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Cannabis Company Basics: Compliance is Key

by Griffen Thorne, Attorney at Harris Bricken

A few weeks ago, we wrote about the lawsuit filed by the California Bureau of Cannabis Control (BCC) against Vertical Bliss, Inc., a company which the BCC alleged had manufactured cannabis products and sold them unlawfully in the illicit market. The BCC is seeking mind-blowingly high civil penalties against Vertical Bliss based on these allegations. If it is successful and recovers only part of what it is seeking, the damages could still be massive.

The Vertical Bliss case is one of the first massive enforcement actions since the implementation of licensing under the Medical and Adult-Use Cannabis Regulation and Safety Act–late last year, the California Department of Food and Agriculture sued another operator, but not much public enforcement has happened since then.

That said, we fully expect that over the next year, the agencies will ramp up enforcement. And we also expect that they will come after companies who are alleged to have engaged in much more mundane rule violations. From the agencies’ perspective, they will have to eventually start seriously enforcing their rules, otherwise companies will just ignore them.

The inevitability of enforcement actions, civil penalties, loss of licensure, and even potentially criminal liability (depending on the nature of the violation) mean that cannabis businesses must get in the mindset of compliance. Failure to do so can, and eventually will, lead to devastating consequences.

It is not simply enough for companies to take the position that not openly violating law is sufficient to avoid enforcement actions. The BCC’s Disciplinary Guidelines, for example, make very clear that the agency is empowered to take drastic actions against licensees who violate even minor and seemingly inconsequential rules. The point is that compliance means more than just not engaging in criminal or openly unlawful conduct.

Companies with good compliance programs need to consider every single rule applicable to them (and there are a lot of rules applicable to cannabis businesses) and figure out ways not to run afoul of those rules. These companies will adopt proactive mindsets when it comes to compliance instead of acting first and changing things up if the agencies come knocking–because they eventually will.

One thing we hear all the time is how expensive compliance can be. For smaller cannabis businesses, hiring a compliance team or devoting endless financial resources to compliance may not be an option. That said, the cannabis rules apply equally to big and small businesses without exception, meaning all businesses must find ways to learn and follow the rules.

Another important point on compliance with state law is that it reduces (though nothing can completely eliminate) the risk of federal enforcement. As we wrote a few months ago, the BCC recently was forced to turn over records to the DEA of cannabis businesses who allegedly were unlawfully importing cannabis from Mexico. Businesses that engage in illicit conduct are therefore at risk of double penalties from state and federal governments.

The point is that compliance is key and non-compliant businesses may eventually learn that the hard way. We fully expect more and more enforcement actions to be filed in the coming months and years, so stay tuned for more details.

Re-published with the permission of Harris Bricken and The Canna Law Blog

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