In the rapidly evolving cannabis industry, compliance isn’t just a regulatory checkbox—it’s a critical lifeline for business survival. The stakes are higher than many entrepreneurs realize, with non-compliance potentially costing businesses hundreds of thousands of dollars, their reputation, and even their operating license.
The Staggering Financial Consequences
The financial risks of non-compliance are eye-watering. Consider the story of a California cannabis company that, in December 2022, faced a staggering $128 million fine for producing cannabis products at an unlicensed facility. Similarly, in June 2022, five New Jersey cannabis companies collectively paid $360,000 in fines for selling recreational cannabis during medical-only hours. Even smaller infractions can have a big impact—a Detroit medical marijuana dispensary was fined $75,000 and forced to shut down for 30 days due to improper product tagging.
As Jerrico Perez, a partner at Vicente LLP, points out, compliance violation costs can range from $5,000 for minor infractions to $200,000 for serious violations like selling to minors. And those numbers don’t include additional expenses like legal fees, operational downtime, or the potential loss of a license.
The Hidden Costs of Contesting Violations
Challenging a compliance violation can be just as financially devastating as the fines themselves. Attorney retainers alone can cost $10,000 to $20,000, with hourly legal fees ranging from $250 to $800. Hearings and appeals can easily rack up tens of thousands of dollars in additional costs. For some businesses, these legal battles result in settlements that include license suspension or even permanent closure.
The ripple effect doesn’t stop there. Compliance violations can inflict long-lasting damage on a company’s reputation. Negative press lingers in search engine results, eroding customer trust and positioning a business unfavorably in a competitive market.
Security and Compliance: More Than Just Paperwork
Effective compliance in the cannabis industry involves much more than checking boxes or filling out forms. As someone who has worked with businesses in highly regulated industries, I’ve seen firsthand how the right systems can make or break an operation.
Key compliance essentials include:
- Third-party audits: Annual audits by independent security firms are mandatory.
- Internal reviews: Conduct monthly internal audits and document findings thoroughly.
- Surveillance requirements: Ensure camera functionality, proper access controls, and 90-day footage storage.
Surveillance is another key area where businesses often stumble. Many operators underestimate their data storage needs or fail to adjust camera angles as their business expands. These oversights can lead to major compliance issues. Maintaining the required 90 days of continuous footage is non-negotiable, and yet it’s an area where businesses frequently fall short.
Building Credibility Through Technology
Compliance isn’t just about avoiding fines—it’s about building credibility with regulators. From my perspective, getting on the good side of regulators means implementing systems that are accessible, helpful, and forthright. Certain technologies make it easier to provide the kind of visibility and transparency that regulators value. For instance, over-recording and proactively addressing issues as they arise can enhance your credibility.
Some surveillance systems are easier to work with than others. Systems that balance ease of use and accessibility may require a higher upfront investment, but they pay off in the long run by simplifying compliance. These systems can also yield operational insights that go beyond compliance, such as tracking employee productivity, identifying repeat customers, and analyzing peak business hours. This dual functionality adds significant value, turning compliance tools into business optimization assets.
Why Cannabis Technology Partners?
At Cannabis Technology Partners, we specialize in helping cannabis businesses navigate the complexities of compliance. Our tailored systems are designed not only to meet regulatory requirements but also to provide actionable insights that can improve your operations. By partnering with us, you gain access to expertise that ensures your systems are both compliant and efficient, giving you peace of mind and a competitive edge.
A Culture of Compliance
Building a culture of compliance starts with investing in the right systems and training your staff regularly. Staying updated on changing regulations is essential, but it’s just as important to foster a company-wide understanding of why compliance matters. As Perez wisely said, “Investing in compliance on the front end can save you tens of thousands, if not hundreds of thousands of dollars.”
A Cautionary Tale
Even seemingly harmless actions can lead to significant penalties. I think about a Vermont cannabis cultivator who learned this the hard way. A “publicity stunt” involving an Instagram video of delivering cannabis to an unlicensed store resulted in a $20,000 fine. These kinds of missteps highlight the importance of understanding the rules and operating within them.
Conclusion
In the cannabis industry, compliance isn’t just a legal requirement—it’s a strategic business imperative. The cost of non-compliance far exceeds the investment in robust security and regulatory adherence. By prioritizing compliance, you not only protect your business from fines and closures but also build a reputation for reliability and trustworthiness.
Let Cannabis Technology Partners guide you through the complexities of compliance. With the right systems and support, you can focus on growing your business with confidence, knowing that your compliance needs are in expert hands.
