The cannabis industry is a perfect case study for the risks and compliance that come with a new market. Understanding how this industry has navigates these challenges will provide insight to other industries considering mass blockchain adoption.
The risks of opening a dispensary is one of the most important aspects to consider when entering the cannabis industry. It’s important to know what risks are involved and how they can be managed.
You may not believe you have much to learn from businesses in the cannabis and hemp industries if you deal with goods that aren’t federally illegal.
However, as they negotiate unique security issues and a patchwork of stringent state-by-state laws, these entrepreneurs are taking part in a big business experiment that demonstrates the need of creativity and discipline in risk management and compliance.
Some of these tactics may be familiar to people who work in other highly regulated, high-stakes sectors like electronics, jewels, or controlled medicines. Similarly, cannabis businesses must deal with turbulent supply chains, short-life goods, trade secret protections, cybercrime, and anti-money laundering and “know your customer” banking regulations.
Cannabis growers, producers, distributors, and merchants contend with a high-value commodity that attracts theft, as well as restricted banking alternatives that require most transactions to be conducted in cash, putting them at a high risk of targeted crime. Last year, cannabis shops were targeted in a series of major break-ins, with fatal robberies happening in 2021, leading many dispensary employees to carry guns to protect themselves.
Beyond security issues, there are strict laws that, if not adhered to, may result in costly fines, company closures, or even criminal prosecution. States that allow the selling of cannabis, for example, need licenses for such companies, and every transfer between licensees requires a manifest and state reporting. Some jurisdictions even demand that the goods be transported by a third party. Retailers are accountable for implementing state restrictions, and CEOs who break them may face prison time.
Here are some of the dangers and how cannabis businesses are dealing with them. Standard operating procedures (SOPs) unique to the cannabis business underpin all of this.
Theft of high-value assets and cash
- There are a lot of cameras. Many states require cannabis businesses to install video surveillance systems and preserve the footage securely, or they may face stiff penalties.
- Auditing of inventory. Cannabis and hemp businesses should utilize track-and-trace software to assist with audits, enforcing ever-changing business regulations, and compliantly managing company operations.
- To avoid theft of goods or highly researched items, company uniforms are designed without pockets. This includes agricultural locations where workers may attempt to steal valuable DNA.
Employees who have been injured
- Training that is thorough. Cannabis extraction and processing is a multibillion-dollar business using high-tech equipment that uses butane to extract oils from plants. Explosions and other mishaps are a possibility; however, training reduces this danger.
- More cameras are needed. Cameras can assist detect gaps in the training system, just as they can help monitor theft safeguards.
Unsavory business associates
- Supplier onboarding procedures must adhere to “know your customer” regulations. Do they have a license, for example? Is it true? Is the money coming from a reputable source?
- The limited number of banks that will conduct business with cannabis businesses need this procedure; many banks will not accept cannabis deposits since the substance is still illegal under federal law, and complying with reporting requirements is complicated and costly.
Risks associated with vendors and suppliers
- When it comes to actual materials, you’ll want to check the quality of your supplier’s offerings. For instances of faulty hardware or additives, look no farther than 2019’s “vapegate” problems, which occurred almost entirely on the black market. To guarantee that their product passes testing and is safe for customers, manufacturers must pay careful attention.
- Vendors of information technology services must be accredited for System and Organization Controls (SOC 2), which verifies that they have safeguards in place against a variety of threats, including cyber intrusions. This is particularly critical for a business looking to be listed on a public stock market.
- ERP systems keep track of safety stock, send out expiration alerts, and offer controls and documentation to external stakeholders.
Audits and other instruments
A comprehensive set of standard operating procedures should be underneath these different risk categories. The following are examples of tools that may be used to assist the SOP:
- In several jurisdictions, an internal compliance officer is a required job.
- SOPs are maintained via key performance indicators (KPIs) and reporting procedures.
- Accounting companies or others conduct third-party audits to verify SOPs, conduct fake state audits, simulate security breaches, and examine financials.
- IT systems are used for both physical and digital security.
- Security provided by a third party for operational sites.
The cannabis industry has come a long way in the less than a decade since the first state authorized recreational usage. Success is difficult in any sector, but in this one, operators may only reap the benefits if they properly manage their risks and regulatory requirements.
While I favor federal cannabis legalization, this move is unlikely to alleviate the industry’s regulatory burden, which will have to maintain and enhance these procedures. A fair playing field for everyone will be achieved with more consistent regulatory requirements throughout the nation.