As most cannabis business owners know, being in the industry carries significant risks. Not only do many facilities have an increased prevalence of fire, theft, and vandalism, but they also are denied many resources and are often scrutinized due to the current legal standing of cannabis and cannabis operations. Organizing and evaluating each type of risk separately can help streamline your risk management analysis to be both more efficient and more comprehensive. Below are a few types of risk and how to protect against them.
Statutory and Legal Liabilities
The most common risks for businesses are statutory and legal liabilities. Like any other type of risk, it is immeasurably useful to seek legal advice. As a business owner, however, you should also be willing to utilize external resources and fully understand the legal responsibility of the company yourself. Compliance officers are an example of a helpful hire in risk management. This position is meant to handle company policies from an objective perspective, eliminating a possible company bias that could cause an infraction to be overlooked.
Reputational risk is undeniably one of the increasingly more common types of risk in the business world. In today’s generation of social media, any negative corporate behavior, including poor decisions and partnerships disputes, can be almost immediately broadcasted. To prevent reputational risk, companies should adopt strong corporate values and reinforce them with appropriate performance incentives. Furthermore, possible reputational risks in all steps of the supply chain should be determined, and strategies should be implemented to minimize them.
Contractual risks, which cover incidents such as those involved with local zoning or landlord disputes, are another prevalent risk for businesses. The best way to protect against contractual risks is to seek legal advice from a local licensed attorney. Contracts are complicated, and fiscally speaking, while it may be costly to invest in extra help, it will pay off in the long run. An attorney can help write policies in regard to risk management for all contracts, which should ideally include clauses in the company’s best interest. Examples include:
- All contracts must be written or reviewed for risk management considerations prior to acceptance.
- Any indemnities granted by the business are approved pursuant to the requirements of the Financial Administration Act.
- All current listings of all contracts must be maintained.
This written policy should address important issues such as the archiving procedures for expired contracts, where archived information will be stored and who can access it, and who has the authority to negotiate and sign contracts.
Risk is a familiar concept in the cannabis industry. However, with proper preparation, businesses can prevent and protect against the majority of risks. Being fully aware of the different risks and their implications, along with enlisting adequate help and using the proper resources, can significantly minimize their impact.
For more information, download the Marijuana Business Risk Management Report.