Imagine owning a business subject to government regulation (as most are). Now imagine that your industry used to be completely illegal and remains federally prohibited. The people making the rules have no idea how your industry works. As a result, rules are altered or amended frequently as people grope their way through the darkness.
If you own or operate a cannabis business, you don’t have to do much imagining to be familiar with this scenario.
Changing rules in the cannabis industry are a fact of life. States constantly decide they have a better way to run the system and we have to retool and reconfigure every time it seems like we find a groove. Regulatory changes that completely disrupt a functioning commercial system are few and far between in most industries. In cannabis, they happen several times a year.
This is unlikely to change any time soon, regardless of where you operate. Commercialized cannabis is a newly legal industry beginning to spread its wings. We have 50 states that will need to adopt medical and recreational programs. While states that transition later can learn from those that have come before, every jurisdiction will have some amount of trial and error.
That’s the bad news. The good news is that while we must live with these frequent and highly disruptive regulatory changes, we can minimize their negative impact and possibly turn them into an advantage with a little savviness.
Oregon’s Changing Rules in the Cannabis Industry
A business must know what changes are happening and when they will be effective in order to respond to regulatory changes. This is easier said than done. In Oregon, cannabis firms are subject to regulation by the Oregon Liquor Control Commission (OLCC), the Oregon Health Authority (OHA), the Department of Revenue (DoR) and the Department of Agriculture (DoA). This is in addition to the rules of the Secretary of State and general regulations that all businesses must follow.
To complicate matters further, the level of coordination between these agencies varies on a case-by-case basis. This means we must follow all of these agencies. In addition, the effective dates of the rules can change frequently.
In 2015, Oregon’s legislature passed a number of new requirements for cannabis businesses to take effect on March 1, 2016. As February arrived, the various agencies announced that some rules would take effect on March 1, while others would be delayed until April 1, June 1, July 1 or October 1. In mid-March, the OHA announced that one of the rules postponed until October 1 was actually effective immediately, retroactive to March. This was not confusing at all…
Resources to Prepare and Create a Plan
How do you make sure that you don’t miss a rule change or a change of date? Many state regulators like the OHA and the OLCC have email lists. You can sign up to receive emails announcing new rules or modified effective dates.
The Oregon Cannabis Association (an organization I helped found) sends email reminders to all members regarding these types of changes, along with tips on how to tackle the issues that will arise. The organization also offers informational events where representatives of the various regulators offer updates and answer questions. I enjoy sharing the value of joining industry organizations and this is another example of how these organizations can be useful.
While knowing about pending changes is a crucial first step, it is only the first step. Create a plan for how to comply with the new rule(s) once you know a new rule is coming.
Start this process as early as you can to deal with regulatory modifications on several occasions. It is highly recommended to vet your plan early so that there is time to address any issues that will inevitably follow the implementation of any new system. You may find yourself realizing that your plan doesn’t work or account for something, as we have dealt with on several occasions.
When I say have a plan, I truly mean to have several plans. With all of the unknowns and uncertainty faced in the industry that accompanies these types of changes, be prepared for the full panoply of contingencies that may arise.
The Software Situation
For most cannabis companies, seed to sale software is your most important compliance tool. This should be designed to assure that you adhere within the lines. The problem is that state governments rarely, if ever, consult the software companies when they change rules. This can lead to huge complications.
For instance, July is the first month of a new reporting system in Oregon. Going forward, all dispensaries must file certain reports with the state every month. One of the required reports is to record all transfers into the dispensary. We must list each inbound transfer, along with certain information like the grower card number and/or processor license number.
The problem is that while my seed to sale software can provide a list of all inbound transfers, it doesn’t associate a card or license number with each in the report. That means I have to run the report, export it to Excel, then manually add the license number. This will be a cumbersome and inefficient process that costs time.
Software providers often offer updates around the time of a new rule to provide the functionality necessary to comply with the rule change. By engaging early, you can determine whether your software will need an update in order to comply. Then you can find out whether the software will be updated and when the update will be available.
Software updates come with their own challenges. They frequently disrupt our pricing structure or crash our system entirely, so we try to schedule them at least a few days before the rule change. This gives us time to familiarize ourselves with the new functionality and fix any bugs that arise.
Change is Constant and Inevitable
According to the ancient Greek philosopher Heraclitus, “The only thing constant is change.” While he couldn’t have been referring to the modern cannabis industry, he might as well have been.
Significant change and massive upheaval will be a part of our industry for years to come. Once you accept this fact, make sure that you are prepared. Know what changes are coming. Know when they will arrive. Put together a plan that addresses all of the contingencies that you can think of, including software issues.
These changes affect everyone, but if you are more prepared than your colleagues, you can transform a liability into a competitive advantage.