Largest Concerns for Legal Cannabis Businesses
According to recent studies, the rate of growth for legal cannabis businesses is expected to surpass that of coffee chains. By 2026, sales through dispensaries and other retailers are predicted to exceed $40 billion in the U.S.
However, despite more states legalizing marijuana for recreational purposes, legal cannabis businesses still face a number of concerns.
Supply Chain Issues
Legalized cannabis is an insular product – grown, packaged and sold within state borders. Transportation across state lines is too risky and, in many cases, illegal due to federal laws. This arrangement puts many cannabis businesses in a bind, as inventory cannot be sourced from neighboring or nearby states and increases product shortage risks.
Chain retailers are starting to characterize the legal cannabis landscape but, unlike coffee shops, these entities must follow all state regulations and only source products locally.
Product Liability
Tampering or a poor-quality product can affect the supply chain from growth and harvesting to storage and retail storefronts. The two most significant concerns are excessive pesticide use during growth and mold or bacteria development in storage.
If such products made it into customer hands, legal cannabis businesses could face fines, license revocation and a negative reputation.
Regulatory Compliance
Regulatory compliance continues to weigh heavily on both chains and independent retailers.
To start, state-level legalization means no uniform national regulations. Failing to follow state regulations can lead to high fines and temporary license suspension or revocation.
At this stage, businesses are expected to implement a plan of action to ensure compliance going forward. Common regulatory concerns for legal cannabis businesses center around:
- Maintaining a local permit and state license to continue operating
- Following state-level reporting requirements regarding employee safety and environmental footprint
- Delays in processing licensing or permit paperwork
Financial Factors
Despite growing state-level legalization, cannabis remains a Schedule 1 controlled substance at the federal level. This distinction means legal cannabis businesses operate as cash-only entities, as banks won’t provide funding or extend a line of credit. Many also go uninsured.
The reputation of cannabis can also present a challenge for managing payroll, securing general supplies and obtaining point-of-sale, credit card transaction and electronic funds transfer technologies.
Crime
Crime is a two-fold concern for legal cannabis businesses. One, employees pose a risk for financial and product theft. Decreased access to technology for financial record-keeping can make these crimes harder to detect and limit evidence surrounding an incident.
Beyond these internal issues, cash-only transactions make cannabis businesses appealing to criminals. Zoning laws further push these entities into neighborhoods with higher crime rates. As a result, security is imperative for cannabis businesses looking to reduce thefts.
As more states legalize cannabis, these risks could change. The SAFE Banking Act is expected to help such entities obtain loans, lines of credit and funding from investors. The Clarifying Law Around Insurance Marijuana (CLAIM) Act would also encourage other businesses to work with cannabis retailers and growers by limiting federal penalties.
Workplace Injuries
Injury risks also extend along the supply chain for legal cannabis businesses, including:
- Chemical and other exposures during its growth, increasing risks for skin or eye irritation, respiratory issues or accidental ingestion.
- Utilizing specialized equipment and heavy machinery for growth or storage.
- Poor working conditions in growth and warehouse settings contributing to musculoskeletal injuries.
Reputational Damage
While the future of retail cannabis appears to be all about branding a specific product, this approach can have the opposite effect. A legal cannabis business may develop a negative reputation in response to:
- Old, moldy or bacteria-riddled products
- Edibles formulated with too-high doses
- Packaging that appeals to children
- A product contaminated by chemicals during the growth stage
- Inaccurate product information regarding health benefits or usage
- A cybersecurity incident exposing customer data
Are you starting a legal cannabis business in Connecticut or converting your medical-only dispensary to meet recreational requirements? Make sure your entity has general liability, product liability, business interruption and other essential insurance coverages to preserve your assets and your reputation. To discuss coverage, contact HUB International today.
