Common Compliance Pitfalls and Tips to Avoid Them

Features - Regulations

As new leaders take over in Washington, abiding by state law has never been so important.

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January 3, 2017

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Compliance can be as boring as it sounds, but it’s an essential element of existence for all state-regulated cannabis businesses. It’s also what many cultivators say is their biggest challenge.

Strict rules govern nearly every step in the cannabis production process, and staying in line with the law is no easy task.

Each cog in the production/distribution chain has different compliance concerns, and whereas retailers occasionally get in hot water when someone under age 21 slips through, growers face their own set of sometimes vexing challenges.

Though rules vary from state to state, experts and statistics identify several common issues for cultivators, for which fixes sometimes are easier said than done.

Pesticides

Headlines out of Colorado that named and shamed businesses allegedly using banned pesticides appear to be receding. But the threat of being nabbed for knowingly or accidentally introducing even small amounts of unallowed chemicals remains.

The central issue is that federal authorities do not approve crop protection chemicals for use on cannabis, as growing the plant remains federally illegal. State officials have filled the consumer-protection void, deciding on their own what products are allowed.

In some instances, state officials have approved and later de-listed a pesticide, resulting in uncertainty for growers, says Jordan Wellington, director of compliance at the national cannabis-focused law firm Vicente Sederberg.

“Probably the most complicated compliance issue cultivators deal with is crop protection,” he says. “In the pesticide world, the label is God. Since the federal government controls the label and won’t approve anything for use on cannabis, it’s a common issue across the states.”

At times, Wellington says, a cultivation facility owner could find themselves in hot water because of things beyond their control.

“In at least one case,” he says, “a cultivation-facility employee applied a prohibited pesticide from his home garden in the middle of the night after being explicitly told by the owners not to use the chemical under any circumstances.”

Chris Haight, a cannabis industry consultant whose business, Nation’s Own, specializes in helping businesses overcome a long list of regulatory and logistical hurdles, says industry-wide alerts he and other cannabis licensees receive from Colorado’s Marijuana Enforcement Division (MED) seem largely about the use of unallowed chemicals.

Probably the most complicated compliance issue cultivators deal with is crop protection. In the pesticide world, the label is God.” —Jordan Wellington, director of compliance, Vicente Sederberg

“If a company is caught using pesticides or fungicides or insecticides that are not on the approved list, those companies are pretty much blacklisted,” he says. “I don’t think it’s intentional. I think it’s just [the MED] wants all state-approved facilities to be aware.”

Though some infractions presumably occur due to carelessness or intentional misconduct, low testing thresholds and particularly dire consequences may merit meticulousness.

For example: Feel good about going organic with peppermint oil? You may want to test the product to make sure no pesticides were used to grow the peppermint.

Tracking

The Washington State Liquor and Cannabis Board conveniently lists compliance issues online, and “traceability” citations are among the most common for cultivators.

“While seemingly simple, inventory tracking requirements are an incredibly difficult area of compliance because it demands an unrealistic level of perfection,” Wellington says.

The Washington State Liquor and Cannabis Board Enforcement and Education Division website lists all compliance issues in a downloadable database, with “traceability” showing up repeatedly in the list. The website also provides lists for approved products and testing labs. Staying in compliance, especially with inventory tracking, can be incredibly difficult, according to Jordan Wellington, director of compliance at Vicente Sederberg.

“Multi-billion-dollar corporations like Walmart don’t track their inventory perfectly, and even the military loses some weapons every now and then,” he says. “Cannabis cultivators are expected to track their product perfectly to the gram, and it’s almost impossible to do without human error.”

States have slightly different systems for tracking, and in Washington, the software provider BioTrackTHC in 2013 won a state contract to administer tracking, though growers are allowed to supplement this with other internal systems.

Not all growers in Washington are pleased with BioTrackTHC, which now also boasts of state contracts in Hawaii, Illinois, New Mexico and New York. Earlier this year, the company faced complaints and was targeted in a petition to state officials by the Cannabis Farmers Council that said its system is slow, freezes and lacks a cut-and-paste function, causing unnecessary effort.

Tai Saito, compliance manager for Buddy Boy Farms in Washington, told the Marijuana Business Daily in March that the system also had a glitch syncing between free and paid versions, as was pointed out to him by a state inspector. “We could have been written a violation due to some technical issue in BioTrack that we had no idea about,” he said. BioTrack stated it appreciated the feedback and that complaints were from a small number of users.

KIND Financial CEO David Dinenberg, who says his company provides plant-tracking services to 100 active users in 17 states, says upfront training and implementation may need improvement across the board to improve compliance rates.

“There are a lot of stories with all the states that have government tracking systems where people don’t know how to use it,” he says.

Still, he says, “I think the reality of it is this: Technology can solve a lot of problems.” A new version of his firm’s software is rolling out in 2017, and Dinenberg says he hopes ultimately for his company to offer a comprehensive tool for compliance self-verification.

Vicente Sederberg also has a technology offering with an affiliated technology company, Simplifya, allowing businesses to monitor their own compliance.

If you’re dealing with residents within 1,000 feet of your licensed facility, you are going to have people complaining you are using too much water or that the facility is producing too much light.” —Chris Haight, Nation’s Own

Security

Security violations are the other leading cause of cultivator compliance violations in Washington, and Wellington says it’s a common issue elsewhere, as it can be easy to pick at.

“Security camera coverage is a complicated issue for cultivators because a ‘sufficient’ level of coverage can be very subjective and conditions are constantly changing in a grow,” he says. “A business needs to be proactive and diligent to ensure compliant coverage because simply lowering a lighting fixture can create an obstruction that is considered non-compliant.”

Mind the Locals, Call Your Attorney

Jordan Wellington

In addition to abiding by state law, smooth sailing requires staying on good terms with local communities, as complaints to a town council can change the local compliance scenery quickly, in the most serious cases ending business opportunities.

Haight says he has helped set up 18 grows in states across the country – in addition to his own research and development facility in southern Colorado – and that local zoning rules have been the most strenuous to address, generally as a first step to setting up a facility. Once a business is up and running, he says, local compliance matters generally involve light, water or odor.

David Dinenberg

“If you’re dealing with residents within 1,000 feet of your licensed facility, you are going to have people complaining you are using too much water or that the facility is producing too much light,” he says, with blackout curtains as a common fix for light emitted by greenhouses.

Odor infractions, particularly in Colorado, can result in loss of a grow license, meaning growers should seek out the appropriate technology. (For more on odor control, see the feature, “Pass the Sniff Test,” on page 56.)

Chris Haight

Wellington says when in potential trouble, it’s wise for growers to call their lawyer.

“It’s generally a good idea to consult with your attorney to ensure that the allegation is actually a compliance issue and help craft any response to regulators to avoid any false perceptions of impropriety,” he says.

Steven Nelson covers legal affairs and drug policy for U.S. News & World Report. He lives in Washington, D.C., where a green thumb would be useful.