Cannabis brands and retailers risk losing their most valuable assets — their licenses — if they don’t comply with state regulations. And compliance can be particularly tricky for businesses that operate in multiple states with multiple and different sets of rules. While the promise of federal legalization might seem to offer a solution, compliance experts say that it could cause a new set of problems. In fact, cannabis businesses should actually be prepared for an upheaval.
“Federal legalization initially will be horrible,” said Katrina Skinner, general counsel and chief banking officer for Denver-based Simplifya, a regulatory and operational compliance software platform that serves the cannabis industry. “It’s going to be chaos for a while.”
To mitigate the current trickiness of compliance and the potential chaos of federal legalization, many cannabis businesses are turning to companies like Simplifya that offer a range of services to streamline the compliance process.
Simplifya’s custom audit software includes standard operating procedures (SOPs), badge tracking, document storage, tailored reporting, and employee accountability features that can help a company reduce the time it spends on compliance by 45%.
The company’s self-audit checklists help cannabis businesses identify, track, and mitigate potential issues before it’s too late. Their lawyers and regulatory analysts review state and local regulations to create a simple checklist of “Yes” or “No” questions to help businesses determine whether they’re operating in compliance for their license type.
Inventory tracking can be particularly tricky, said Michael Piermont, president of and chief revenue officer of Chicago-based cannabis ordering and fulfillment platform Leaf Trade. For example, a supplier must issue separate invoices for medical and recreational products — even if they come from the same plant.
Complicating matters further is that some states require that only cannabis products be listed on an invoice and a separate invoice must be created for swag, rolling papers, or glass pieces.
“It becomes very time consuming because you have to do the same thing twice,” Piermont said. “Sometimes it’s done the other way where it’s one order going to two stores, so the order has to be separated, too. It puts a lot of pressure on the companies to have a lot of processes.”
Returning a defective product such as a leaking vape cartridge or flower damaged in shipment also can be complicated, but the Leaf Trade platform provides a solution.
“Our system will find where the product came from, what batch it was and update the previous invoice to say you’re getting a $50 credit and where it goes,” Piermont said.
Despite many regulations that differ among states where cannabis is legal, one thing is constant, and that’s the seed-to-sale tracking requirement. But even then, there are different tracking tools required in each state: BioTrackTHC and MJ Freeway and Metrc, which stands for Marijuana Enforcement Tracking Reporting & Compliance.
For multistate operators (MSOs), that can complicate matters.
“If you’re Verano you’re using all three,” Piermont said. “It becomes more expensive to maintain multiple systems, but Leaf Trade brings them all together.”
Mark Slaugh, CEO of Denver-based iComply, said the biggest challenge facing cannabis businesses is “not knowing what you don’t know.”
“That tends to sneak up on people and really hurt their business,” Slaugh said. “We’re there to help people who have come from the underground navigate the process. Cannabis businesses gain legitimacy through compliance.”
One of the biggest regulations cannabis companies run into trouble with is inventory management — a segment of the business that, if not set up properly in the first place, can snowball out of control.
“Everybody thinks, “I have compliant software, so I’m compliant,’” Slaugh said.
iComply helps cannabis businesses with creating SOPs, training employees, testing and process validation. Slaugh said companies should be striving to adhere to good agricultural and collecting practices (GACPs) and good manufacturing practices (GMPs).
“We’re behind in the US,” Slaugh said. “We’re a baby industry just learning how to crawl, but we have a maverick attitude.”
Slaugh said he believes that when cannabis is legal at the federal level, the government’s role will be similar to how it regulates alcohol.
Charisse Harris has been on both sides of the compliance fence. Before joining Lightshade as compliance director five years ago, Harris was a liquor and marijuana enforcer and then licensing inspector for the City and County of Denver.
Harris said it’s difficult to navigate the ever-changing rules.
“There are moments when you feel like you have a good grasp on what they want only to find out that the state is OK, but the municipality is not,” she said. “There’s so much gray to be danced in that it’s really hard to dial in what’s compliant and what’s not compliant.”
Among the challenges is educating the cannabis business owners, who may want to do things in a way that doesn’t comply with state or municipal regulations.
“You have to argue with them and say, ‘No,’” Harris said. “Some live by that motto to do it now and ask for forgiveness later.”
Regardless of what state a cannabis business is located, regulators take compliance seriously and rarely give violators a second chance.
“If you break the rules, if your manifest doesn’t check out with your sales, it’s a pretty short leash and you potentially lose your license,” Piermont said. “There’s just too much on the line.”