The Hidden Costs of Non-compliance

The cannabis industry continues to grow on a global scale, keeping investors, entrepreneurs, and established cannabis operations hungry for the consumer and commercial opportunities the sector brings. But costly licensing fees at the local and state levels, heavy taxes, evolving regulations, operational costs, compliant advertising and more, make the industry a costly one to get started in.

While the costs are high, compliance is not something you want to take shortcuts with, especially when non-compliance costs are often much higher. Rightfully so, cannabis manufacturers, retailers, and investors often fret over complying with cannabis compliance regulations, even when becoming and remaining complaint proves to be the surest way to determine your company’s success.

Of course, compliance is a thorn in a cannabis operator’s side, especially with the irregular patchwork of laws at state and local levels coupled with a confusing myriad of evolving federal regulations. Besides the costs of non-compliance being devastating for operators, cannabis audits, inspections, and penalties are becoming more common. Local and state governments have learned there are intentional offenders from bad actors hoping to circumvent the law as much as unintentional offenders from businesses who simply don’t know the rules or have the cannabis compliance systems in place to help them.

You should already know that the price of compliance is a bargain compared to the monetary penalties of not complying, but what about the hidden costs of non-compliance? Sure, you could lose your license, but that’s pretty well-known too. We’re talking about the underlying, often unanticipated costs of cannabis non-compliance.

Contamination and illness resulting from non-compliance

The cannabis industry has been mostly reactive to safety measures and determining best practices for businesses. Cannabis is one of the least dangerous plants on the planet, but the worst thing that can happen to a cannabis consumer is having adverse effects from consuming contaminated or non-compliant marijuana. This is especially true for patients with already reduced immune defenses who seek reputable cannabis companies to avoid the potential personal costs, including hospitalization, medical bills, and quality of life risks.

Liability from widespread legalization

Lawsuits are not uncommon in the U.S., so an increase in cannabis liability claims is inevitable. As the industry grows and more states permit medical or recreational uses, it has become a litigation target.

Participants increasingly are engaged in civil litigation involving:

  • Consumer-oriented claims, such as product liability, personal injury, and consumer fraud.
  • Commercial disagreements, such as claims for breach of contract in consulting agreements, insurance policies, or supply agreements.
  • Partnership claims, such as disputes over ownership interests and performance payouts.
  • Intellectual property claims, such as trademark infringement or trade secret/non-compete violations.
  • Employment-related claims, such as harassment, workers’ compensation, and wage-related claims.

That’s right, it’s not just the consumers that want you to be compliant. Consider the case where two former employees of a multistate dispensary are suing their former employer due to multiple known compliance violations and urging them to break state law.

Cannabis operators should anticipate the inevitable increase in product liability claims and litigation. Whether you are a manufacturer, producer, retailer, or operator anywhere in the marijuana supply chain, you will find lawsuits to be more disruptive and costly than compliance. By taking measures to improve the safety of your products, you can reduce the risk.

Negative product or brand experiences – Awful for everyone

For cannabis consumers, discovering their favorite brands comes from reasonably priced, consistent, and quality products. For first-time and occasional customers, a bad experience could turn them off of your brand or cannabis as a whole forever. Don’t forget about Weedmaps, where customers can publicly review the pros and cons for particular dispensaries– too many negative reviews from customers who suffered a bad experience can bring down a cannabis business or brand.

Put simply, non-compliance and inconsistency lead to bad experiences for consumers. When compliance is a consumer-focused initiative to begin with, whether your product has a variable or unexpected effect or worse, your customer becomes ill as a result of consuming your product, it’s the consumer who endures the real price of non-compliance.

Yes, the actual penalty costs of non-compliance are tremendous and include fines, mandatory employee retraining, lost revenue, temporary (or permanent) closing, losing your license, and for the worst offenders, jail time. But the hidden costs can no longer stay hidden and need to be prioritized when considering compliance.

Since compliance is the key to product safety and consistency, every cannabis operator should understand the significance of a proactive compliance management stance and how it helps you avoid liability and harming your consumers.

Keep Reading

Branding Survival Guide for the Cannabis Startup
Cannabis Trends to Watch for in 2021
Cannabis Compliance Solution

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