By Marion Mariathasan

There is no doubt that 2023 has been a bumpy start for many in the cannabis sector. A bear market is obliterating company valuations. Federal reforms are moving at a glacially slow pace. Inflation continues to choke the equity markets. And to top it off, the plant is still being federally illegal, making these collective challenges more than trying.

With a sea of constantly changing regulations coupled with a host of new states coming online and businesses expanding the number of markets in which they operate, the complexities of fractured cannabis regulations only continue to grow. As licensed operators and cannabis related businesses (“CRBs”) like law firms, banks, insurance agencies and marketers prepare to navigate these choppy waters, many are looking for ways to surgically cut costs, drive efficiencies and streamline operations. These industry players are coming to realize that adopting a proactive approach to tackling compliance is a key way to gain a competitive edge.

The Thomson Reuters Regulatory Intelligence (“TRRI”) report Fintech, regtech, and the role of compliance in 2023, which surveyed nearly 3,000 responses and has been downloaded over 13,000 times by firms, risk and compliance practitioners, regulators, law firms, consultancies, and Global Systemically Important Financial Institutions (“G-SIFIs”), found that regtech applications are having the greatest impact in combating financial crime and that greater interaction between regulators and firms is needed. The TRRI survey found that regulators are adopting technological solutions to help with their supervisory roles and the management of large volumes of data. This means firms need more interaction with regulators on fintech and regtech and we will likely see an increase of respondents having to speak to their regulator about these software-as-a-service (“SaaS”) services.

Last year, the regtech market accounted for US$ 8.2 billion, and by 2023 it is estimated to skyrocket to US$ 57.5 billion according to a recent report by Prophecy Market Insights. Both the financial and insurance industries – two critical partners to the cannabis industry’s success – are already embracing regtech and integrating the use of advanced and predictive analytics, robotic process automation, artificial intelligence and cognitive technologies in their quest to improve business operations. This is smart business. Banks and insurance brokers and carriers have also been known to give “bonus points” and discounts to cannabis businesses that are using regtech, sophisticated analytics and data integration.

In more established industries, regtech has become an invaluable part of risk-based compliance programs. With only about 10% of banks currently serving the cannabis sector, many of them are looking at regtech and fintech tools as a way to open up the services offered to cannabis businesses and CRBs and see SaaS solutions as a potential way to boost transparency, track regulations and provide updates and guidance on laws.

With regtech making a splash in banking and financial sectors, the insurance sector is also looking at ways to leverage these tools to make transformative shifts in insurance compliance and risk assessment. According to Deloitte, insurance brokers and carriers are using regtech to automate processes so compliance professionals can respond more effectively to changing regulatory demands, focus on higher-order activities and become more valuable business partners and advisers. Regtech has empowered these business owners to identify issues before they arise. It has also helped them adhere to compliance guidelines, conduct self audits to see where things stand and when to take action, document compliance with applicable laws, and provide a valuable first line of defense against any allegations of corporate wrongdoing.

In the cannabis industry, regtech is also already helping operators and CRBs stay compliant while reducing cost and time spent on regulatory operations. These tools have become critical in robust compliance programs, making tasks like regulatory monitoring, self auditing, checking state operating procedures, reporting and even managing documents much easier and more cost effective. Regtech’s starring role in the cannabis sector has been its ability to help cannabis businesses protect their largest assets – their licenses – as well as automate compliance departments’ daily tasks, quickly create documents, track assignments and tasks for employees and create standard operating procedures – and for good reason.

Since the emergence of legal cannabis, compliance has continually gotten more complex. And even if cannabis is legalized at the federal level, this complexity isn’t going to lessen – rather federal laws will be piled on top of state and local regulations. This is why more cannabis entrepreneurs would be wise to steal a page from the banking, finance and insurance playbooks and jump on the early-adopter regtech bandwagon. If they do, they may just save significant time and money – and stay one step ahead of regulators.