By Garrett Rudolph
It’s almost impossible to underestimate the importance of maintaining compliance.
Most people understand that too many violations could cost them their golden ticket. But it’s crucial to remember that compliance history stays with the license, not the owner. Having a track record of violations could scare away potential investors, devalue the company when it’s time to sell and make it difficult to obtain a bank account. It could impact insurance rates, endanger community support and put an otherwise law-abiding company at odds with local police.
“Compliance will separate the winners from the losers,” says Becky Olson, vice president of Adherence Compliance.
“The only way any organization is truly successful in a highly regulated environment is viewing compliance as part of their everyday operation. It’s not a department; it’s not a once-a-year task. It’s just part of everybody’s operations. The companies that are internalizing that, they are really going to have a leg up.”
In the legal cannabis industry, businesses put a tremendous level of importance on cultivating and manufacturing the best products, developing first-rate sales and marketing plans and designing the most appealing retail stores.
But all too often, companies fail to maintain that high attention to detail when it comes to compliance with state regulations.
Adherence Compliance offers business owners and managers a tool to better understand their own companies and the potential pitfalls they face. All types of licensed business can use Adherence Compliance’s SCORE app during walk-through audits. The step-by-step audit process consists of a thorough questionnaire, supplemented by the ability to make notes and take photos, to produce a detailed compliance report and risk score.
Culture of Compliance
One common bond among companies that successfully navigate regulations is a “culture of compliance,” Becky Olson says.
It typically starts at the top with an ethical, motivated leader who’s focused on doing things right. Having a license to produce or sell marijuana is a privilege, and it’s important that compliance is treated with that in mind, Olson says.
“In order to be in this industry, compliance is the name of the game, and it can’t just stop with the CEO.”
The culture of compliance has to trickle down from the highest-paid executives to the entry-level trimmers and budtenders.
“It’s about committing to the mindset that compliance is part of every single employee’s job responsibility,” Olson says.
“And it’s not going to get easier,” Steve Owens says, pointing out that states are not going to reduce regulatory control any time soon. If anything, the market is steadily becoming even more regulated.
“Anything with cannabis compliance, we can do it,” CEO Steve Owens says.
The software is continuously updated as local, state and federal regulations change.
The amount of time required for each audit depends on the type of license. Retail stores and medical dispensaries typically take less than two hours; larger grow operations and processing facilities take about three hours.
There are several different audit programs. Licensees can use the app for self-assessment, or audits can be performed by Adherence Compliance or a third-party regulator. Adherence spent about 18 months building and developing the software, and has now performed more than 300 compliance audits. The vast amount of data gather by Adherence Compliance reveals key trends within the industry, including the most common types of violations and the best practices of successful operators.
Some of the most frequent violations in Colorado, where the Denver-based company has completed the most audits, are related to packaging and labeling. Colorado’s regulations are complex because third parties can often be held liable for violations. For instance, if an edibles manufacturer delivers a shipment of mislabeled products, the retail store can be penalized once it has accepted the delivery.
Oftentimes, the violations themselves are relatively minor — a package that’s missing the required disclaimer or a font that’s too small — and easy for the retailer not to notice when accepting a shipment.
For most businesses, Olson says quarterly compliance audits are sufficient. However, there are companies that might be better served by monthly or bimonthly audits, including: businesses that have already received violations; those that are expanding rapidly; licensees operating in multiple states; and operators in volatile markets or states that are changing regulations quickly.
Performing regular compliance audits can help businesses catch potential violations before the state does.
The SCORE app gives businesses a “real-time look into their state of compliance at any one time,” Olson says. “But the real key is when they start harvesting, mining, using and acting on internal data. We really want to empower these businesses to access and utilize their own data.”
Having a better understanding of when and where violations occur, and being able to track a risk score over time allows businesses to identify the weakest links of their operation.
Olson makes the comparison to larger corporations that emphasize Internet and email security; all it takes is one employee opening the wrong file or visiting the wrong website to impact the entire company’s network. The same goes with the cannabis industry. One employee could potentially throw the entire operation into noncompliance.
The SCORE app “basically allows companies to have an automated and repeatable compliance program,” Olson says. “Having a program is really the first step that compliance is an integrated part of your business, and not just an activity.”