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Cannabis enforcement ramps up, but you control your risk

Cannabis entrepreneurs face a long list of lessons to learn on their journey through the industry.

Recently, lessons about compliance and risk have proven to be pivotal for cannabis business longevity and health.

The number one lesson is that there is no such thing as a gray cannabis market. If you are not compliant with all applicable laws, or if you engage in activities that flout regulations, your business is illegal.

You can mitigate risk of violations by working with experts who stay on top of changes in regulations and help you out with regular compliance audits.

Taking on the risk of operating illegally is not worth it.

Don’t believe us? See below for cautionary tales.

Sweet Leaf shakedown

This winter the cannabis industry witnessed its first conviction of business owners who broke cannabis laws while operating an otherwise properly licensed dispensary – and it is important to note they were indeed breaking cannabis laws.

Once the owners of the largest chain of dispensaries in Colorado, the people behind Sweet Leaf were charged with participation in a program of looping, which involved customers making multiple purchases in one day to get around purchase limits. Authorities said 2.5 tons of this improperly bought cannabis made its way to the black market, according to news reports.

The owners received a sentence of a year in jail each.

Key takeaway: Looping is a real risk that you, your budtenders and your business all carry. But it is preventable – you can look for signs that it is happening and work to prevent it.


Growing pains in Los Angeles

The world’s largest cannabis market is still in the middle of a painful journey toward implementing a functional program of local regulation. The gap between state and local regulation has led to confusion and a city plagued by illegal operations.

But the city is mulling over the option to take action against property owners who allow unlicensed cannabis businesses to lease their property, effectively cutting off a portion of the black market at its knees. In fact, such action is spelled out in the city’s Measure M, but hasn’t been enforced yet.

Additionally, the Los Angeles City Council is considering a measure that would empower utilities to shut off service at addresses known to house illegal cannabis businesses.

Key takeaway: Supporting the black market is illegal and puts you at risk of enforcement action, even if you are not touching the cannabis yourself.


California cannabis busts

Californians are cracking down on black market cannabis activity across the state.

According to the California Bureau of Cannabis Control, “All commercial cannabis activity in California requires a state-issued license from one of the state’s three cannabis licensing authorities. Selling cannabis goods without a state license is a violation of state law.” There is no room for interpretation on the matter.

Regulators have continued to enforce cannabis laws around California in the last couple of months, including crackdowns on illegal retail operations and delivery services. Governor

Gavin Newsom will mobilize 150 California National Guard troops to support enforcement against illegal cultivation operations.

Local jurisdictions are taking matters into their own hands as well. Riverside County put together a Cannabis Regulation Task Force to handle the problem of illegal cannabis operations. At the end of January, it cracked down on 10 illegal establishments. One of the outfits was operating covertly out of a building advertising wholesale ice cream sales.

The Riverside District Attorney’s office says the task force is trying to ensure fair business practices and keep criminal activity out of the legal cannabis industry.

Key takeaway: The grace period for unlicensed cannabis retailers in California to avoid enforcement action ended on January 9, 2019. Enforcement against illegal cannabis activity will only increase as legal markets mature in each state and eventually federally.


Compliance goes beyond cannabis regulations

A cannabis business is subject to all the obligations that any other business carries. For example, taxes, business licenses, employment law – you must manage all these meticulously just like any other business owner, knowing there may be more scrutiny placed on your business simply because you are in the cannabis industry. For example, an Oregon cannabis business owner earned himself a sentence in Federal prison by evading paying taxes.

Key takeaway: Don’t let traditional business obligations sink your cannabis business.


Audits are the answer

It’d be tempting to say the legal market is too risky a space for an entrepreneur, but the reality is that you control how much risk your business carries. Getting caught up in an enforcement action starts with the decision to ignore the law or to abuse the system.

Here is how you can reduce your risk of having this happen to you.

  • Hire a consultant who closely follows changing regulations and keeps you updated.

  • Once your business is up and running, make sure you are doing periodic compliance audits and acting on the resulting recommendations.

  • Choose your team wisely and select team members who have values that complement yours.

  • If you are a property owner or other service provider, make sure the businesses you work with can demonstrate that they are compliant.

You have legwork to do to achieve profitable compliance in the legal cannabis industry. But as Jane Stinson (founder of a dispensary in Anchorage, AK) says, “Don’t be afraid, just go for it. It’s legal now and you can do this.”

Get in touch with us today to assess the risk your cannabis business carries.

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