7 Most Common Cannabis Compliance Pitfalls

7 Most Common Cannabis Compliance Pitfalls

Compliance is key for marijuana businesses. The law is continually evolving, and companies must always be adapting, or they might risk losing their license. I have had the opportunity to hear one of the top compliance experts in the business, Joe Hodas, COO of General Cannabis, who is also a sponsor of the States Act. Like Hodas, I believe the first employee you need to hire if you are planning to start a marijuana company is your Compliance Director.

Without a compliance director who is on top of things 24/7, your chances of success are very narrow. But even if you think you found the right person for the job, it is possible to fail, for many reasons, and many startups usually do at some point or other.

Fortunately, consulting firms are always doing their good work, and we now have valuable statistics at hand about how and why businesses inadvertently fail to comply with marijuana regulations.  

In my experience as a California cannabis lawyer, the companies that pay attention to this kind of data and hire legal counsel with a track record of advising successful firms in the cannabis space have a much higher chance of success.  

7 Most Common Cannabis Compliance Pitfalls

  1. Inventory errors

    Your stock and how you account for it is key in the cannabis business. Missing inventory can lead to steep fines. Is your quality assurance sufficient? Have you been a victim of employee theft? Do you have packaging protocols in place to avoid inventory errors? Your COO and Compliance Director can often with the help of dedicated software, ensure that your sales numbers, and inventory match at any given time.

  2. Missing reports

    There are specific deadlines in each jurisdiction to report sales data and other relevant information. You must always do so in the required format and within the specified time frame.  

  3. Tax issues

    Cannabis sales tax is very clear and unambiguous. It is also periodically updated. According to recent statistics, only 25 percent of marijuana companies in the state of California are fully tax compliant. This can be a problem, not only because you may face hefty fines, but also because you may be subjected to even more burdensome audits. To avoid all that, it is necessary to seek expert legal and accounting advice.

  4. Problems with obtaining or keeping a license

    Managing to get a license is one of the initial challenges faced by cannabis companies. But that is not the end of the road. You must keep it up to date, pay all licensing fees by the deadline, and ensure full compliance. Whether you have a license for cultivation, sale, or another connected activity, this is an area you must really focus on to thrive.

  5. Selling illegally

    Even if you have a license, there are many requirements to make a sale legal. Buyers must be adults, you can only sell during specific business hours, and there are limits as to the quantity of product your customers can purchase per day. Some POS systems can streamline sales transactions, so that you can avoid running into trouble with the law.

  6. Violating package/label rules

    From THC warnings to child-resistant bags, packaging and labeling requirements are quite stringent in each legal state. Sometimes you may think you are doing everything right, and you may still be in violation. Packaging can be especially challenging for smaller companies in terms of cost, but there are many great businesses dedicated to taking this type of problems off your hands; these companies can manage everything from printing out your labels to creating compliant packaging.  

  7. Having no compliance director and no cannabis attorney

    If you want to fail fast in this sector, try working without legal counsel and a compliance director. With everything you have to manage, it is impossible for you to stay on top of every rule change and every deadline. A compliance director can help develop a corporate culture of compliance while also designing standardized processes to avoid these pitfalls. Likewise, advice from a seasoned legal professional with cannabis experience can be invaluable to keep your business running safely and profitably.  

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David Kani

David Kani is a Newport Beach, California based business lawyer with a focus on cannabis companies, their investors, employees and cannabis-related litigation.
To connect with David: [hidden email] or 714-907-0697.

To learn more about Hochfelsen & Kani LLP: hockani.com
To learn more about David's book Pot Inc.: suttonhart.com
For media inquiries or speaking engagements: [hidden email]



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