(Editor’s note: This story is part of a recurring series of commentaries from professionals connected to the cannabis industry. Jared S. Schwass is a member of Fox Rothschild’s cannabis corporate team. Ellen Bolin currently serves as chief revenue officer of CannaBeSecure.)
Here are three strategies for cannabis companies to avoid drawn out regulatory investigations and to decrease the risk of facing regulatory penalties.
Those penalties could include significant fines, license suspension or, in a worst-case scenario, license revocation.
1. Develop an expertise in your company’s security measures
Often, what causes a cannabis company trouble are the “unknown unknowns” of the business operation or, another way to put it, the “blind spots.”
While it is easy to observe strategic errors in a competitor, a company generally has trouble seeing its own until it’s too late, which can be costly.
To counter this, get another set of eyes on the operation with an objective viewpoint.
Reliable security experts can:
- Draft and update a company’s security plan in its initial and renewal license applications.
- Review and revise floor/design plans.
- Provide security measures within hiring plans.
- Help businesses make sound decisions regarding ongoing security strategies.
A best practice to implement is to work with an experienced security expert throughout the application, build-out and operations processes and to interview at least three competing security experts before making a decision.
Consulting with the right security expert can help a business draft an application that meets all regulatory requirements of that particular state and, upon receiving a license, be an important adviser during operation.
Before consulting with a security expert, businesses should require that its security expert has many layers of security knowledge to ensure their business will be safe and secure (i.e., not just video surveillance expertise).
For example, one consultant might have deep expertise in cybersecurity but lack critical build-out knowledge.
Having a proper build-out can ensure the business remains ahead of would-be criminals, including employees, trying to exploit security vulnerabilities.
2. Consider cloud-storage video surveillance
Cannabis-related rules and regulations throughout the U.S. vary significantly from state to state, but most regulations regarding necessary security measures make full compliance difficult and evolve as the industry matures.
For example, but not an outlier, the North Dakota Administrative Code requires dispensaries to retain 24-hour security footage for 90 calendar days during the first year of operation and, upon agency approval, for at least 60 days after the first year.
These types of video-surveillance requirements require substantial experience to implement. If the video footage is not properly maintained, a company risks months of regulatory investigations and the possibility of significant fine or further discipline actions.
In addition to onerous surveillance requirements, some states, such as Oregon and Colorado, have frequently modified their cannabis regulations and security requirements.
These changes occur after operators worked tirelessly to comply with the prior regulations and were then forced to change their security measures or risk regulatory investigations and penalties.
The shifts in regulations put cannabis businesses in a costly and time-consuming game of catch-up and hinder their ability to focus on growth.
Trusted security experts must be knowledgeable and stay current on the surveillance and security-measure requirements throughout the United States so they can keep cannabis businesses in front of all potential changes.
One method to stay ahead of those changes is to implement a cloud-based, video-storage setup for all video-surveillance measures.
If a company is going to host the storage on-site rather than having cloud-based storage, it will need to consider the implications of what happens when its needs or regulatory requirements change, or if there is a system malfunction that corrupts video files that are supposed to be maintained for 30, 60 or 90 days.
This might mean having to potentially rip out old systems and purchase new ones, which can be a costly headache.
In a cloud-based system, the system’s updates and scaling are taken care of in the monthly cost, which is beneficial if the company does not have an IT person on staff with the expertise to handle these complicated issues.
3. Create a security and business plan
In nearly all states with a legalized commercial cannabis program, business and security plans are a part of a cannabis business’ license application and become a crucial tool once licensed.
As such, companies need to ensure that their business and security plans meet all the statutory and regulatory requirements.
This can be the difference between receiving a license and waiting years for the next round of applications.
For example, in Illinois, regulators recently issued notices to hundreds of applicants for, among other things, deficient business and security plans.
According to the Journal of Business Management, research has shown that companies with formal business plans grow 30% faster than those without such plans.
Additionally, a thorough business plan can help a company attract the attention of investors by demonstrating it understands the industry and what it takes to succeed.
When applying for a cannabis license, companies should consider partnering with an application consultant or writer who understands the ins and outs of getting the highest application score possible, attracting investors and saving significant amounts of time.
Professional application writers can typically create a plan efficiently and often have experience in multiple states.
However, if you do not consider working with an application consultant, make sure you allow yourself months to develop your business and security plans.
Your team will need to be acutely familiar with all applicable regulations and develop thought-out strategies on how you will meet and exceed all requirements within those regulations.
Also, you will need to demonstrate a deep knowledge of the industry and the community in which you plan to operate. Do your homework.
The application deadlines always sneak up on applicants faster than they think, and it is critical to allow yourself enough time to get this part of the application right, so you have a realistic chance of winning a license.
Jared S. Schwass is a member of the cannabis corporate team and cannabis law practice group in Fox Rothschild’s San Francisco office. He can be reached at [email protected].
Ellen Bolin currently serves as the chief revenue officer of Philadelphia-based CannaBeSecure, which specializes in business and security consulting as well as regulatory compliance. She can be reached at [email protected].
Michael J. Neville, a cannabis attorney, also contributed to this story.
The previous installment of this series is available here.
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