Tag Archives: risk

When You Don’t Know What You Don’t Know: Debunking Cannabis Insurance Myths

By , T.J. Frost
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For all of today’s growing acceptance and legitimacy with cannabis, the reality is that today’s operators – whether growers/producers or dispensary operators – still face risks in running their businesses. If, in the old days, a customer got deathly ill from cannabis contaminated with something from somewhere during the distribution chain, oh, well. But now that there’s a legal system of checks and balances; there’s recourse when issues arise.

The problem is that the business is so new that most people don’t know what they don’t know about mitigating those risks. And that, unfortunately, extends to many in the insurance business who need to be doing a better job helping put the right protections in place.

One grower bemoaned to me at a cannabis trade show, “I sure wish I could insure my crops.” What? “You can,” I told him. His old-school ag broker didn’t know any better and didn’t do him any favors with his ignorance. But it brought home the point: We have to start treating cannabis like the real business it is.

Reviewing the existing insurance policies of today’s cannabis businesses uncovers some serious gaps in coverage that could be financially crippling if not downright dangerous should a claim be triggered. Retail dispensaries, for example, are high-cash businesses, making banking and trusted employees a must-have.Today’s cannabis businesses need to understand there will be risks but they are a lot more manageable than in the old days. 

And a close eye must be cast to lease agreements for hidden exposures, too. We know a Washington state grower that had no property insurance on its large, leased indoor growing facility. The company’s lease made its owners, not their landlord, responsible for any required building improvements. It was one of a variety of serious exposures that had to be fixed.

Today’s cannabis businesses need to understand there will be risks but they are a lot more manageable than in the old days. Rather than find themselves under-insured, they can start by learning what they probably have wrong about insurance. Dispelling three of the most common myths is a good place to start.

Myth #1: Nobody will insure a cannabis business.

Not remotely true. You can and should get coverage. Think property and casualty, product liability, EPLI and directors and officers, employee benefits and workers comp. Additionally, you should be educated on what crop coverage does and doesn’t cover. Depending on your business’ role in production and distribution, you might also consider cargo, stock throughput, auto, as noted, crime and cyber coverage. It pays to protect yourself.

Myth #2: If my business isn’t doing edibles, I don’t have to worry about product liability insurance.

The reality is that product liability may be the biggest risk the cannabis industry faces, at every level on the supply chain. There’s a liability “trickle down” effect that starts with production and distribution and sales and goes down to labeling and even how the product is branded. Especially when a product is an edible, inhalable or ingestible with many people behind it, the contractual risk transfer of product liability is an important consideration. That means the liability is pushed to all those who play any role in the supply chain, whether as a producer or a retailer or an extractor. And all your vendors must show their certificates of insurance and adequate coverage amounts. Don’t make the mistake of being so excited about this new product that you don’t check out the vendors you partner with for this protection.

Myth #3: Any loss at my operation will be covered by my landlord’s policy.

As the example I cited early illustrated, that’s unlikely. Moreover, your loss might even cause your landlord’s insurance to be nullified for having rented to a cannabis business. It’s another reason to examine your lease agreement very carefully. You want to comply with your landlord’s requirements. But you also need to be aware of any potential liabilities that may or may not be covered. Incidentally, even if your landlord’s policy offers you some protection, your interests are going to be best served through a separate, stand-alone policy for overall coverage.

These are interesting times for the burgeoning legal cannabis business. Getting smart – fast – about the risks and how to manage them will be important as the industry grows into its potential.

Transporting Cannabis Can Be a Costly Business Risk

By Susan Preston, T.J. Frost
1 Comment

Did you know that the use of personal vehicles for transporting cannabis products is one of the most frequent claims in the cannabis industry? It surpasses property, product liability and even theft. Businesses are either unaware of the risks involved in using personal vehicles for transporting cannabis, or they aren’t taking them seriously enough.

Considering the strict statutes many states have placed on transporting cannabis should be reason alone to be more diligent. For example, the California Bureau of Cannabis Control’s proposed regulations require cannabis business owners to ensure their drivers have designated permits to transport the product. The state’s current legislation mandates inspections at any licensed premises, and requires employers to provide detailed tracking and schedules on the transport of product. Further, the state prohibits using minors to transport cannabis, and considers it a felony to do so.

Regulatory concerns, combined with the potential liabilities that could come from driver behavior, are keeping insurers from offering auto coverage to the cannabis industry. In fact, just four insurers currently offer the industry auto coverage, with premiums running as high as $17,000 per auto on average. It is important to note that personal auto insurance falls short because it doesn’t cover cargo loss.

Alternatively, because the stakes are so high, many companies are using courier services to transport cannabis product. But cargo insurance is still an issue. Without it, the care, custody and control of someone else’s products, and insurance limits are lacking. Even when the courier has cargo coverage, because they are delivering for multiple companies, the claims payout would have to be split amongst all the customers – likely below the value of your loss.

Consider the following best practices when transporting cannabis:

  • Conduct background checks/review DMV records. Uncovering any potential driver issues prior to hiring is critical. Look for previous DUIs or drug related history. Employees who might use product before getting behind the wheel are a significant danger to other drivers and a major liability to the employer. Even after hiring, be on alert for signs that indicate poor driving performance. Use check-in/check-out processes for all drivers, and conduct regular vehicle walk-arounds to look for scratches, dents or other damage that otherwise might be unreported to the employer.First, and most importantly, assess your risk mitigation options. Then, put processes in place as soon as possible to eliminate risk. 
  • Implement quarterly driver training. Educate employees on proper procedures. While minor fender benders and sideswipe accidents are most common, even these can be costly if not handled properly. Once law enforcement get involved in an accident the car’s transportation of cannabis could become a secondary issue. Teach drivers how to handle accidents while on the scene, including informing law enforcement about the cargo and the employer.
  • Use unmarked vehicles. Drivers carrying a significant amount of product and/or cash are tempting targets for thieves. Company cars used for transporting product should be newer, and have no fleet serial numbers or anything identifying the company.
  • Require increased personal liability limits. If an employee is using their own personal vehicle for business purposes, the business owner should require that person carry more than minimum limits of personal liability.  Ideally, they should have $300,000 or more, at an absolute minimum $100,000.

Get started now

First, and most importantly, assess your risk mitigation options. Then, put processes in place as soon as possible to eliminate risk. Secure the right insurance coverage, and ask your broker/underwriter to provide any additional recommendations to best mitigate your transportation, delivery, and cargo exposures.

To learn more, please visit our website.

Tips for Finding the Perfect Cannabis Packaging Partner for Your Business

By Danielle Antos
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Whether your cannabis business is a start-up in its infancy, or established with a loyal customer following, the product packaging you use is essential to building and maintaining your brand. The packaging is the first thing a potential customer sees, and it creates that critical first impression. While the primary function is to contain, protect, and market your products, your packaging is a reflection of your company to the customer. In many ways, the package is the product. Partnering with a quality plastic packaging manufacturer for your cannabis products will increase your success.

Bottles made of high-density polyethylene (HDPE), low density polyethylene (LDPE), polypropylene (PP), and polyethylene terephthalate (PET) have become widely-accepted packaging options within the cannabis industry. There are many plastic bottle manufacturers, but how do you find the right one? In short, seek a manufacturer who makes quality products that are unlikely to present downstream problems for your company, provides services and options that align with things you feel are important, and wants to build a long-term relationship with you so both of your businesses grow faster through strategic partnership.

What to Look for in a Plastic Bottle Manufacturer

Excess Bottom Flash creates a poor printing surface.

As you search for a packaging partner for your cannabis business, here are a few key things to look for:

Bottles That Visually Support Your Brand

It’s essential to partner with a manufacturer who understands the importance of defect-free plastic bottles. Does everything about your packaging convey a sense of trust for your customers? Defects in plastic bottles typically occur during the manufacturing process.

Excessive Side Taper results in uneven, wrinkled labels.

For instance, excessive side taper on the bottles can result in uneven, wrinkled labels that are hard to read and make your product look unprofessional. If flashing on the bottle bottom is not removed, it creates a poor printing surface and results in a poor brand impression.

Partnering with a manufacturer who understands that plastic bottle defects diminish brand presence and who continually strives to remove defect-producing problems out of their manufacturing process is of utmost importance. This avoids many downstream quality problems and helps to keep the focus on growth and off of damage control.

Bottles That Minimize Risk and Waste

Product recalls or safety concerns can be a result of cloudy bottles or material trapped in the resin that makes the plastic packaging look dirty or contaminated. These situations can erode consumer confidence in your brand or expose the customer to risk.

Foreign material trapped in the resin results in reduced customer confidence.

Sub-par plastic bottles can lead to inefficiencies on your filling lines, lost production time, and product that cannot be sold. These situations lead to reduced profitability and negatively impact your bottom line. It’s never good when filled packaging or product has to be thrown away because problems are identified on the filling line.

Uneven Sealing Surface results in poor closure seal and increased risk of product spoilage or contamination.

Worse yet is when your product reaches the point of sale and the problems are identified at the dispensary or by a consumer. For example, over time, an improper seal between the plastic bottle and cap can cause flower to be excessively dry. In turn, when this flower is dispensed to the consumer it can lead to overfilling to make up for weight loss. And some consumers just don’t like their flower to be too dry, resulting in lost sales. Does the defective product get shipped back or trashed at the point of sale location? In either case, this results in the dilemma of wasted product that can’t be used and extra costs that eat into your profitability. 

Closures That Work With The Bottle

The closures for the bottles are also an important part of your cannabis packaging. Can your packaging partner manufacture and supply plastic closures that assure complete functionality to protect your product? Closures produced by the same manufacturer as the bottles ensures that the closure and bottle function correctly together. A one-stop-shop approach will save you time and money.

The cannabis industry is growing quickly and faces many complex regulatory challenges, including regulations for child-resistant packaging. Many states have their own unique cannabis packaging requirements which must be strictly adhered to. Are their bottle and closure pairings compliant with current regulations and those that are under legislation for the future? 

Customization for Your Brand

Can the cannabis packaging manufacturer customize their products to your exact design and specifications? Your product is unique, and your packaging should reflect that. Make sure your brand stands out with the exact image you want to project. There should be “depth” in your supplier: can they do more than just sell you packaging that already exists?

A Safe Resin Source

Another important aspect of safety is country of origin. Plastic bottles and closures manufactured overseas may have impurities in the resin or colorant that could leach or bleed into your products. They may not have documentation of origin or comply with FDA regulations. Your plastic packaging partner should be able to provide this documentation so you can rest assured that your bottles are manufactured under strict guidelines for the safety of your consumers and that your product won’t be affected.

Commitment to Sustainability

To many consumers, packaging made from recycled materials is important. Does your packaging supplier have a strong commitment to environmental sustainability? There is strong market support for carbon-friendly alternatives. Progressive plastic packaging manufacturers are actively working to provide alternatives to plastics made from fossil fuels and instead, using resins produced from renewable resources (i.e. sugarcane). By partnering with a supplier that provides alternative and recycled materials, you enhance your brand by appealing to a growing segment of environmentally concerned consumers.the best cannabis packaging suppliers understand that consistency in the manufacturing process is essential.

Scalable Growth

As your business grows, can your packaging partner grow with you? It’s important that they are able to keep up with the demand for your product and that their supply chain can match your manufacturing needs. As you add to your product line, are they capable of continuing to offer new and innovative packaging? A manufacturer that has a strong business model for growth will benefit you now and for the future.

A Real Cannabis Packaging Partner

Your cannabis business should develop a true partnership with your packaging supplier. They should invest in your success and care about your business. Businesses depend on one another for continued growth – look for a knowledgeable partner that is responsive, courteous and dependable now and for years to come. The best suppliers realize that there is more to a relationship than just the financial transaction of buying packaging.

Additionally, the best cannabis packaging suppliers understand that consistency in the manufacturing process is essential. Using virtually perfect bottles time after time not only reduces waste but helps build consumers’ trust in your brand. Consistency saves you three precious commodities – time, hassle and money.

Remember, a brand consists of more than just a logo and company name. It identifies who you are, what your company stands for and the integrity of your product. Quality cannabis packaging will reinforce your company standards and attract consumers to your product – consistently defining you as a quality provider with integrity in the marketplace. Improving your bottom line and meeting your company’s financial goals is at stake. Is your cannabis packaging partner going to help you grow?

Clearing Up the Haze Surrounding Cannabis Product Liability Risks

By Susan Preston, T.J. Frost
1 Comment

When a thriving cultivator purchased additional cannabis from a wholesale grower to meet the 5,000 pounds he was short, he was left holding the bag. A customer complained of a strong sulfur taste, and soon it was discovered that the wholesaler had applied the wrong pesticide concentration, rendering the cannabis unusable. The cultivator had to pull contaminated cannabis product from the shelves, a move that cost the company $3.5 million.

This story is not unique. When running short on product, cannabis businesses will often turn to other suppliers and partners to help them fulfill their orders. Unfortunately, improper vetting and a lack of understanding and compliance with state regulations and other requirements may lead to a loss of product integrity and costly product liabilities. Product liability can include more than just the cannabis itself, such as the equipment – vape cartridges, batteries, and lighters. This can quickly inflate the risk and, of course, the cost of a product liability claim. It is possible to transfer some of these cannabis risks to product liability insurance.

Top Three Product Liability Exposures Facing Cannabis Cultivators and Distributors

Three key areas of product liability exposure face cannabis business owners. It’s important to understand how each will affect your business.

  1. Product contamination.When cannabis is sold in an edible form, business owners could face claims of food poisoning or illness. If the product is smoked, there are exposures to contamination, product mislabeling or misrepresentation, and possible health hazard claims related to long-term exposure to potential contaminants.
  2. First party claims. Claims made in the event of an accident, injury or loss, whether caused by the business owner or someone else, will create another set of exposures, including manufacturing defects, failure to warn users on potential product usage hazards, improper labeling, or any product-related defect such as mold or odor.
  3. Third party claims. Cannabis business owners could be liable for claims stemming from the use of their cannabis product that result in a DUI, property damage, loss of wages, medical expenses and bodily injury.

It is possible to transfer some of these cannabis risks to product liability insurance. While there are multiple lines of product liability insurance, you’ll want to make sure you choose one designed specifically for the cannabis industry. These policies may provide coverage for the following exposures:

  • Product contamination
  • Bodily injury damages
  • Fines and penalties for non-compliance with state regulation
  • Bodily or property injury caused to others by product misuse, or by a third party
  • Manufacturing or product-related defects

While product liability insurance covers a number of cannabis risks, it doesn’t cover them all. Cannabis operations require a variety of coverage – property, crime, general liability, worker’s compensationand crop insurance. Insurance carriers will differ in definitions, policy exclusions and coverage language for each policy.

Because designated cannabis product liability and business operations coverage is fairly new and the marketplace features a wide range of options, make sure to work with a broker who understands the fine print of your policies, and your unique needs. The right broker can provide advice and loss control to help you reduce product liability exposures, make product and risk management recommendations that best mitigate your exposures to prevent loss, and ensure the proper coverage to address potential claims.

Matt Engle
Soapbox

Insurers Must Play Catch-Up to Meet Cannabis Industry Needs

By Matt Engle
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Matt Engle

As the cannabis industry continues to grow, demand for insurance products is also increasing. While insurers have been cautious about entering a market that carries the stigma of a Schedule I drug, the cannabis industry is clamoring for insurance coverage options tailored to meet the needs of key players— distributors, growers, processors and retail dispensaries.

The escalating need for insurance products tailored to these cannabis business sectors has not expedited an increase in coverage offerings. The slow entry of insurance carriers into the cannabis sector can be tied to a reluctance to insure an industry with emerging and often unknown risks. This will begin to change as more information becomes available on what loss ratio trends look like in the cannabis industry.

For now, there is a wait-and-see stance held by insurance carriers. This presents a major concern for cannabis-related businesses that are subject to risk at every stage of the supply chain, with particular exposure for theft, general liability, crop loss, and product liability.some degree of crime and theft coverage is needed for these enterprises to help manage the risks associated with a cash-based business

Theft

For cannabis companies, the use of paper currency is a huge part of their risk exposure. Federal banking regulations have limited these businesses to dealing mostly in cash, which makes them a prime target for crime and fraud. Currently, only one carrier will insure coverage for cash and theft risk, and the policy is limited to $1 million for most risks. This is inadequate coverage since many operators have more than that amount on-site.

In states with legislation legalizing cannabis, the cannabis sector will be able to move away from operating in cash if Congress passes the Secure and Fair Enforcement (SAFE) Banking Act, which would protect financial institutions from liability for federal prosecution that could arise from servicing cannabis-related businesses authorized under state law. Until banking regulations give the cannabis industry the ability to operate as legitimate businesses with the stability and safety that would deter criminal activity, some degree of crime and theft coverage is needed for these enterprises to help manage the risks associated with a cash-based business.

General Liability

Cannabis-related businesses need the same general liability coverage as other businesses to protect their premises and operations from lawsuits involving public contact. However, standard general liability policies—which exclude Schedule I substances from coverage—were not created with cannabis businesses in mind. It is still difficult for these businesses to obtain adequate general liability as a result of the legal uncertainty associated with the industry.

Product Liability

Product liability exposures for cannabis businesses encompass a wide range of areas, including edibles, vaporizers, pesticides, mold/fungus, misrepresentation, label claims, breach of warranty, deceptive practices, and failure to warn.

A major area of exposure concerns accidents resulting from impairment. A cannabis cultivator, processor, distributor, or retailer potentially may be considered liable in the event a product defect results in injury after reasonable use or when label defects fail to warn users that a product may have psychoactive effects.

Another area of risk exposure involves products that contain THC, the psychoactive compound that gives cannabis users a high. As the number of THC-containing products such as edibles and tinctures increases, so does the potential exposure to product liability claims for manufacturers and retailers.

The California Cannabis Track-and-Trace (CCTT) system also has implications for product liability. The CCTT is a statewide system used to record the inventory and movement of cannabis and related products through the commercial supply chain. All state cannabis licensees, including those with licenses for cultivation, manufacturing, retail, distribution, testing labs and microbusinesses, are required to use this system. The product liability impact lies in its capacity to determine responsibility along the supply chain from seed to sale.

For example, if a plastic vape pen explodes, a product liability lawsuit could have repercussions for many touch points across the supply chain beyond the manufacturer of the pen–all of which can be identified through CCTT. Entities that touch cannabis products such as soil suppliers or delivery persons also have product liability risk exposure. Personal injury attorneys can find incident-related parties easily and determine liability. This makes it particularly important to add these parties to the policy as additional insureds to help reduce claims exposure.

Crop Loss

Another area of concern for risk exposure is crop loss. Crop insurance is generally hard to obtain due to the significantly different nature of cannabis crops compared to traditional crops like corn or soybeans.

Fires in Sonoma County devastated cannabis crops in Northern California back in 2017.

An indoor crop insurance policy covers cultivators when there is loss resulting from threats such as fire, theft, and sprinkler leakage. However, crop insurance policies generally do not cover losses resulting from mold, rot, disease, changes in climate, or fertilization issues. Many growers forgo this coverage and instead elect to absorb losses and regrow their crops.

Outdoor crop coverage is generally unavailable, or the cost is prohibitive. Any potential for writing outdoor crop insurance for the cannabis industry essentially disappeared as a result of the recent wildfires in California. These devastating fires highlighted the pressing need for property damage and business interruption coverage for growers and dispensaries and other downstream businesses whose supply was disrupted. This lack of available outdoor crop insurance is one of the more notable gaps in available cannabis business insurance coverage.

While cannabis businesses operating in states that have legalized medical and/or recreational cannabis use have challenges getting adequate insurance coverage, there is some good news on the insurance front for those in California. Last year, California’s insurance commissioner announced approval for carriers to offer insurance coverage specifically to cannabis businesses. The state also approved a cannabis business-owners policy (CannaBOP) program that provides a package policy containing both property and liability coverage for qualifying dispensaries, distributors, manufacturers, processors and storage facilities. Colorado is on the verge of being the second state to approve its version of a CannaBOP program.

While more insurance carriers are beginning to write cannabis coverage, the limited insurance options and policies with restrictive plans currently offered todaydo not meet the needs of the cannabis industry. Insurers must catch up to the coverage requirements of this sector by offering more options tailored to growers, retail dispensaries, processors and distributors with better terms and better pricing.

Soapbox

Third-Party Cannabis Safety Audits & How to Prepare in 7 Steps

By Tyler Williams
2 Comments

Unlike the food industry, the cannabis industry is still in its infancy. Which means there is not a push from retailers demanding cannabis farmers, extractors or manufacturers to get third-party audits. In fact, most grow operations supply into their own dispensaries. So why should a cannabis farmer, extractor or manufacturer get a third-party audit? Third-party audits are crucial to maintaining product safety and quality by providing a third set of eyes to verify what is working and what is not. Besides regulatory requirements and customers requiring your facility to get a third-party audit, there are numerous other benefits to receiving an audit. Some of these benefits include:

  • Improvement to product safety
  • Improvement to product quality and consistency
  • Meeting regulatory compliance
  • Eliminating potential risks and possible recalls
  • Marketing advantages over competitors who are not audited by a third-party
  • Improvement to consumer confidence and an increase to brand loyalty

How to Prepare for a Third-Party Audit

Working for a certification body, I am in the unique position to see numerous sites go through the certification process. In this position I have seen both extremes: Sites that spend 6-8 months and a lot of resources preparing for an audit, as well as sites that wait until the day before to even look at the audit standard. Unfortunately, the latter is almost always going to fail the audit. Here are seven steps for preparing for your next third-party audit.“By failing to prepare, you are preparing to fail.”– Benjamin Franklin

  1. Start Preparing Early

Think of your third-party audit as a college exam one month away. You could start studying for the exam now and get a real understanding of the material or you could wait until the day before to start your no-sleep, energy drink-fueled, 24-hour cram session. We all know which preparation method will get a better score on the exam. Now let’s apply that same strategy to your third-party audit. Once you have decided what audit is best for your site and have those specific standards in your hand, the clock starts ticking and you should already be preparing for the audit, whether it is one month or six months away.

  1. Get Management Commitment

It is essential to the entire cannabis safety and quality system to have commitment from top down. Without this, the site will not get the resources (people, equipment, money, time, etc.) they need to pass a third-party audit. Management commitment is so important that it is often seen as its own section in most modern audit standards. It is very easy for third-party auditors to identify when there is a lack of management commitment in a site. Therefore, if you don’t get management commitment, then you are already starting off the audit on a bad note.

  1. Create a To-Do-ListGMP

Think of the entire audit checklist or standard as your long to-do list. Some things, like attaining a certificate of analysis (COA) from a supplier, may only need to be done annually. While other things, such as ensuring employees are following Good Manufacturing Practices (GMPs), will need to be done continuously throughout day to day operations. Go through the audit checklist and separate what needs to be done annually, semiannually, quarterly, monthly and continuously throughout day to day operations. This will give you a list with all of the frequencies of each different requirement.

  1. Teamwork“Teamwork makes the dream work, but a vision becomes a nightmare when the leader has a big dream and a bad team.” – John C. Maxwell

The preparation of an audit should never rest on the shoulders of one person. Yet this is something I tend to see too often in both food and cannabis facilities alike. Your site should establish a cannabis safety and quality team of multidiscipline personnel that have an impact on product safety and quality. Once the team is established, various tasks from the to-do-list can be disbursed among all the members of the team. Collaboration is key to successfully preparing for a third-party audit, especially when the timelines are very stringent.

  1. Training

Training is essential to preparing for your third-party audit. This is what closes the gaps between what the safety and quality department have developed and what your front-line employees are applying. All employees should know what part of the audit standard applies to them. Additionally, employees should be trained on interview questions that the auditor might ask them during the audit. Helping them prepare for these types of questions will help ease their nerves and allow them to answer the questions with self-assurance when it comes time to the actual audit.

  1. Conduct Internal Audits

Conducting internal audits is not only a great way to prepare for your third-party audit, it’s a requirement. You should always use the audit checklist to observe your documents and facility to see where there are gaps. If possible, the person or team conducting the internal audit should never review their own work. Additionally, all issues or non-conformances should be noted, evaluated, corrected and closed out.

  1. Third-Party Pre-Assessment or Mock Audit (Optional)

A third-party pre-assessment or mock audit is the closest thing you can get to an actual audit. This is where a company would come in and evaluate your site to the specific standards and give a formal report over any deficiencies found during the assessment and how to fix them. This is a great way to test your preparedness before the actual audit.

How a Cloud QMS Can Get Cannabis Startups ISO 9001-Certified

By Mike Hansen
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When it comes to compliance for cannabis startups, the ISO 9000 family of standards reigns supreme. Providing the guidelines for the concepts that make up a quality management system (QMS), the ISO family is composed of five standards: ISO 9000, 9001, 9002, 9003 and 9004. Outside of ISO 9001, ISO 9000 is the most important because it creates the foundation that guides all of the other standards.

ISO 9000 is split into two sections: fundamentals and vocabulary. Fundamentals covers the basic principles of quality management and the vocabulary section is a dictionary of quality management terminology. ISO 9000 is crucial because it provides direction on proper QMS implementation that will lead to achieving an ISO 9001 certification.

While the entire ISO 9000 family is focused on quality management systems that aim to help organizations “ensure that their products and services consistently meet customer’s requirements and that quality is consistently improved,” ISO 9001 is the only standard that lists actual requirements and requires certification.Cloud-based quality management software provides the flexibility and scalability, that cannabis startups need to comply with ISO 9001

Quality Management Systems (QMS)

When conceptualizing “quality management,” it is best to think of it as an organization’s definition of how it will meet the quality requirements of customers and other stakeholders who are affected by its work. Implementing this requires an extensive alignment of company processes and procedural governance.

It’s easiest to think of a QMS as the facilitator of outlined processes that are required to fulfill ISO 9001 requirements. For example, if an organization has defined a change request process, it could use a cloud-based QMS to put that process in place. However, the benefits of a cloud-based QMS don’t have to end at ISO 9001. It can also help organizations comply with other regulations like GxP.

ISO 9001 Requirements

ISO 9001 requirements can sound very generic because they’re meant to be applied to any organization, big or small, in any industry. The key to ISO 9001 is the concept of continuous improvement, which is why specific requirements for what “quality” is are not defined. Rather, companies must create objectives and work toward improving processes to meet those objectives. That said, a certified QMS still must do the following:

  • Meet the requirements of other stakeholders, for example, customer requirements and regulatory standards
  • Ensure that employees receive training outlining the quality requirements
  • Determine and document the processes, their interactions and their results
  • Be able to produce records to prove that system requirements have been met
  • Constantly monitor quality management software performance
  • Address any risks that could result from changes
  • Perform internal audits and correct any issues
  • Continuously improve the QMS

From creation to disposal, document protocols must be clear and properly followed.With that in mind, ISO 9001’s purpose is to evaluate whether or not a QMS does a good job of managing processes while also being able to help organizations identify areas that need improvement. In simple terms, ISO 9001 helps companies who were making an excellent product most of the time, make an excellent product every time.

How can cloud quality management software help you get your ISO 9001 certification? Once you create processes that adhere to ISO 9001 quality management standards, you have to put them into practice. Enter: quality management software. But, how exactly does it help?

Optimal Time to Value

First, cloud-based software is the most cost-efficient to implement. Secondly, since a QMS needs to be accessible to every employee regardless of whether they work at HQ or on-site, cloud QMS are built to be mobile-friendly and easily accessed from any location.

Automated Document Lifecycles & Version Control

From creation to disposal, document protocols must be clear and properly followed. As up-to-date documents are an important factor in maintaining high levels of quality, the most recent versions of approved documents should be readily available while previous editions should be hidden away.

With cloud quality management software, workflows can automate the review and approval processes by automatically sharing documents with the right reviewers. Then, after the document has been approved, the changes will automatically be applied to the master document while the obsolete version is archived, helping to remove any chance of it being accidentally used after the update.

Easy Document Location & Metadata

According to ISO 9001, searching through an organization’s documents should be as easy as searching with Google. It’s an added bonus when the quality management software enables users to add custom metadata to documents. Metadata is just extra information that helps to define a document (like file size, type, date modified). With certain cloud-based QMS’, you can add custom metadata fields to make documents easier to find. For example, you can add an “expiration date” field that allows you to look up policies based on when they are set to expire.With the growing number of data breaches happening every year, it’s important to address the security components of a QMS.

Document Traceability

In order to pass any ISO 9001 audit, there needs to be a complete audit trail for every document, including active documents and the earlier archived versions. While this might seem like a big ask, cloud quality management software helps make this simple. Every single change to a document, regardless of whether it’s the current or past version, is tracked. When combined with automated workflows, you’re able to produce a precise log of every change made by every user.

Advanced User Permissions & Central File Ownership

With the growing number of data breaches happening every year, it’s important to address the security components of a QMS. Many of these issues can be resolved with user permissions, which is generally related to managing users’ editing and sharing access. The proper view, edit, and approval rights go a long way to reducing the risk of human error.

Another feature that may seem like common sense is central file ownership. When the organization owns all of its documents, there’s no need to worry that important files will be lost or deleted. With one owner, the damage that can be inflicted by malicious third-parties is also limited.

Cloud-based quality management software provides the flexibility and scalability, that cannabis startups need to comply with ISO 9001. With the cloud as a foundation, these systems will continue to be assets for the cannabis industry as it gains momentum and expands more.

The New ISO/IEC 17025:2017: The Updated Standard

By Ravi Kanipayor, Christian Bax, Dr. George Anastasopoulos
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As state cannabis regulatory frameworks across the country continue to evolve, accreditation is becoming increasingly important. Because it provides consistent, turnkey standards and third-party verification, accreditation is quickly emerging as an important tool for regulators. For cannabis testing laboratories, this trend has been especially pronounced with the increasing number of states that require accreditation to ISO/IEC 17025.

As of 2017 there were nearly 68,000 laboratories accredited to ISO/IEC 17025, making it the single most important benchmark for testing laboratories around the world. ISO/IEC 17025:2005 specifies the general requirements for the competence to carry out tests including sampling. It covers testing performed using standard methods, non-standard methods and laboratory-developed methods. It is applicable to all organizations performing tests including cannabis labs. The standard is applicable to all labs regardless of the number of personnel or the extent of the scope of testing activities.  Developed to promote confidence in the operation of laboratories, the standard is now being used as a key prerequisite to operate as a cannabis lab in many states.

There are currently 26 states in the United States (also Canada) that require medical or adult-use cannabis to be tested as of February 2019. Of those states, 18 require cannabis testing laboratories to be accredited – with the vast majority requiring ISO/IEC 17025 accreditation. States that require testing laboratories to attain ISO/IEC 17025 accreditation represent some of the largest and most sophisticated cannabis regulatory structures in the country, including California, Colorado, Maryland, Massachusetts, Michigan, Nevada and Ohio. As a consequence, many cannabis testing laboratories are taking note of recent changes to ISO/IEC 17025 standards.

ISO/IEC 17025 was first issued in 1999 by the International Organization for Standardization. The standard was updated in 2005, and again in 2017. The most recent update keeps many of the legacy standards from 2005, but adds several components – specifically requirements for impartiality, risk assessment and assessing measurement uncertainty. The remainder of this article takes a deeper dive into these three areas of ISO/IEC 17025, and what that means for cannabis testing laboratories.Objectivity is the absence or resolution of conflicts of interest to prevent adverse influence on laboratory activities.

Impartiality

ISO/IEC 17025:2005 touched on an impartiality requirement, but only briefly. The previous standard required laboratories that belonged to organizations performing activities other than testing and/or calibration to identify potential conflicts of interest for personnel involved with testing or calibration. It further required that laboratories had policies and procedures to avoid impartiality, though that requirement was quite vague.

ISO/IEC17025:2017 emphasizes the importance of impartiality and establishes strict requirements. Under the new standard, labs are responsible for conducting laboratory activities impartially and must structure and manage all laboratory activities to prevent commercial, financial or other operational pressures from undermining impartiality. The definitions section of the standard defines impartiality as the “presence of objectivity.” Objectivity is the absence or resolution of conflicts of interest to prevent adverse influence on laboratory activities. For further elaboration, the standard provides similar terms that also convey the meaning of impartiality: lack of prejudice, neutrality, balance, fairness, open-mindedness, even-handedness, detachment, freedom from conflicts of interest and freedom from bias.

To comply with the new standard, all personnel that could influence laboratory activities must act impartially. ISO/IEC 17025:2017 also requires that laboratory management demonstrate a commitment to impartiality. However, the standard is silent on how labs must demonstrate such commitment. As a starting point, some cannabis laboratories have incorporated statements emphasizing impartiality into their employee handbooks and requiring management and employee training on identifying and avoiding conflicts of interest.

Risk Assessment

Both the 2005 and 2017 versions contain management system requirements. A major update to this is the requirement in ISO/IEC 17025:2017 that laboratory management systems incorporate actions to address risks and opportunities. The new risk-based thinking in the 2017 version reduces prescriptive requirements and incorporates performance-based requirements.

Under ISO/IEC 17025:2017, laboratories must consider risks and opportunities associated with conducting laboratory activities. This analysis includes measures that ensure that:

  • The lab’s management system is successful;
  • The lab has policies to increase opportunities to achieve its goals and purpose;
  • The lab has taken steps to prevent or reduce undesired consequences and potential failures; and
  • The lab is achieving overall improvement.

Labs must be able to demonstrate how they prevent or mitigate any risks to impartiality that they identify.To comply with ISO/IEC 17025:2017, labs must plan and implement actions to address identified risks and opportunities into management systems. They must also measure the effectiveness of such actions. Importantly, the standard requires that the extent of risk assessments must be proportional to the impact a given risk may have on the validity of the laboratory’s test results.

ISO/IEC 17025:2017 does not require that labs document a formal risk management process, though labs have discretion to develop more extensive methods and processes if desired. To meet the requirements of the standard, actions to address risks can include sharing the risk, retaining the risk by informed decision, eliminating the risk source, pinpointing and avoiding threats, taking risks in order to pursue an opportunity, and changing the likelihood or consequence of the risk.

ISO/IEC 17025:2017 references “risks” generally throughout most of the standard. However, it specifically addresses risks to a laboratory’s impartiality in section 4.1. Note, the new standard requires that labs must not only conduct activities impartially, but also actively identify risks to their impartiality. This requirement is on-going, not annually or bi-annually. Risks to impartiality include risks arising from laboratory activities, from laboratory relationships, or from relationships of laboratory personnel. Relationships based on ownership, governance, shared resources, contracts, finances, marketing, management, personnel and payment of a sales commission or other inducements to perform under pressure can threaten a laboratory’s impartiality. Labs must be able to demonstrate how they prevent or mitigate any risks to impartiality that they identify.

Assessing Measurement Uncertainty With Decision Rules

ISO/IEC 17025:2005 required (only where necessary and relevant) test result reports to include a statement of compliance/non-compliance with specifications and to identify which clauses of the specification were met or not met. Such statements were required to take into account measurement uncertainty and if measurement results and uncertainties were omitted from the statement, the lab was required to record and maintain the results for future reference.

ISO/IEC 17025:2017 requires similar statements of conformity with an added “decision rule” element. When statements of conformity to a specification or standard are provided, labs must record the decision rule it uses and consider the level of risk the decision rule will have on recording false positive or negative test results. Like the 2005 version, labs must include statements of conformity in test result reports (only if necessary and relevant- see 5.10.3.1 (b)). Now, test result reports on statements of conformity must include the decision rule that was employed. 

Moving Forward

Because many states require ISO/IEC 17025 accreditation for licensing, cannabis testing labs across the country would be well advised to closely monitor the implications of changes in ISO/IEC 17025:2017 related to impartiality, risk assessment and measurement uncertainty. If you run a cannabis testing lab, the best way to ensure compliance is education, and the best place to learn more about the new requirements is from a globally recognized accreditation body, especially if it is a signatory to the International Laboratory Accreditation Cooperation (ILAC) for testing laboratories, calibration laboratories and inspection agencies.

References

Facts & Figures

ISO/IEC 17025:2005: General requirements for the competence of testing and calibration laboratories

ISO/IEC 17025:2017: General requirements for the competence of testing and calibration laboratories 

Blockchain Controversies Continue To Rock The Cannabis Industry

By Marguerite Arnold
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Disclaimer: Marguerite Arnold is the founder of MedPayRx, a blockchained ecosystem that does not use utility tokens, and that is currently going to pilot in Europe designed to eliminate such risks.

As reported here in Cannabis Industry Journal last year in a three part series, there are considerable dangers of utilizing blockchain in the cannabis industry (as well as other industry sectors) that directly affect all commercial operators as well as consumers of both the recreational and medical kind. These remain largely unsolved.

These include regulatory and compliance issues in every direction, starting with banking and securities law, but also include privacy and consumer protections. They also fly in the face of regulations imposed by governments to control inflation, set prices for medications and food, and prevent monopolies.

Beyond that, they also pose considerable if so far unexamined liabilities for businesses operating in this space (including uncontrollable volatility in basic business operations) that very much impact the basic cost of doing business.As of the beginning of this year, however, the situation is back in the news. 

The Skinny On Paragon
As of November last year, the company was sanctioned by the SEC in a precedent setting case on the issue of whether “utility tokens” are securities or not. In fact, the SEC found that Paragon illegally marketed and distributed digital securities under the false pretension that they were not securities. Paragon, in turn, reached a settlement with the SEC that it would return any funds received by investors prior to October 15, 2017 and pay a fine to the SEC.

As of the beginning of this year, however, the situation is back in the news. Because of the settlement agreement, it appears that a pump and dump group operating through the exchange YoBit managed to raise the token briefly from about $.10 a token to $10 in an effort to raise the cost of compensation from Paragon. This absurd rally was completely unsustainable, and as a result, fell back to $0.3 per token (albeit tripled the price of the token). But the fact that it happened at all is illustrative of the extreme risk now faced by the industry itself from this kind of tech and financial model.

Why? It means that all users (token holders) of such an ecosystem and for any purpose, would be directly exposed to such risks in the future. And on literally an hour-by-hour basis.

Utility tokens in other words, as defined by all such models (and Paragon is far from the only one), are used not only for investment in such businesses, but then bought downstream, via exchanges, by people who wish to transact in the network itself. And that is the real danger to businesses themselves by adopting such models.

Problem 1 – Utility Tokens Are Securities

The biggest issue at the heart of this conversation is this: Tokens are recognized now as securities, and further still operating in a world where pump and dump on the exchanges is a major liability for all who buy the tokens for any purpose. This means for example, that anyone who must buy a system cybercoin to transact within a blockchained ecosystem (from consumer to business manager overseeing international distribution of their product from the commercial end) would face unprecedented volatility that does not exist by using regulated currencies. Good old dollars and euros for example do not pose this kind of existential risk to businesses themselves.

In the Paragon case directly, for example, owning Paragon crypto means that monthly rent at the incubator would fluctuate in cost based on the unregulated cost of the coin, not a prenegotiated rental agreement in regular currency for space (which is far less volatile). In the current environment, such space just tripled in price.

Beyond that, no consumer in California, for example, would want to have to face the added cost of buying a hyped token (at artificially raised prices) before they can access the newest, coolest strain of bud.

Such systems in other words, are NOT just a fancy form of a digital payment solution (like Paypal). What they do dramatically increases the risk of price volatility in all business operations (also called “cost of goods sold” or COG), andto the end user while also directly exposing all to such risk at every point of production, processing and sales.

Why?Latency issues are also a major issue.

Because the cost of conducting normal, basic business operations would be directly exposed to speculating investors. Even local businesses, in other words, would be completely vulnerable to not just the fluctuations domestically or even internationally caused by doing business in multiple jurisdictions and traditional currency risk, but have direct and unprecedented exposure to a much less regulated and far more volatile price environment globally. And further one that affects literally the entire manufacturing and distribution process.

Problem 2 – Network Congestion

Latency issues are also a major issue. This is a bit more technical and complicated, but is one of the bigger reasons why most blockchain technology and solutions are still incapable of dealing with commercial industry requirements. Much less keep regulated industries in any space, in compliance.

Here is one way to think of the problem. If you have many users on a blockchain network all at once, speed of transaction goes way down and associated costs go way up.

The tokenized asset in other words, has to compete not only with people buying the token as an investment, but those using them to buy goods and services on the commercial side AND the industry processing taking place behind the scenes to fulfil and track product. This has been easy to see with Bitcoin in particular, but is not limited to the same.

Further, prioritization on a network itself (and the costs involved to overcome them, also paid in tokens) then unfairly creates a monopoly environment because of the added costs involved to speed up otherwise normally processed and critical operations. The biggest boys on the block(chain) win. Always. That is antithetical to anti-trust law.

Problem 4 – Undermining Basic Government Regulations On Cost Of Purchase

Here is the biggest conundrum, particularly facing the international cannabis industry now in the process of exporting across international borders. Governments (particularly in Europe) routinely set prices on medicine (in particular), for large contractual purchases and to insure the continued survival of public healthcare (which in Europe and the UK covers most people). See the German cultivation bid for cannabis as a prime example. The government is forcing the industry to submit prices via competitive bid that are expected to come in somewhere between 1-1.5 euro per gram. This in turn will affect not only domestically grown but imported cannabis – and from all points on the globe as the industry opens up.

That process is impossible in an environment where the cost of production itself would be (in a price volatile blockchained delivery system) inherently unpredictable and unstable because the price of production and distribution is itself a speculated upon commodity that can vary, literally, at the speed of a pump and dumped token, sold on any unregulated exchange, anywhere in the world. And as a result, is also illegal.

Digipath Labs Now ISO 17025:2017 Accredited

By Aaron G. Biros
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According to a press release published in December, Digipath Labs, based in Las Vegas, Nevada, was recently accredited to the updated ISO standard, ISO 17025:2017. The laboratory received their accreditation from Perry Johnson Laboratory Accreditation (PJLA).

ISO 17025:2005 has long been the standard that labs seek accreditation to, but their newest 2017 edition was recently rolled out and introduced to the market. The new 2017 standard includes some broad changes to terminology, process approach, scope, and it importantly introduces the concept of risk-based thinking.

That concept of risk-based thinking is particularly relevant to the cannabis testing market, where many have argued for more transparency and uniformity in different state regulations and markets. Introducing risk-based thinking in the standard means that assessors also look at the risk of bias, impartiality and assessing measurement uncertainty, which certainly adds a layer of subjectivity to the accreditation.

PJLATracy Szerszen, president/operations manager of PJLA, says the newer standard also includes a provision for a quality management system review among other changes. “We are making sure they are following the standard from a technical standpoint, meaning they have the right equipment, the appropriate personnel and also have a quality management system,” says Szerszen. “November 29, 2020 is the deadline for moving to the new 2017 standard.”

According to Todd Denkin, CEO and founder of Digipath, obtaining the new ISO accreditation poises them for future growth and expansion. “Digipath Labs has now brought its standard of excellence in cannabis testing under the updated ISO-17025:2017 umbrella as we seek to expand our dominance in cannabis testing markets,” says Denkin. “This is a major step in positioning Digipath as a global leader in testing services.”