Overcoming Challenges in Cannabis Compliance
Tuesday, December 3, 2019
The popularity of cannabis has inspired many entrepreneurs to begin their own startups. The versatility of cannabis — from its use in food, beverages, cosmetics, pharmaceuticals, etc. — has many convinced that it’s an investment guaranteed to pay off. Venture capitalists seem to agree, if the $881 million dollars they invested in the industry in 2018 is any indication.1 The projected growth of the cannabis industry is also optimistic, with one estimate valuing the industry at $80 billion by 2030.2 An industry this promising presents many opportunities, but it’s not without its share of pitfalls.
The rollout of legal cannabis in Canada shows that one of these problems is a lack of supply. But that lack of supply doesn’t mean there’s a lack of suppliers. Quite the contrary. Health Canada is inundated with applications from potential growers and retailers. Wherever cannabis is legalized, similar applications and regulations will follow. These issues that have popped up in Canada give prospective cultivators and retailers in other countries an idea of where to focus their preparation while they prepare for legalization.
Every company deals with quality to some extent. In a regulated industry, quality is defined by government regulations. Meeting or exceeding those expectations requires a top-notch quality management system (QMS). A QMS can put a cannabis company in an audit-ready state and ensure that all documentation is kept up to date and centralized. Inspections by regulatory bodies are simplified with the automation that an electronic QMS offers. A major barrier that prevents cannabis companies from investing in a QMS is cost. Fortunately, some QMS options are priced for startups and come at a more reasonable price.
Even without regulations, customers expect a level of quality that make a QMS a worthwhile investment. According to a 2018 report from Deloitte, the top reason that Canadian marijuana smokers switch to legal sources is an expectation that the product will be higher in quality.3 If a cannabis brand can’t provide quality, consumers have plenty of other sources to turn to.
Lack of Transparency
Quality isn’t just about providing a better product — it’s about building trust with consumers and regulators. Both groups have a vested interest in a company’s processes. Consumers in general want more information about where their products come from, want assurances that the information on the label is accurate, and want to know that the product works as advertised. The cannabis industry has struggled with these very issues, so providing the information to consumers is a competitive differentiator.
Blockchain is stepping up to provide this level of transparency. Using this technology allows consumers and regulators to access extremely specific information about where the cannabis was grown, what pesticide were used, how it was processed, etc. Just as important for manufacturers and retailers is knowledge about the supplier. Based on regulations in other industries, the cannabis industry can expect that supplier management will be essential to compliance.
Safety is another big issue for cannabis, even more so because of the stigma associated with its use. Protecting consumers from contamination is a shared goal between cannabis businesses and the governments that oversee them. Safety comes into play in every step in the supply chain. Pesticides, contaminants and inaccurate testing and labelling are just the tip of the iceberg in possible safety problems for cannabis companies. Without proper controls, adulteration is likely and hazardous where testing isn’t required. For example, until recently there were no testing requirements for Arizona’s legal medical marijuana market. One lab that has been conducting voluntary testing reported that 20-30 percent of marijuana samples had exceptionally high levels of mold.4 Fortunately, testing is now required in the state.
However, when dealing with regulatory requirements, getting the testing done is only part of compliance. A cannabis company will only be considered compliant if it can prove that testing was done. Documentation, and being able to find and retrieve the documentation, is just as important as conducting the testing.
In an emerging industry, regulations change consistently. They’re also vastly different across borders. The legal limit of THC for an edible in California is not the same as it will be in Canada. At the time of this writing, Quebec citizens can purchase marijuana at age 18. A new law proposes to change that to 21. Edibles are illegal in Canada, but they’ll become legal in October 2019.5 Cannabis companies have to be extremely vigilant to keep up with this near-constant state of flux.
For many states and countries, this is all theoretical since cannabis in all its forms and uses hasn’t been widely legalized yet. However, the legalization of at least some types of cannabis for some uses is becoming much more common. Wherever this happens, cannabis companies need to embrace a high level of quality in their products to stay afloat in this highly inundated market.