By Rick Schettino • August 1, 2018

Common Cannabis Industry Regulatory Violations and How To Avoid Them

The cannabis industry is often referred to as the most highly regulated industry in the world. Its regulations are more strict than those related to the production and sale of alcohol and cigarettes. In some cases, cannabis regulations are even more strict than those created for the pharmaceutical industry. Anyone can get a prescription from a doctor and walk into a pharmacy and purchase medication. The same is not true for cannabis.

With regulations comes government oversight. And with oversight comes citations for violations. And with citations comes punitive action. In some cases, this might simply mean a fine or a temporary lapse in doing business until the violations are cleared up. But in more serious cases, violating state regulations can mean the end of the line for an entrepreneur who has given their life over to building a successful cannabis business.

The bulk of violations are the result of standard compliance checks. In 2015, in the state of Washington, there were a total of 368 compliance checks. In 2016, that number rose to 889. And in 2017, there were a total of 1264 compliance checks statewide. On top of this, as of March 2017, there were nearly 20,000 enforcement checks by regulators. So, you can be assured that if you’re violating any regulations, chances are this will be uncovered by regulatory personnel.

According to IndicaOnline, a publication focused on cannabis retailers, the five most common violations committed by dispensaries as of January 2018 were operating without a license, failing to report inventory, exceeding patient purchase limits, sales to minors, and lack of documentation for deliveries. The article, which refers specifically to California regulations stipulates, “If cannabis compliance violations are committed, the offending cannabis retailer will first be sent a notice to comply. If the violation is not addressed within 15 days of receiving the notice, the marijuana dispensary could be subject to citations and administrative fees up to $5,000.”

Most Common Violations

The Washington State Cannabis and Liquor Board publishes an array of industry statistics which are specific to the state. One of the categories which is tracked by the board is “Violations Issued to Marijuana Licensees.”

Let’s take a look at some of the more common violations listed on their website.

Traceability

The most common violation, at 16%, is “Failure to utilize and/or maintain traceability (producer).” Also, combine that figure with 7% for “Failure to utilize and/or maintain traceability (processor or retailer), for a total of 23%, or nearly a quarter of all violations being related to traceability. Traceability is a huge consideration in the cannabis industry. Regulators want to be able to look at an end product and be able to determine where the cannabis was grown and when, how it was grown, and so forth. If the cannabis was processed into a derivative such as an oil, regulators want to know not only where the cannabis came from but who processed it and how it was processed. The same goes for all edibles, topicals, tinctures, and any other product containing cannabis derivatives.

The way to avoid these types of violations is to implement a robust seed-to-sale tracking application such as the one built into Veridian Science’s cannabis ERP system.

A seed-to-sale tracking system, when used properly will help a cannabis-touching business to avoid violations in two ways. First, it will have all regulatory requirements built right into the system. And, second, it will provide a reliable system for tracking, or “tracing” every single seed, seedling, plant, harvest, and wholesale batch produced by a grower, as well as every product bought and sold by retailers.

A robust seed-to-sale system will also include auditing and reporting tools which make it easier to comply with regulations related to reporting. This includes not only reporting related to the production and sale of products but also reporting and payment of taxes.

Viridian Sciences seed-to-sale system provides a complete suite of tools to run your business with the flexibility, scalability, and security you need to grow as fast and as big as your plans.

Security

The next most common violation at 15% is “Failure to maintain required security alarm and surveillance systems — 12% for producers and 3% for processors and retailers. The idea behind security and surveillance regulations is to help keep cannabis products from ending up on the black market. When a company has insufficient security and surveillance it could be easy for someone to “misplace” or steal products and then sell them outside the regulatory framework.

The first step in avoiding security-related violations is, of course, to fully understand all regulations related to security systems. It’s a bad idea to not reinvent the wheel here. There are companies which are dedicated to providing security solutions specifically designed for cannabis companies which take into account state and local regulations.

Sales To Minors

Next in line at 9% is “Sale or service to a minor.” An increase in use of cannabis by young people is a big concern of regulators whose job it is to assure public safety. Most states require anyone who is interested in purchasing cannabis products to be at least 21 years of age. Often times regulators will send undercover buyers into a retail establishment to attempt to purchase cannabis without showing proof of age. In other cases, an underage user will be arrested and found in possession of products which can be traced to a particular retailer. Related to the previous violation, “Allowing a minor to frequent a restricted area,” comes in at 8% for a total of 17% of all violations in the state of Washington being related to age restrictions.

The best way to avoid these types of violations is through training. All budtenders and anyone else involved in providing products and services should not only be trained in the requirements related to proof of age, but also the regulations which apply including the penalties involved in violating those regulations.

Advertising Violations

Next up at 10% is “Advertising violations.” That is made up of 7% for general advertising and 3% for improper displays and signage (either size or location). Many states strictly regulate where and how cannabis companies are allowed to advertise.

Oftentimes something as simple as a photocopied flyer can result in an advertising violation. It’s extremely important to be intimately familiar with your state’s advertising regulations.

Operating Plan Violations

Four percent of all citations in Washington state are related to “Violations of a board-approved operating plan.” In most states, either state or local regulations require cannabis companies to submit operating plans. These plans are often required to be quite detailed.

Once an operating plan is approved, it’s a bad idea to make any adjustments without seeking approval, even if the new plan is intended to improve regulatory compliance.

Other Violations

Some of the less common violations include “failure to submit monthly tax reports or payments,” (3%), “improper record keeping,” (3%), and what are known as “true party of interest” violations (3%).

Improper record keeping and tax reporting are easily solved by implementing an ERP designed specifically for the cannabis industry in your state such as the one mentioned above by Viridian Sciences.

Another 21% of the violations are listed as “other.” This means that these violations are a mix of many less common violations (presumably those with an incidence ratio of less than 3%). What this says is that one-fifth of all violations by cannabis license holders are for not-so-common regulations or infringements.

This clearly illustrates the need for license holders to not just be concerned with the major regulations, but to have a handle on all regulations in order to avoid being tripped up by some obscure regulation that falls under the category of “other.”

The Cannabis industry is in a state of rapid change and States are quickly shifting regulations and requirements for companies in the business. Within this evolving environment, it is reassuring to know you are running a trusted seed-to-sale traceability system. One that will help keep you up-to-date with regulations and requirements for each country, state or city.

Viridian Sciences ERP has been developed to integrate with any required compliance system to enable tracking and reporting and includes robust seed-to-sale tracking systems as well as financial tracking and reporting systems tailored to the cannabis industry. It is designed to handle multiple locations as well as multiple industry verticals including growers, processors, labs, distributors, and dispensaries, as well as to be flexible and scalable to grow with your business.

Regardless of where the growth takes you, into new business lines or new regions by adding the needed integrations to seamlessly support your transition into a new market Viridian Sciences will be there to assist you.