A Failure to Comply: Tales from the Marijuana Retail Trenches (Part 1)

It’s important to always ensure that your business is in compliance

Whatever type of legal cannabusiness you own, it’s important to always ensure that your business is in compliance with the current state regulations on the books.

The emerging cannabis industry is one of the most regulated markets to get into and operate within. Below are some real-life scenarios, tales from the cannabis trenches, that illustrate why regulatory compliance is so vital to business owners in the legal cannabis industry.

Example 1: Minor Marijuana Retail Compliance Violations

Cannabis was legalized for recreational use in Washington in mid-2014. Early on, the responsibility of ensuring that cannabis businesses were complying with Washington-state regulations fell on the Department of Planning and Development (DPD).

According to the compliance manager of the DPD, they only investigated businesses if a complaint was filed. The DPD most often investigated cultivation facilities, rather than medical and recreational dispensaries. During a six-month period, the DPD investigated 14 cannabusinesses in total. 11 of those businesses were found to be “out of compliance”, meaning they were violating a state-level cannabis regulations.

These were low-level violations, meaning the business merely received an official notice of violation in the mail. In Washington, a notice of violation merely carries a threat of a fine as punishment. The fine is only imposed if the business does not comply with the broken regulation by the proper date.

In Washington, fines can then only be imposed by an official action in a court of law or by negotiated settlement. Also, the regulating authority, now known as the Washington State Liquor and Cannabis Board, never has the authority to shut a business down. That power and responsibility falls to the courts.

Example 2: Moderate Marijuana Retail Compliance Violations

In Washington, if a business violates a regulation, it is subject to fines as described above. However, what if the business still fails to comply? In the case that there are more serious or repeat offenses, an administrative violation notice is issued. After fines have been issued, the regulating authority can still choose to issue a temporary license suspension.

In Colorado, failure to comply with the Marijuana Enforcement Division’s rules and regulations is considered a public safety violation. Coloradan cannabusinesses face a variety of moderate-level sanctions, including fines up to $100,000 or a revocation of licensure.

In 2015, during just one week of undercover compliance enforcement operations covering 30 dispensaries, Colorado officials issued a total of 7 citations to dispensaries for underage sales to minors. Citations of this level come with a Class 1 misdemeanor charge. Thankfully in follow-up checks, not a single one of the same dispensaries that had failed the first round of checks sold to an underage customer.

In cases such as these, sanctions can also be imposed on the businesses, which can include restrictions on their licenses. The City of Denver, within which the violations in this case occurred, can also always elect to impose its own separate disciplinary actions, which can end in license suspension or revocation. The dispensaries that received violations in this instance included The Herbal Cure, The Healing House, Redeye Releaf, Pure, La Conte’s, Herbs 4 You, and Mile High Green Cross.

However, as is often the case, no businesses named above wanted to comment on the citations. Thankfully between 2015 and 2016, of the 172 cannabis dispensaries that underwent compliance checks in Colorado, only 16 were found to be in violation of state regulations.

Example 3: Serious Marijuana Retail Compliance Violations

Picture a cannabusiness in which everything appears to be legal and operating smoothly. Even if this business follows every state-level law in regards to cannabis, they always must hold the correct licensure to be considered a legal business in compliance with cannabis regulations.

In Seattle, cannabusinesses that do not obtain and keep their licenses up to date risk permanent closure. The state’s position is that when businesses operating in the cannabis industry do not have the proper permits and certificates, they should not be operating at all whatsoever and are often shut-down at least temporarily.

Even a temporary closure spells disaster for any business’s revenue. Proper compliance is a must-have in order for companies to avoid being shut down. Always be sure to keep track of when to renew your required licenses and permits; they’re fairly easy to renew, but difficult to regain after a lapse and subsequent closure.

Serious violations also attract criminal prosecution on occasion. The federal government will not hesitate to charge parties with felonies that result in at least ten years of jail time, if not more.

Don’t Get Caught Not Coughing Up Taxes

One scenario seen far too often is cannabusinesses failing to pay their taxes. In California, where recreational marijuana legalization was recently passed, it’s estimated that only 25% of cannabis companies are in compliance with current tax laws! Failure to pay state cannabis taxes can result in hefty fines at the state-level that are certain to damage a cannabusinesses bottom line.

Illegal sales are already running rampant in California before the legalization scheme is fully implemented there. A few dispensaries have actually been caught selling illegally out-of-state, before the recreational marijuana proposition has even gone into effect state-wide. Behavior such as this is sure to get your cannabis business shut down quickly, and permanently.

We Get It, Compliance is Complicated!

Ensuring compliance is often tricky for cannabusinesses operating in the legal industry nowadays. Regulations change so fast that it’s extremely important to stay up-to-date on all of your controlling regulatory board’s regulations currently in effect in your particular jurisdiction. Rumor has it that California may even require compliance with different regulations both at the city and state level- all the more reason to pay close attention when it comes to cannabis compliance!

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