The big questions in California as legality enters year two

Mistakes and misconceptions abound in the Golden State

As an attorney in California, I get a lot of questions from current and prospective cannabis professionals about how they can be sure they can stay on the right side of law while still doing everything they can to be successful.

Here are answers to some of the most common questions I get:

– What are some of the common mistakes cannabis entrepreneurs are making in California?

The biggest mistake I see is putting money before ideas, focusing on potential profits instead of the product itself. That’s starting backwards. In every other business you start with the idea and then you make the money. With cannabis, everybody focuses on the money and that’s a big mistake.

Another issue is people trying to work around compliance instead of with it. Cannabis is compliance. Transparency is paramount to success in this business. To be fearful of inspectors or hostile toward them is the wrong posture. The minute inspectors show up, they can tell if you’re an open book.

Finally, people are simply trying to do too much. When I ask prospective cannabis businesspeople what kind of a license they want to get, they want it all: manufacturing, cultivation, retail. People really need to specialize. That’s where the innovation happens.

When everybody tries to do everything, that leads to mediocre products, at best.

– What are the biggest misconceptions people have about the cannabis industry?

The biggest misconception is that it’s profitable. Three years ago, I worked at a large law firm that would facilitate dispensary sales. Everybody thought the dispensaries were making money hand-over-fist, but every one of them owed hundreds of thousands of dollars in back-tax liability.

Making it in cannabis takes all kinds of effort and it’s never going to be easy. The get-rich-quick mentality is bad for the industry. I always tell people, when it comes to cannabis, do not believe it until you see it.

But If there’s one thing that’s not a misconception it’s the flakiness. That’s a reality. There needs to be call for professionalism. The industry would greatly benefit from it.

– With all the money being invested in this industry, what best practices can I put into place to protect myself?

Do not get caught up in the moment. People in this industry are in a rush to do everything. Waiting an extra day will often pay dividends.

Also, be wary of the bubble. This industry has the potential to eclipse the tech boom, but there is going to be some correction. I would advise people to not invest themselves too heavily in one thing. You always need to diversify, and it’s very unwise to put all your money in any one place. The failure rate of a lot of these cannabis startups is astronomically high, so if you’re an investor, realize there’s a very good chance you’re not going to see your money again. Sleep on things and don’t be rushed into anything.

– As testing and traceability regulations go into effect this year, what are some of the legal concerns a cannabis business should be aware of?

Have a backup system in place for the very likely event that the track-and-trace system goes down. One thing we’ve seen with these systems is that they’re still being worked out. They’re not very reliable, but that doesn’t relieve you of your obligation to track and document everything that happens at your business. You need spreadsheets printed and ready to go in case the lights go out or if there’s a cybersecurity breach, so you’re ready to record everything.

The California regulations are unbelievably detailed. They get even more detailed when it comes to the testing and the tracking. For example, when you’re taking the batches for sampling, you have to record it on video and it has to have a time stamp.

These are already complex regulations that are getting even more complex, so just beware and be careful.

– If you could give some advice to people, what would that be?

Start with your idea. The minute you start to make it about money or anything else, you just become like the rest of them. The possibilities are endless so don’t focus on the money. What’s going to keep you going is that idea and that passion. That’s what’s going to make this industry flourish.

What they say is true: Cannabis years are like dog years. The minute you think you know what’s going on with cannabis, that’s when problems happen. It’s impossible to know everything.

Humility isn’t really a hallmark of this industry, but if we have more of it, we’ll be in a much better place.

 

Benjamin Reccius is the founder and managing partner of Reccius Law (www.recciuslaw.com), a law firm in Los Angeles focused on cannabis business and licensing, criminal defense and corporate structure, formation and financing. He can be reached by email at ben@recciuslaw.com.

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