As a cannabis business owner, awareness of the risks associated with the industry is absolutely imperative. The most looming of those risks is the federal government and the federal agencies tasked with enforcing federal law. US Federal law considers cannabis a Schedule 1 controlled substance. Agencies like the DEA, FBI, or even the ATF could come kicking down your door at anytime depending on marching orders from Washington D.C.. A cannabis business owner assumes certain risks when choosing to do work in the cannabis industry and must understand state regulations as well.
Federal enforcement is not the only risk cannabis owners need to be aware of. Each state has their own regulatory practices that could have a negative impact on a cannabis business as well. Many states have only recently legalized some form of marijuana use and or sale. States are in the process of developing regulations for an industry that was previously underground with no rules or regulations. California for instance instituted business requirements that were set to take effect on July 1, 2018. Those requirements included the introduction of lab testing, packaging, labeling, and THC limits in products offered for adult-use. Cannabis business owners were given six months to transition to the new rules, if they were not able to comply, they would be responsible for destroying any product that did not meet the new rules and document the product destruction.
On Sunday, the stringent new “seed to sale” tracking standards for California’s cannabis market went into effect. Overnight, thousands of pounds of cannabis products worth hundreds of millions of dollars suddenly became noncompliant. Now, dispensaries are in the process of destroying them, in an event the industry has dubbed the “Marijuanapocalypse of 2018”… Drayton estimates Los Angeles dumped tens of thousands of pounds of product, alone.
In anticipation of this pending doom’s day scenario business owners needed to have a plan in place. California gave owners a six month window to sell what they had without the restrictions of the new rules. Business owners would have been smart to offer the non-compliant products at deep discounts as frequently as possible to help mitigate the loss. This is a rare particular instance where the business owners knew what the catastrophic event was going to be, and knew when it was coming. That sort of information is rare in the world of risk mitigation but when you have it, use it. There is no way to accurately track what was lost in California this past week, but estimates are significantly high. There is no insurance product available at this time to protect a cannabis business owner from state mandated destruction of inventory, but it is important that business owners are aware of the looming risks of regulation, and take any necessary precautions to protect themselves in the face of enforcement.
Unfortunately there is no cannabis insurance product to protect against the general liability associated with state regulatory mandates. The cannabis industry is being presented with risks that are not common in traditional business sectors, but must still be accounted for. Like traditional business models, insuring your business against predictable risks based off past occurrences is the prudent move for any good business owner.