legal medical and recreational cannabis businesses (including indirect cannabis businesses) could not receive federal financial assistance due to the continued Schedule I status of cannabis under the Controlled Substances Act (CSA). While state-legal medical and recreational cannabis businesses have been adversely affected due to government imposed shelter-in-place restrictions across the United States, they are unable to take advantage of the multi-trillion dollar stimulus packages that are designed to help small businesses because they are engaged in “federally illegal” activities. As described below, applicants applying for federal loans must certify, under penalty of perjury, that they are not engaged in “illegal” activity.

While it is our view that state-legal medical and recreational cannabis businesses should be entitled to assistance as they are hurting like every other business, we explain why such businesses cannot receive financial assistance under the Paycheck Protection Program and the SBA’s Economic Injury Disaster Loan Program due to the facts that these businesses do not comply with federal law.

CARES Act

As previously discussed, Section 1102 of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act or the “Act”) directed $349 billion to the Small Business Administration (SBA) to administer to small businesses harmed by COVID-19. As a result, businesses can apply for Paycheck Protection Program (PPP) loans and other SBA financial assistance, including Economic Injury Disaster Loans (EIDLs), traditional 7(a) loans, 504 loans, and microloans, and can also receive investment capital from the Small Business Investment Company program.

Paycheck Protection Program (PPP)

Generally, the following businesses are eligible to receive loans under the PPP:

  • Any business, 501(c)(3) nonprofit organization, 501(c)(19) veterans organization or Tribal business with not more than 500 employees whose principal place of residence is in the United States;
  • Any business that meets the SBA employee-based size standards for the industry in which it operates (if applicable);
  • Any business that is a “small business concern” as defined in Section 3 of the Small Business Act, 15 U.S.C. 632, and meets the SBA employee-based or revenue-based size standards corresponding to its primary industry; or
  • Any business that is a “small business concern” under the SBA’s “alternative size standard” as of March 27, 2020, which standard is met if the business has not more than:
    • (i) maximum tangible net worth of $15 million, and
    • (ii) an average net income of $5 million (after Federal income taxes, excluding any carry-over losses) for 2 full fiscal years before the date of application.

Importantly, to apply for PPP, an applicant must make a good faith certification that the applicant is eligible to receive a PPP loan. An applicant must certify, under penalty of perjury, that it “is not engaged in any activity that is illegal under federal, state or local law.” (Borrower Application Form, page 2).

Consequently, because state-legal marijuana businesses (including indirect marijuana businesses) are operating in violation of federal law, applicants cannot make such certification, they remain ineligible to participate in the PPP.

 Economic Injury Disaster Loans (EIDLs)

 The CARES Act also provided a slew of changes to the SBA’s pre-existing EIDL program, which provides small businesses with working capital loans of up to $2 million to assist to help overcome the temporary loss of revenue as the result of a declared disaster.

The Act set out new rules making it easier for small businesses harmed by COVID-19 to receive loans quickly and efficiently; the Act added $30 billion to the EIDL loan fund, with an additional $10 billion added for the EIDL Grants connected to the EIDL loans.

The CARES Act also expanded eligibility to include businesses with no more than 500 employees, any individual operating as a sole proprietor or an independent contractor, and tribal businesses, cooperatives and ESOPs with no more than 500 employees. Small business concerns and small agricultural cooperatives who meet the SBA’s applicable size standards are also eligible, as well as most nonprofits.

However, to receive an EIDL loan, applicants must make a good faith certification that the applicant is eligible to receive an EIDL. An applicant must certify, under penalty of perjury, that it “is not engaged in any illegal activity (as defined by Federal guidelines).” (COVID-19 Economic Injury Disaster Loan Application).

The SBA has clarified that the limitation on applicants “engaged in any illegal activity” (13 CFR § 120.110 (h)) refers to all applicants engaged in “illegal activity under federal, state, or local law.”

In a Statement of Position issued on April 1, 2019 (the SOP), the SBA clarified that “illegal activity” includes “[a]pplicants that make, sell, service, or distribute products or services used in connection with illegal activity, unless such use can be shown to be completely outside of the Applicant’s intended market.” (SOP 50 10 5(K))

The SOP indicated that both (i) Direct Marijuana Businesses1 and (ii) Indirect Marijuana Businesses2 cannot receive SBA assistance due to the limitation on applicants “engaged in any illegal activity.”

It is the SBA’s position that, “because federal law prohibits the distribution and sale of marijuana, financial transactions involving a marijuana-related business would generally involve funds derived from illegal activity.”

Consequently, because state-legal cannabis businesses (including indirect marijuana businesses) are operating in violation of federal law, applicants cannot certify that they are “not engaged in any illegal activity,” they are not eligible to receive EIDLs.


  1.  “Direct Marijuana Business” mean “a business that grows, produces, processes, distributes, or sells marijuana or marijuana products, edibles, or derivatives, regardless of the amount of such activity. This applies to recreational use and medical use even if the business is legal under local or state law where the applicant business is or will be located.”
  2. “Indirect Marijuana Business” means “a business that derived any of its gross revenue for the previous year (or, if a start-up, projects to derive any of its gross revenue for the next year) from sales to Direct Marijuana Businesses of products or services that could reasonably be determined to aid in the use, growth, enhancement or other development of marijuana. Examples of Indirect Marijuana Businesses include businesses that provide testing services, or sell or install grow lights, hydroponic or other specialized equipment, to one or more Direct Marijuana Businesses; and businesses that advise or counsel Direct Marijuana Businesses on the specific legal, financial/ accounting, policy, regulatory or other issues associated with establishing, promoting, or operating a Direct Marijuana Business. However … [the] SBA does not consider a plumber who fixes a sink for a Direct Marijuana Business or a tech support company that repairs a laptop for such a business to be aiding in the use, growth, enhancement or other development of marijuana. Indirect Marijuana Businesses also include businesses that sell smoking devices, pipes, bongs, inhalants, or other products if the products are primarily intended or designed for marijuana use or if the business markets the products for such use.”

Processes, Protocols and Layers of Protection: Essential Security Measures for the Medical Cannabis and Hemp Industries

By Joshua Wall
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As legalization of cannabis products from hemp to medical cannabis takes root across the U.S., there’s a growing need to understand and build good security practices. While many think of security as safeguarding assets like facilities and product, effective security does much more. It protects a business’ workers, providing them secure workplaces and incomes. Ideally, it reaches from supply chain to customers by ensuring consistently safe products.

To truly understand the value of this for a brand or for the industry as a whole, consider the opposite: the destructive effect – on a brand and on the industry at large – of unsafe or tampered product reaching customers, or of crimes occurring, just as the industry seeks to demonstrate its validity and benefits. Security is vital not only to individual farmers, processors or customers but to all who value what the industry brings to those who rely on CBD or medical cannabis products for their wellbeing.

Know the Threats.

Part of the learning process involves understanding the value of the product.Security is all about anticipating and reducing risks. These can include physical threats from natural sources – think flood, fire, tornado or crop fail – or from human threats. Human threats can arise from organized criminals, hackers, amateur thieves, vandals – or insiders.

As regulated industries, hemp and cannabis businesses also face risk of losses, which can be significant, from penalties ranging from fines to being shut down for non-compliance. While rules vary from state to state and continue to change, a disciplined approach to security is foundational to reducing risk at many levels. Rigorous operational processes must incorporate security that addresses risks at multiple points of access, transport and sale of products.

Learn the Rules.

In a rapidly evolving industry, one of the most important things producers can do is to learn. Security requirements vary by region and providers need to be aware of what is available. Get to know your state, local and federal resources for your operating area. California law, for example, specifies use of high-resolution video surveillance in dispensaries, while others do not.

Joshua Wall, Chief Operating Officer at Harvest Connect LLC

Part of the learning process involves understanding the value of the product. With medicinal cannabis, it’s helpful to grasp both its commodity value and the street value that could make it attractive to thieves. In “Why Marijuana Plant Value is So Important for Adjusters,” Canadian Underwriter Magazine gave examples that indicate the size of losses that may occur in growing and processing operations:

“In the medical marijuana space, ClaimsPro has already seen losses primarily between $150,000 and $750,000. These losses, mostly on Vancouver Island, were for fire and water damage, as well as boiler machinery issues, physical damage to buildings and specialized greenhouse equipment, as well as extra expense and business interruption.”

The same article notes a claim over $20 million at another single flower greenhouse. Security needs to reflect what’s present on our premises.

Educating the community can reduce risk as well. Producers of industrial hemp may need to inform would-be thieves that what they are looking at is not street-valued product. To protect the crops, which are generally grown outdoors and do not require a full security detail, a best practice is simply posting signs on the property that say explicitly “No THC.” 

Begin with a Risk Assessment.

Security begins with a professional evaluation of site vulnerabilities, examining key weaknesses that could be exploited by attackers. These include:

  • Monitoring access to the site is a foundational principle of security.
  • Design limited access points into the facility as well as prepare for possible facility breaches with perimeter access control, technological redundancies and ballistic glass for defensive architecture measures.
  • Look at route vulnerabilities as well.
  • Hedge site risk by not limiting your operation to a single site where one incident could wipe out an entire year’s crop.

The nature of threats is always changing. A 2018 Newsweek article described the struggles of legal cannabis farmers against illegal and potentially cartel-backed and violent operations in California. While a 2020 Business Insider report described indications that legalization was prompting some cartels to leave cannabis alone and move on to fentanyl and meth. “While Mexican drug cartels made their money predominantly from marijuana in past decades, the market has somewhat dissipated with the state-level legalization of cannabis in dozens of states across the US.”

Define Levels of Risk and Access.

The best security matches spending to risk in a commonsense way. Are you more at risk from the occasional smash and grab incident or is there reason to anticipate an organized assault? As in many industries, the greatest risk often comes from employee fraud or theft. Hiring carefully, paying fairly and training staff well are important to long term security.

Iron Protection Group in a training session
Image credit: Tampa Bay Times

How will the product be moved around within the facility and beyond it – and what staff are responsible for each part of the journey? Who can enter the cultivation areas and what protocols must they follow? On site staff should be trained on what to look for if they observe a security breach. Consider biometrics such as retinal scans, fingerprint scans or similar.

In cases where valuable product or cash is present, guards can play an important role. Harvest Connect uses only high-level former military or police officers in these roles, an approach recognized by many. Hunter Garth of Iron Protection Group notes they have “the ability to de-escalate a potentially harmful situation and the fortitude to see a mission through to completion, no matter what external circumstances may arise.”

Inventory and Transaction Controls

Inside threats from sloppy processes can be just as insidious as attacks. Poor tracking of inventory by Oregon’s legal cannabis producers made headlines in 2018 as The Oregonian reported, “U.S. Attorney Billy Williams told a large gathering that included Gov. Kate Brown, law enforcement officials and representatives of the cannabis industry that Oregon has an ‘identifiable and formidable overproduction and diversion problem.’’ Discipline, applied by state pressure but carried out by producers themselves, has begun to reduce the diversion of untracked product into the black market a year later.

Cannabis businesses need a professional approach to monitoring all product and money that moves through its systems. These operational processes can include time, date and attendance stamps on all inventory. Similarly, accounting systems and software must follow the highest professional standards. Lastly, when breaches occur, it is essential that fraud and theft are caught, eliminated and prosecuted as appropriate.

Nurturing an Emerging Industry

Security resources are an integral part of maintaining the integrity of a business’ supply chain. As the product moves from the fields to processing centers to consumers, purity assurance becomes an operational objective. Ultimately, protecting the product through secure and professional practices is the optimal way to serve customers, build a brand, and sustain the industry.