I have taught risk management and insurance for more than 30 years, and certain lessons along the way have stuck with me. One lesson I learned a long time ago was from a doctor who explained that if you don’t write it in the patient’s chart, it didn’t happen. Later, a management coach taught me that if you don’t write your goals down, you’ll never achieve them. These were two of the smartest people in my circles, so I heeded their advice as I moved forward: Write it down!
I was contacted recently by an insurance company covering an individual for liability (names and some details have been changed to ensure confidentiality). In the course of his business operations, Mr. Jones rendered someone’s cannabis crop unsellable. Naturally, the owner of the crop wanted to be paid for the lost cannabis. The insurance company asked me to provide an opinion on the value of the cannabis.
I did my due diligence. I talked to an expert grower, explored the average yield of a crop and researched the common selling price of cannabis. I submitted my report to the insurer, but the owner of the cannabis didn’t like my valuation. She then produced sales records from previous transactions that showed the typical selling price of her cannabis — several hundred dollars more per pound than my valuation, which was solid proof of the crop’s value. Naturally I revised my report.
Had the cannabis owner not kept good sales records, I would have stood by my lower value. So, I’m encouraging you to keep great — not just good — business records. In addition to legal and tax reasons, you need them to judge performance over time. And you may need them for reasons you don’t anticipate, like an insurance claim.
Local laws that vary from state to state typically require cannabis businesses to keep excellent records. But it’s important from a product liability standpoint to have “seed-to-sale” records on every batch you grow, process or sell. It may not seem important to you now, but when cannabis-related litigation starts happening, you may be on the defending end of a lawsuit.
While the burden of proof in a lawsuit is almost always on the plaintiff (the person suing you), you need to be ready to prove your side of the story. The best response to a lawsuit is proof that you couldn’t possibly have done anything wrong. How did you grow/process/package/distribute the product? You will need to be able to document every product you handled. If you can’t, that is one point in the plaintiff’s favor, and it also puts you in a very defensive position.
Also, let’s talk about taxes for a moment. You know in any business that excellent financial records make taxes easier to file and easier to defend in event of an audit. A failure to produce accurate supporting records for your tax returns can result in you having to pay way more tax than you originally estimated. And a red flag on your record may very well lead to more future audits. Don’t take those chances — keep pristine, detailed, accurate business records!