Top 5 Compliance Infractions for Dispensaries

As a cannabis dispensary operator, you control a coveted position in the cannabis industry. Your dispensary provides medicine and counsel for patients in need as well as (in select states) furnish your community with the means to elevate their cannabis experience. However, this rewarding aspect of your enterprise is only a facet of what you face as a dispensary operator.

Part of your task as a licensed cannabis dispensary is maintaining daily compliance with various, strict regulations across all dimensions of your business. Cannabis dispensaries are not only subject to state licensing and regulation requirements, but must also abide by city, county, and federal regulations as well. In the dawn of cannabis reform and regulation, federal and state legislators are still fumbling with fine-tuning the details, which can only be expected in such a new industry.

However, with legislation and regulations in a constant state of flux, establishing and maintaining compliance in your business may be complex, time-consuming, and at times, exasperating. Consequences for noncompliance include stiff fines depending on the type and number of violations or worse — suspension or loss of operational license.

Therefore, it’s of dire importance that stakeholders oversee compliance procedures in every dimension of the dispensary operation to avoid disruptions and remain reputable. Compliance is not a “set it and forget it” trade; constant updates and improvements are always required. The list below consists of the top five compliance violations for cannabis dispensaries. However, these are considered “across the board” infractions and it should be duly noted that infractions and penalties will vary according to the individual state’s legislation.

Top 5 Dispensary Compliance Infractions:

1. Failure to input all cannabis and cannabis product(s) into the state-mandated inventory tracking system and account for all variances (Inventory Management)

2. Cannabis and cannabis products sold fail to meet proper labeling and packaging laws required by the state. (Packaging, Labeling and Product Safety Laws)

3. Surveillance cameras do not have clear, unobstructed views of the licensed premise and blind spots or sight obstructions exist. (Security)

4. Failure to have accurate or updated tracking logs for visitors, security and waste removal. (Documentation and recordkeeping)

5. The licensee fails to report, file and have all required financial documentation readily available. (Financial Documentation)

HOW TO FIX IT

Inventory Management

Inventory is the single most important element of your business- yet about 80% of businesses struggle in this department. Simple, daily inconsistencies such as careless packaging, miscounted inventory, and employee theft can lead to inventory discrepancies in the future.

Cash diversion and cannabis products are what regulators focus on the most. Your state’s designated Marijuana Enforcement Agency will require tracking and documenting of products from seed-to-sale (chain of custody). Along with state-mandated inventory tracking, dispensaries are also responsible for keeping accurate, up-to-date documentation of physical inventory, point-of-sale (POS), and accounting logs.

Fines, penalties, suspension, or loss of operational license can be the result of inaccurate inventory management — investing in a good inventory supervisor who can provide current, pristine inventory records will save you time, money, and a serious headache.

Security

Surveillance videos are a vital and useful tool to monitor operations and review mishaps in the day to day operations. All video systems should have current, accurate time stamps and be stored in a locked, secure location. The security and surveillance provider should also have an in-depth service level agreement (SLA). To prevent obstructed views, have someone walk through the facility with an empty box while someone else monitors each camera’s vantage point and ensures that at no point the box is out of sight- this is a good rehearsal for when authorities arrive.

The dispensary’s surveillance log should be current, include a list of approved accessors, as well as detailed notations of accessing, maintenance, and routine inspections of the DVR system. A map or numbered diagram of all cameras on the premises should also available for easy identification.

Security and surveillance infractions are deemed “public safety” concerns, therefore, violations can be costly and include impactful investigations. It’s good practice to check the video systems daily to reduce mistakes and ensure consistent recordings. Inability to record regularly can result in added fines, criminal or civil penalties, probation, or loss of operational license. These sites located throughout your establishment should be under routine video surveillance:

  • Prep
  • Process
  • Packing
  • Weigh
  • Initiate transport
  • Initiate receipt of the product

Packaging, Labeling and Product Safety Laws

This is one of the more complex and consequential issues encountered in dispensaries due to the ever-changing legislation surrounding the marijuana industry. Packaging, labeling, and product safety laws are determined by state legislators, therefore, every state has its own set of laws and regulations.

Many promotional and marketing teams tend to improve on the logos but reduce the size of warning labels or omit them altogether. Knowledge and adherence of these regulations are essential for any cannabis dispensary that intends to remain open and fully functioning. Verifying all warning labels are easy to spot and avoid products that are not confirmed “child-proof” are easy-to-fix examples.

Properly and frequently training your employees is another great preventative measure to take. Employees that are knowledgeable of regulations and can spot non-compliant matters and products will instantly improve upon your business and its compliance.

Financial Documentation

Financial documentation and records are a vital organ to keep your cannabis operation alive and running smoothly yet this is the impending downfall of most.

Incomplete or late filings of state and local taxes can lead to fines, penalties, and liens. Your state’s cannabis enforcement agency, as well as the IRS, will expect these to be readily available: Currency Transaction Reports (form 8300), 280e compliance, and tangible access to all financial and inventory logs. Both 280e and form 8300 are products of the IRS; while every cannabis businesses must regard all 280e protocols, only some may need to file form 8300.

Businesses that have received cash payments or receipts over $10,000.00 in a single transaction are required to file form 8300 by no later than the 15th day after the transaction. Failure to do so can result in fines beginning at $25,000.00 and a major IRS audit. Most of these 8300 audits are geo-specific to Denver but are rapidly gaining momentum throughout the entire industry.

Documentation and Record Keeping

Complete, updated, and accurate logs are vital to avoid fines and investigations in all facets of your business and its records. These include applications, waste removal, visitors, and security/surveillance logs. If any tracking logs are inadequate or incomplete, it can result in even more complex inspections. Potential issues and omissions in documentation and record keeping are usually simple to spot yet often lead to further investigations. In other words, just document everything.

Keeping your company’s compliance in good condition also includes maintaining standard operating procedures (SOPs). Your company’s SOP manual addresses a multitude of problems that can and most likely will happen; keeping it updated with the most current regulations is crucial.

It is vital to monitor, track, and record the evolution of your SOPs so that the most current versions are accurate, follows protocol, and readily available for enforcement authorities. When developing your dispensaries SOP manual, consider consultation entities such as The J. Whitney Group as a solution to your SOP manual needs.

Find An Ally to Help Your Dispensary Comply:

It’s important to remember that a license to grow, manufacture, and sell cannabis is a privilege. Business owners tend to focus more on the push of the industry, promoting marketing sales, and neglect their pull, compliance. A dispensary that adheres to regulations and promotes good standards will have much more pull in the cannabis industry than their non-compliant, dicier competitors.

Also, many of the elements that are neglected in your business, are most likely neglected by your competition as well. Becoming allies with regulators and thinking of them as an asset will put you many steps ahead of your competitors.

Another great way to reduce the risk of violations and penalties is appointing a position in your staff as Compliance Officer. By delegating one team member to the task of managing and maintaining compliance, you are providing current updated details of your daily operation. This makes the inspection process much easier and demonstrates you are acting in good faith and responsibly with your license.

Make compliance a draw for your company and your customers — consumers want reliability. You can’t be reliable if enforcement agencies are shutting down half of your operation because of basic infractions. In addition, when companies comply, they are helping to fabricate quality standards in the cannabis industry. Don’t meet the standard, be the standard — for all dispensaries and the industry.

Most importantly: be proactive. Consider consultation services provided by independent companies such as Adherence Compliance or The J. Whitney Group. Consultation services are separate from enforcement agencies and reduce the risk of violations and penalties.