Top 3 Reasons Why Cannabis Businesses Lose Their License

Top 3 Reasons Why Cannabis Businesses Lose Their License

Running a successful cannabis business means contending with an ever-changing labyrinth of regulatory requirements. Most regulatory oversights result in fines and minor penalties, but there are certain mistakes that can actually cost you your license. If you run any sort of cannabis operation, you’ll want to be mindful of the most serious pitfalls.

1. Failure to Properly Track and Trace

In 2019, nearly 400 California cannabis businesses had their licenses suspended for the same reason: failure to undergo the necessary track-and-trace steps and log their data. California, like all legal marijuana states, imposes strict requirements for the logging of inventory. Businesses must keep precise, updated records of their total inventory, where the inventory came from, when and where it was sold, and other pertinent information.

Even unused cannabis waste is subject to track-and-trace requirements. When unsold cannabis is discarded, it must be broken down and transformed into an unusable state. Then it must be weighed, tracked, transported to an approved landfill or composting facility, weighed again, and documented for the official record. This is why dispensaries and other businesses rely on cannabis waste disposal companies.

The track-and-trace system is the most aggressively enforced set of cannabis regulations for businesses. It’s how licensing agencies ensure that every dollar is accounted for and that there’s no intermingling with black-market or unauthorized (i.e. out-of-state) cannabis distributors. Failure to adhere to these requirements can result in immediate and—in some cases—irrevocable loss of licensure.

2. Selling to the Wrong People

This one is pretty self-explanatory. If a bar sells a shot of Jameson to a nineteen-year-old and gets caught, it’s on track to lose its liquor license. The same basic rules apply to cannabis businesses.

Recreational dispensaries are required to conduct business in accordance with state law, and that means only selling to adults (usually 21 and over), limiting the amount of product per customer, and avoiding any products that are prohibited by state law—for example, some states have maximum THC requirements or prohibit the sale of CBD edibles.

For medical-only clinics and dispensaries, the rules are even more stringent. Businesses can only sell to patients with an up-to-date medical marijuana card. Any dispensary—medicinal or recreational—that fails to follow the rules is likely to have its license suspended or revoked.

3. Producing Dangerous or Improperly Labeled Products

Though cannabis products aren’t overseen by the Food and Drug Administration, they’re still subject to strict quality and labeling requirements.

In 2019, California-based Kushy Punch had its license revoked because its vape products were found to contain pesticides. Product makers are prohibited from using ingredients known to endanger human health, and vape products have been held to particular scrutiny ever since last year’s lung injury outbreak.

The labeling requirements vary from state to state, but there are a few common regulations. The product must be clearly identified, ingredients must be disclosed, and important information like the date of manufacture must be legible. Health claims cannot be made, and government statements must be included. Some states even impose restrictions on label layouts, font sizes, and designs. This can get especially complicated for businesses with a presence in multiple states.

How to Remain Compliant

By heeding the pitfalls above and remaining a pillar of your community, you can avoid the ire of the regulators and licensing boards. For maximum assurance, you’ll want to have the following professionals on your team:

  • A cannabis business lawyer
  • A CPA with cannabis industry experience
  • A cannabis business consultant

Staying compliant is expensive, but risking your license can cost you everything.

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