Top 3 Industry Risks for Cannabis Companies

October 23, 2019 · READ

As the legalization of both medicinal and recreational cannabis continues to grow, manufacturers, distributors, and retailers have to be prepared to deal with the increased volume of incidents affecting their business. For cannabis companies, incidents that impact their business can cause irrevocable financial and reputational damage.

Take CannTrust for example. On September 17, 2019, it was announced that CannTrust lost its license to sell and produce cannabis after Health Canada found that several of its facilities were non-compliant with pot-growth regulations. As a result of their non-compliance, the company saw its stock dip more than 25% after the announcement was made.  

Understanding the challenges that the cannabis industry faces can help guide businesses to determine where to allocate and invest their budget, which programs and protocols to put in place, and the best path to gain overall visibility into all aspects of their business.

Three critical risks that impact cannabis companies are:

  1. Theft
  2. Product Tampering
  3. Adjusting to Compliance Regulations

1. Theft: In-store, In-transit and Insider

Of all retail businesses, cannabis companies are especially vulnerable to theft both inside and outside of their business.

In-Store Theft

As with most retail businesses, in-store theft is a constant threat to day-to-day operations. Shoplifting, robberies and break-ins, while unavoidable, can be decreased through well-thought-out floor plans, employee training and thorough security protocols.

In-Transit Theft

Cannabis companies need to ensure an additional level of security when cannabis is in transit. Whether it’s the product moving from the supplier to the retailer or from the retailer to the consumer, the product is vulnerable to in-transit theft which could result in black market selling or worse, product tampering.

Insider Theft

Almost all theft in cannabis companies is internal. With easy access to products, the ability to process discounts, and all-around knowledge of how the business operates, employees are the top culprits for theft. According to one report, in a $700 million market such as Colorado, employee theft amounts to almost 2-3% of that.  

How to Combat Theft

  • Invest in adequate security equipment. By installing cameras, alarms, and other intrusion detection, the premise will be better secured and protected from external threats.
  • Develop, implement, and train staff on in-store robbery and theft protocols.
  • Screen new employees as part of the hiring process.
  • Implement employee bag checks as they enter and exit the workplace.
  • Hire on-site security personnel to manage ID checks and any in-store security issues.
  • Invest in Incident Management Software to report, track and manage incidents. This will also provide visibility into areas of opportunity.
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2. Product Tampering

It might seem obvious, but product tampering is one of the biggest risks impacting cannabis companies. Not only do products have to meet compliance standards (determined by the country/location where the business operates), but a product that has been tampered with can result in physical harm to customers. Aside from the obvious health dangers to consumers, a tampered product could also result in damage to the company’s overall reputation. If customers don’t trust your product, there are hundreds of other companies that will take your place. Losing customer trust and ultimately their business will financially impact the growth and revenue of the business. For a cannabis company, trust is the currency that keeps customers coming back.

In-store Tampering

If the product is out in the open and not adequately protected, anyone in the store could potentially add ingredients to the product. Proper protection of the product is critical to ensure the safety of the formula is kept intact.

At the manufacturers

Ensuring that the manufacturer has a safe and reputable facility to develop the product is critical for cannabis companies. Make sure that you have coverage in place to know everyone who is working on your product. Manufacturers should have security in place to be able to track everyone who has entered or exited the facility so that if something does happen, you’re able to identify potential suspects.    

Post-sale or on the black market

The product could be tampered with post-sale or if it’s been stolen and repackaged. While this is a misrepresentation of the product, if something happens to someone while consuming the product, if your name is on the label, your brand will take a hit.

3. Adjusting to Compliance Regulations

“Poor process can have an enormous and disproportionate impact on the business.”

Cannabis regulations differ depending on the location of the business. But it’s clear that regulators are not turning a blind eye when it comes to ensuring that cannabis companies are compliant. Maintaining compliance with industry regulations can make or break a cannabis business.

As mentioned in the example earlier, CannTrust saw its stock price dip and lost its license to sell and produce cannabis because of non-compliance. They came under fire from regulators because they were cultivating in unlicensed rooms. In order to regain its license, CannTrust prepared a remediation strategy to build its way back to compliance. The strategy includes:

  • Ensuring that cannabis will be produced and distributed only as authorized, including measures to control the movement of cannabis in and out of CannTrust’s site;
  • Recovering cannabis that was not authorized by CannTrust’s license;
  • Improving key personnel’s knowledge of and compliance with the provisions of the Act and the Regulations that apply to CannTrust; and,
  • Improving how records are kept, including a plan to improve inventory tracking and any interim measures to ensure that information provided to Health Canada can be reconciled.

In order to roll these measures out, CannTrust has to destroy $12 million of biological assets and approximately $65 million worth of inventory that was unauthorized by their license.

Non-compliance = $$ lost. It’s as simple as that.

Protecting your Cannabis Business

The cannabis industry will continue to see quick growth and an increasing number of incidents that need to be measured and mitigated to ensure continued operations. By implementing effective security programs, you can protect your brand reputation, reduce financial loss due to stock price dips, and decrease product shrink as a result of theft.

Resolver helps cannabis companies respond to, report on, and investigate incidents by:

  • Providing an incident submission portal to collect timely and accurate incident data from the field, including photos.
  • Leveraging the dispatch tool to send officers to facilities for investigation.
  • Enabling the team to create trend reports more effectively allocate resources.  

Armed with this data, cannabis companies can identify the value of corporate security to secure budgets and limit the impact of incidents and negative events on the organization.

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