TreatWell Health, a prominent Bay Area cannabis business lauded by medical patients (and pet owners) for its high-CBD products, made national headlines in June when a video of its CEO, Alison Ettel, went viral.
The video captured Ettel — a white woman — allegedly calling the police on an 8-year-old black child for selling water without a permit outside of Ettel’s apartment complex. Dubbed #permitpatty, the video garnered more than 6 million views on social media and was covered by national news outlets. The incident was seen by many as a sad reminder of racial animus and distrust, and yet another all-too-common incident involving a white person calling the police on a person of color for innocuous behavior. And the irony of a cannabis business CEO, operating in open violation of federal law, “outing” a young entrepreneur for allegedly impermissible activities, was not lost on the press.
Within 48 hours, several prominent Bay Area cannabis retailers that carried TreatWell’s best-selling products denounced Ettel’s conduct and liquidated their inventory. While Ettel did not commit a crime, her behavior likely violated the code of conduct for these organizations, prompting and guiding their immediate action.
Maintaining a code of conduct is, unquestionably, a best practice for all businesses (and public companies are legally mandated to do so under §406 of the Sarbanes-Oxley Act of 2002). Not only can it assist businesses to quickly address and mitigate ethics-related public relations disasters (as with TreatWell Health), but it also helps organizations clarify their mission, values and principles and establish standards for behavior by employees, vendors, suppliers and affiliates. Internally, it provides a road map, supporting decision-making and empowering employees to handle ethical dilemmas. Externally, it serves as a public reminder of a company’s commitment to civil conduct, while in some situations serving to mitigate governmental fines that may be imposed upon a company for unethical behavior.
Generally, the language selected for any code of conduct should avoid legalese. It should be uncomplicated and easy for individuals at all professional levels to understand. If it is not user-friendly, the code will not be effective, internally or externally.
A well-crafted code of conduct must be customized to the organization implementing it. Organizations must dig into their formation and operating history and reveal to themselves what has gone wrong in the past: Where are we vulnerable in the future? Are there any gray areas that require clarification? And for a cannabis business, in particular, what laws and regulations apply to our organization? Principals charged with preparing a code of conduct should seek input from all levels within the organization. And of course, confirm with counsel to assure that vulnerabilities are adequately addressed.
The content of a code of conduct varies widely across various types of businesses. Effective codes of conduct may address, in varying detail, among other things:
– Employment practices: Promoting diversity, inclusion, volunteering and work-life balance; prohibiting discriminatory, threatening or “bullying” conduct; and addressing misuse of company resources and equipment, the proper exercise of authority, the use of illegal drugs and/or alcohol and romantic relationships among co-workers.
– Compliance and anti-corruption: Assuring accurate accounting and reporting, and proper maintenance of financial statements and employee records; and prohibiting bribery and questionable political contributions.
– E-commerce and social media: Addressing Internet use at the workplace or during work hours, prohibited websites and the content of posts regarding the company, its products or services, or co-workers, vendors, suppliers and other affiliates and partners.
– Conflicts of interest: Prohibiting employees and others from engaging in activities that enrich themselves at the expense of the organization and its shareholders; and addressing political activities, outside and/or competing employment opportunities, and the disclosure of personal and confidential information.
– Relationships with third parties: Addressing proper recruitment and procurement, scope of due diligence and conduct in the negotiation of agreements. Provisions guiding behavior are meaningless in the absence of accountability standards.
Organizations should assure the code of conduct is readily accessible and should, where appropriate, obtain signatures — on an annual basis — that each person responsible has read, understood and accepted the code of conduct. Related policies should encourage employees (and others) to come forward to the company’s chief compliance officer (or other responsible party) — the failure of which should also be a code violation, and prohibit retaliation against those who seek to invoke the code’s provisions.
Lastly, codes of conduct should include repercussions for violations. The severity of the sanction should turn on the materiality and severity of the violation and may include, among other things: a requirement that the individual who violated the code undergo sensitivity or other training; written censures that may be considered in employment decisions such as promotions or bonuses; suspension; or even termination.
Federal illegality already places cannabis businesses in an ethical conundrum. It is best to prepare for ethical dilemmas and to avoid creating standards mid-crisis.
Lauren Rudick represents investors and startup organizations in all aspects of business and intellectual property law, specializing in cannabis, media and technology. Her law firm, Hiller, PC (www.hillerpc.com), is a white-shoe boutique firm with a track record for success and handling sophisticated legal matters that include business and corporate law.