Strict Compliance Regulations In The Cannabis Industry Can Hinder Growth

In many places where cannabis is legal, it’s as simple as walking into a shop, showing your ID, and having a budtender hand over glass jars of weed or singular pre-rolls. However, the process of getting it to dispensary shelves isn’t as easy for manufacturers.

There are regulations put in place for all sectors. Legalized marijuana is still young, though, with many of the rules hindering businesses from growing to their full potential. Nicole Cosby, Chief Data and Compliance Officer at Fyllo, a compliance solutions company for highly regulated industries such as cannabis, recently published the results of a study on the National Cannabis Industry Association website that surveyed more than 300 compliance leaders in a variety of industries. About two-thirds of the companies that face heavy regulations agreed that compliance is a leading factor in preventing growth. This sentiment extends even further when the study determined that compliance issues ranked as the #1 barrier for local start-ups to corporate compliance leaders.

Cannabis companies are burdened with the simple fact that the federal government has yet to legalize recreational use. Politicians like Chuck Schumer and thousands of activists have made efforts, but decentralized regulations make it more difficult for companies to keep up. Each jurisdiction, statewide and locally, has varying rules that present hurdles for companies to expand their brand and keep up with the ever-evolving regulations. A more significant issue is that both local and state laws are challenging to differentiate, often creating confusion among even the most cautious and knowledgeable leaders. Fyllo’s study revealed that over half of the participants found these compliance laws overwhelming, which, in turn, could create accidental infractions. Rules vary by location, from cultivation to packaging. Cosby’s study revealed that 59% of companies working within highly-regulated industries faced challenges with data for privacy regulations, while 45% agreed that product-related regulations were the second biggest trouble. 44% found marketing and advertising regulations to be the third-largest difficulty. 

Due to the incredibly stringent and intricate rules around cannabis, a minor slip-up can cost a company more than financial gains. Nearly 75% of Fyllo’s study participants said compliance issues could cost a company trust among their investors, consumers, employees, and regulators, and bouncing back (if it’s possible) is costly. Nearly half of those companies agreed that there’s a need to spend more to grow their customer base again. However, once a reputation for a cannabis company takes a risk, it can also prevent the possibility of acquiring new licenses in other legal markets. For instance, a company that fails to secure child-resistant packaging in one state, even completely by mistake or no fault of their own (they weren’t aware of the rules or they got duped when ordering packaging) could be turned away from states that put a major focus on CR compliance (which is obviously a very important compliance packaging feature for cannabis).

Compliance laws are in the hands of the General Counsel, who aims to keep businesses from maintaining high product standards and clean business practices. The GC’s role has created specific roadblocks, mostly because of how unclear the rules are when they’re announced. Many companies believe those efforts should target five key areas that Cosby laid out: protecting companies from hindering their growth, revenue, opportunity, reputation, and opportunity. A significant role is played by each of these factors in slowing down a company’s momentum. Changes in legislatures must be evident for all companies to comply for businesses to prepare and respond accordingly. Even a minor mistake can result in delays and pushbacks from getting products onto shelves, costing companies revenue in the process.

Ultimately, the only way to prevent citations is by being diligently aware of the changes happening in the industry. Local, federal, and state laws are changing – sometimes conflicting with one another – but compliance professionals need to be aware of the trends if they want their company to win in such a fast-paced industry.