Editor’s Note: This is the second in a three-part series on top regulatory compliance infractions for medical and recreational retailers, manufacturers and cultivators. See here for the first part on Retailers.

The Cannabis Industry is one of the most highly regulated industries in the world, on par with banking, financial services, pharmaceuticals, and health care with regard to the depth and complexity of the regulatory framework.

Not only are cannabis businesses subject to state licensing and regulatory requirements, they must also adhere to city, county, and federal (yes, federal) regulations and authorities as well. Operating a cannabis business is highly complex and the overall risk of doing so is significant and subject to many pitfalls.

The following list of top compliance infractions for medical and recreational cultivators in Colorado was obtained from the results of more than 350 regulatory compliance audits conducted since August 2014. This listing combines both retail cultivation and medical cultivation infractions for all licensees audited.

Top 5 Compliance Infractions for Colorado Cultivators

1. The facility does not have a complete inventory of material safety data sheets where the product is used or stored.
2. Pesticides are not used in accordance with the Pesticide Act or Pesticide Applicators Act.
3. The facility does not maintain an adequate Pesticide Application Log (document and record).
4. The facility does not document material changes to the standard operating procedures.
5. The cultivation facility has not remained under the maximum authorized plant count.

Pesticides

There have been numerous flower, infused product and concentrate recalls in Colorado. If banned pesticides are found during mandated testing, the state may issue a recall.

Product recalls are costly as the item(s) must be pulled from all locations and taken back to the originating licensed premise. At that point, the recalled product is placed under administrative hold and is eventually destroyed.

The documentation of application of pesticides during the cultivation process is another common area of noncompliance. Each time an application of chemicals or pesticides occur, detailed information must be logged regarding the application, chemicals involved, approved applicator number, employee who administered the application and so on.

Noncompliance in pesticides is one of the most heavily fined violations in Colorado. The average fine amount assessed by the state’s Marijuana Enforcement Division on all cannabis businesses in 2015 was $21,000, with numerous businesses fined $50,000 or more.

Cross-contamination

Cross-contamination occurs when marijuana products — flower, shake, joints, concentrates, etc. — are not handled with sterile procedures. This can occur if any food products or non-sanitary items are near or around areas that process or sell marijuana. Contamination can also occur when marijuana product is handled by individuals without sterile gloves or tongs.

Technically, if any marijuana product is dropped on the floor, it should no longer be fit for consumption due to potential issues with contamination and contact with the floor.

This dropped product should be tracked as waste and properly disposed of in accordance with regulatory guidelines. Something as simple as a bag of chips or an open container of food near a product processing or point-of-sale area can constitute a violation.

Standard Operating Procedures

Cannabis cultivators in most of the 23 legal states plus the District of Columbia are required to create and maintain Standard Operating Procedures addressing numerous aspects of operations. These procedures can be quite voluminous and complex.  Some states require food service certificates and Industrial hygienist inspections to create edibles and concentrates.

Effectively maintaining standard operating procedures requires change tracking logs to monitor the evolution of the document and ensure the most recent version is accurate and available for regulatory authorities: A task that can seem like paper pushing, but are a critical component of compliance. Savvy cannabis business owners utilize these detailed documents as the foundation for training and monitoring employees.

It is a privilege to cultivate, manufacture or sell marijuana. The value of an operational license and long-term success of the business is intimately linked with regulatory compliance. Full, holistic compliance for each license will help businesses obtain bank accounts, attract investors or partners, establish good faith with regulators and community members, as well as significantly reduce the risk of fines, administrative actions and/or possible closure of the business.

To survive in this industry, compliance must be viewed and embraced as a strategic advantage.