Don’t Instagram your crimes - or your cannabis compliance violations. It sounds like a straightforward personal policy to implement, but you’d be surprised.
Take for instance the case of a Vermont cannabis cultivator who was fined $20,000 after posting a video on Instagram showing him delivering cannabis to an unlicensed store in Manhattan. The cultivator called the video “a publicity stunt,” albeit a costly one. But in the world of cannabis compliance fines and legal fees, the cultivator’s experience could have been much more painful.
Cannabis compliance guidelines can be remarkably complex. And because marijuana remains illegal on the federal level, cannabis regulators can vary widely from state to state and from one jurisdiction to the next.
But while keeping up with the intricacies of cannabis compliance can be a time-consuming, costly endeavor, the alternative can be much worse.
How costly are cannabis compliance fines?
In December 2022, a California cannabis company made headlines after it received a jaw-dropping $128 million fine for illegally producing cannabis products at an unlicensed facility. But while this may be an extreme example, even much more standard violations can be very costly.
In June 2022, five New Jersey cannabis companies were fined a total of $360,000 for allegedly selling recreational cannabis products during hours that were reserved for medical cannabis patients. Just a few months later, a Detroit medical marijuana dispensary was fined $75,000 and ordered shut down for 30 days after regulators found the company had multiple bags full of cannabis products that did not have the required state tags.
According to Jerrico Perez, a partner at the cannabis law firm Vicente LLP, the cost of a compliance fine can range from around $5,000 for more minor violations such as ones involving inventory tracking, to anywhere between $30,000 to $200,000 for more serious violations like selling cannabis to minors.
“And that’s just the sanctions that the state would put on you. That doesn’t include things like attorney fees,” Perez said.
What does it cost to contest a compliance violation?
Perez described how in the event of a license violation, the presiding cannabis enforcement agency will issue a charging document that includes the allegations relating to the violations. The licensee then has the option of contesting the violation.
“You have an opportunity to defend yourself and answer the charges,” Perez said, adding “you’ll have the ability to go to a hearing with a hearing officer to argue why you shouldn't be sanctioned. And those hearings can absolutely cost you in the tens of thousands of dollars.”
And that’s not only in the case of the more serious violations. Contesting even minor violations can cost a great deal of money if you decide to go to a hearing to contest them.
Perez stated that just the retainer for an attorney can run between $10,000 to $20,000, and hourly fees can easily cost from $250 to $800.
According to Perez, when faced with soaring legal fees, licensees often opt to reach a settlement agreement with the jurisdiction.
Perez said that the firm has seen settlement agreements for more serious violations that resulted in hundred thousand dollar fines. In many of these settlements, the licensee can also agree to have their license suspended for a set amount of time.
“You can also agree to have your license suspended for a week or a month. Or they might suspend your license permanently so the cost [of the violation] could be the cost of closing your facility.”
Damage to your company’s reputation
One cost of non-compliance that can be hard to quantify is harm to your company's reputation.
When a compliance violation happens, it can easily make headlines in the cannabis press. These headlines can remain online and show up in the top search engine results for the company in question long after the fines and suspensions are in the rearview window.
The cannabis industry is very saturated. It can be very difficult for companies to find ways to differentiate themselves from the competition and build their brand and customer base. Being the subject of a highly-publicized compliance violation or recall will differentiate a cannabis business from the crowd, but will not help them build a lasting brand, to put it lightly.
Does it make economic sense to cut corners on compliance?
With cannabis compliance, it can be tempting to take shortcuts, especially considering how many other tasks the average cannabis company must carry out daily.
But according to Perez, such savings don’t pay off.
“That is 100% a false and incorrect conclusion to be drawn. Investing in compliance on the front end can save you tens of thousands if not hundreds of thousands of dollars,” Perez said. She also argued that compliance adherence “provides for a strong foundation for a positive working relationship with the [cannabis] regulators.”
Instead of trying to cobble together homegrown compliance solutions, cannabis operators should invest in a comprehensive compliance management system like the Rootwurks Learning Experience Platform, which can help them stay on top of cannabis regulations without having to hire extra staff members or devote hours and hours of their workday that they simply don’t have.
Legal cannabis operators that want to build a lasting brand must keep compliance front and center. The alternative may be far more costly than they realize.