The cannabis industry is morphing and changing as it grows and matures. And while it has unique challenges and risks associated only with the cannabis industry, many of them mirror operating issues outside of the industry.
Very simply, due diligence is about knowing exactly who you are doing business with. It’s about asking a few questions and doing a series of checks to separate legitimate vendors from untrustworthy partners.
Why?
Because not all vendors are created equal.
Third-party due diligence needs to be tailored based on the vendor you’re doing business with. You’ll handle the company providing your security separately from the company handling your landscaping. Every product and service must have its own approach.
Regulatory Compliance
Cannabis businesses operate under varying legal frameworks that differ from state to state. Ensuring a vendor complies with all applicable laws and regulations is critical to avoid legal repercussions and protect your business’s reputation.
Risk Management
Different vendors pose different levels of risk. Identifying and managing these risks appropriately requires a customized due diligence approach that assesses each vendor’s unique risk profile.
Quality Assurance
The quality and safety standards for cannabis products are crucial. Due diligence ensures that suppliers meet the necessary quality standards, preventing issues such as product recalls, health hazards, and damage to your brand’s credibility.
Reputation and Ethical Standards
This is huge in the cannabis industry. A vendor’s reputation and ethical standards can significantly impact your business. Tailored due diligence evaluates a vendor’s history, including any involvement in legal issues, unethical practices, or other red flags that could harm your business by association.
Security and Data Protection
Given the sensitivity of data within the cannabis industry, particularly around customer information and proprietary business data, assessing each vendor’s security measures is essential. Tailored due diligence helps ensure vendors have robust data protection and cybersecurity practices in place.
How To Simplify The Due Diligence Process
While due diligence can never be a “checklist” kind of program, there are ways to make it slightly less daunting.
It’s always a good idea to know where you’re starting from. Create a standardized checklist of basic due diligence requirements that apply to all vendors. This includes legal compliance, financial stability, and basic operational capabilities. Standardization ensures that essential checks are consistently performed.
Then, categorize your vendors. Group vendors into categories based on their risk level and the nature of their services or products. This allows you to apply different levels of scrutiny based on the risk each category poses. For example, critical suppliers might undergo more rigorous checks than low-risk service providers.
We recommend using automated tools and software to gather and manage data whenever possible. Having a vendor management system can streamline data collection, automate routine checks, and keep records organized, reducing manual effort and minimizing errors.
Of course, partnering up with third-party services specializing in vendor verification can help you stay on top of it all. This saves your team time and ensures thoroughness. Especially when this is something that needs to be run regularly, depending on the vendor’s risk level.
Need help?
For IT Strategy, Security and Compliance, or Help Desk Services, reach out to us at Cannabis Technology Partners 360-450-4759.
