Last week, the California Office of Administrative Law (OAL) approved final regulations governing the cannabis industry in California. The new rules went into effect immediately, superseding the “emergency regulations” previously in place. To get up to speed, you can review the regulations put forth by the three state licensing authorities responsible for regulating the cannabis industry: Bureau of Cannabis Control, Department of Food and Agriculture, Department of Health.
It is impossible to over-state the importance of regulatory compliance for cannabis businesses. Failure to comply can result in the revocation of licenses, hefty fines, and possibly even jail time. Following are initial steps every cannabis business should undertake to begin the process of attaining, and maintaining, regulatory compliance.
Step 1: Prepare for all Regulations: Local, State and Federal
An essential component of California’s cannabis laws allow local jurisdictions – at the city and county level – to determine and implement cannabis laws of their own. So not only do you have adhere to state laws, but you also must be aware of, and comply with, regulations in every local jurisdiction where you do business. Adding further complexity, while state laws are (relatively) static for the time being, local laws are in flux and will require diligent monitoring.
As if that wasn’t enough, there are, of course, federal regulations that affect a wide variety of financial operational components of your business: from IRS and Treasury Department tax and reporting requirements, to regulations governing cultivation and manufacturing processes from the FDA.
Our Recommendation: Ensure that your compliance officers are up-to-date on every level of regulatory compliance. It is simply not enough to pay attention to state requirements and assume local laws follow suit. A systematic approach is required, which includes regular reviews of local, state and federal laws to ensure the regulations have not changed.
Step 2: Get up to speed on Track and Trace
Last fall, California began issuing annual licenses to cannabis operators. One major difference between operating under a temporary or annual license is that with the annual license, your operation must be plugged into the California Cannabis Track and Trace (CCTT) system – the program used to record the inventory and movement of cannabis products through the commercial cannabis supply chain. California has chosen Metrc as the software provider for the CCTT.
Upon receipt of an annual license, your operation is expected to immediately be fully operational within the CCTT. Depending on the nature of your cannabis operation, compliance could require fundamental changes in inventory tracking, shipping manifests, payment processes, and more.
Our Recommendation: Get up to speed on CCTT as quickly as possible! Waiting to get your license before assessing and plugging into Metrc is a recipe for disaster, as unexpected gaps could result in operational delays. Preparing to transition to CCTT ahead of time will save a lot of headaches down the road. Get started with the training Metrc provides to California cannabis license holders.
Step #3: Ensure Your Technology Platform Supports Regulatory Compliance
Once you’ve gained a definitive understanding of regulatory demands and California’s Track-and-Trace requirements, that information must be applied to the technology solutions at the core of your cannabis business’s operation. There are a variety of Enterprise Resource Planning (ERP) and Point-of-Sale (POS) systems designed specifically for the cannabis industry. Undertake a review of your technology platform to ensure that they will support the demands of compliance. Cannabis companies that fail to do so have found themselves required to undertake arduous tasks, like manually updating data into Metrc, which greatly increase opportunities for errors and breakdowns in compliance.
Our Recommendation: It is never too early to start the process of assessing your technology platform, and if found wanting, identifying and implementing an effective solution. The right-fit technology can lower your risk profile and provide greater precision and efficiency by automating a variety of reporting and documentation procedures. Consulting with technology experts who possess specific knowledge of cannabis technology solutions can ease the process of selecting, implementing, and testing platforms.
Compliance is an Essential, On-Going Task
Following the steps provided above will put your cannabis operation on the path toward the ultimate goal: implementing internal controls, risk management procedures, and governance practices across every level of your cannabis organization. An effective system of checks and balances can lower your cannabis company’s risk profile, ease reporting demands, and help support compliance. Putting systems into place isn’t enough, as they must be continually reviewed and updated to meet changing requirements. It may be a difficult task, but it is one essential to the current and future success of your cannabis operation.
The MGO | ELLO Alliance Governance, Risk and Compliance practice is dedicated to advising cannabis businesses on the best ways to reduce risk and ensure enterprise-wide compliance. If you have any questions about regulations in California, or anywhere else, please feel free to reach out to us.