Why Every Cannabis Business Needs a Chief Compliance Officer
May 18, 2018 | Big Rock
The legislative landscape for cannabis is ever changing; more so than most professionals in this industry have ever previously encountered. At a minimum, California operators must comply with state and local regulations, but in large urban areas such as San Francisco or Los Angeles, operators need to understand the laws for the counties surrounding them in order to expand their local and statewide footprint. Enter the chief compliance officer. Whether you are operating in one state or 10, if you are operating a cannabis business the importance of a CCO is paramount.
What Does a Chief Compliance Officer in Cannabis Do?
The Chief Compliance Officer role requires dynamic thinking and problem solving skills in order to navigate ever-changing, and oftentimes murky, local, state, and federal regulations. This means monitoring the regulatory environment daily in order to ensure nothing has changed overnight, which in this industry happens more than many think.
Beyond obtaining licenses and adhering to licensing requirements, state and local regulations inform critical decisions on banking, insurance, financing, and even marketing and advertising. For example, in the state of Nevada, all packaging and labeling for cannabis products and brands must be submitted and approved by the Department of Taxation before going to market. Not only does this include direct packaging and labeling, but any sort of marketing or advertising pieces for the brand, such as websites, logos, social media accounts, and billboards.
For context, we’ve been working on a brand with a partner here in California for about a year, and we were ready to take the product to the Nevada market. We understood the submittal process, turned our work over to the state, and about two weeks later, they returned with minor edits to the label to put us in compliance. We made the edits swiftly, and luckily we caught our packaging manufacturer in time to have them take effect before 10,000 units came off the line before re-submitting the packaging to the state for final approval. To our surprise, after making the edits they’d requested, we received another rejection letter from them for an entirely separate issue that was not previously raised: “A marijuana establishment shall not engage in advertising that depicts actual consumption of marijuana or marijuana products.” While this was all happening, the Department of Taxation had been working on, and approved, the new adopted set of regulations. New rules now applied, and no grandfathering rules went with them. All branding was now subject to new scrutiny. We had to make further changes to the label and beg our packaging contact to make the last minute change. Now we have Google alerts and RSS feeds galore that flood our email and Slack channels as the landscape continues to shift.
When a chief compliance officer is in place at a company, he or she will have these legislative dates on calendar. More importantly, he or she will know what pieces of regulations are relevant and critical to the business at that moment of time, and what needs to be planned for down the road. A Chief Compliance Officer’s responsibility of staying abreast of changing laws keeps everyone else in the organization efficiently focused on their own responsibilities, rather than guessing at the regulations.
Securing a New License
It is also the CCO’s responsibility to oversee due diligence on third-party partnerships and relationships.
To this end, unless the cannabis company is well capitalized, obtaining a license, or real estate that supports one, usually requires some kind of partnership with the landowner or another operating business. Due diligence on partners, whether individuals or groups, is paramount. For example, good due-diligence checklists would serve to answer these critical questions:
- Do they adhere to the standards needed to obtain a license?
- Do they practice any potentially risky business behaviors that could put the license in jeopardy?
- Do they have their financials in order?
A well positioned cannabis company should have a CCO to shepherd the process and cultivate those relationships through constant observation, research, and efficient systems for reporting back to the team.
There are a number great resources such as CannaRegs, which breaks down legality per state and municipality in real-time, as decisions are made. This is critical because from state to state, and city to city, laws and regulations are in constant flux. GreenState also put a tool together aiming to help citizens see their rights per county and city. It’s also important to check California’s official legislative information site or the site for the state that applies to the business.
The analogy of the American healthcare system works well here when talking about compliance: spend a little extra time and money on preventative care or end up with a big bill at the emergency room. A Chief Compliance Officer is the former in this situation, they get ahead, survey the land, and lay the safest path forward for your company. With a new industry comes new opportunities and new jobs, like that of a CCO for cannabis companies. It’s a function that adds so much value and is not a corner that should be cut. Frankly, the future of your company could be at stake without it.