5 Questions With A Regulatory Consultant About Cannabis Regulations

As is to be expected with any emerging industry, the regulatory landscape is constantly under the threat of change. Cannabis is no different.

This poses a problem for essentially everybody associated with the industry. Every potential regulatory change will have ramifications throughout every level of the industry, most likely bringing just as many questions as it does answers. Benzinga caught up with Susan Ameel and Josh Levine, general partners and co-founders of THCregs, a legal and compliance consulting firm for cannabis companies, for answers to some of those questions.

What is the size of the cannabis regulatory industry?

Ameel: Last year in five states they adopted approximately 7,000 new pages of regulations. We’re tracking legislation in 20 states, and there are 440 bills that we’re tracking.

We track at the federal level, we track at the state level across the legal states, both for medical and recreational, and then we go down to the local level and track from a local perspective both recreational and medical and production, because what’s interesting is that even local governments are beginning to restrict hemp production.

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Aside from the fluidity of the laws, what is the biggest issue with the cannabis compliance regulations right now?

Ameel: Because it’s new, there’s no track record. A lot of the other industries you have a history, enforcement actions, you have case law that can instruct you on how regulators are generally going to interpret regulations, and this is very fluid as well.

Because the ramifications are so high if you’re wrong—If you’re trying to do it yourself—the worst case scenario is that you lose your license. And because once you have an incident in one state, you have to report it to all the other regulators and it can prevent you from expanding your business.

There’s a lot of interpretive guidance that people are trying to understand how the regulators will interpret it. Regulators are not providing guidance as quickly as they need it, so if they make a mistake it could be detrimental to the business. It could be a misstatement that might lead to a problem with the product, that could not only lead to regulatory enforcement but also litigation or consumer action.

Given the sheer variety of regulations and levels of enforcement, can you explain what effect these mandates are having on operators and the industry at large?

Ameel: The cannabis industry is an emerging market in which you have a lot of players, and a lot of small players, and it’s going to consolidate. Any small mistake or blemish could prevent you from, 1) attaining capital since there are so few ways of getting capital; 2) it could prevent you from expanding or growing and attaining additional licenses; and 3) it could prevent you from going public when and if it becomes legal at the federal level.

It’s interesting because the USDA is now in charge of the national hemp program under the 2018 Farm Bill. Under the bill, any person or entity that’s been charged with a felony controlled substance charge can be prevented from attaining a hemp license. Really where the gray area is now is around hemp and CBD. I think everyone understands the implications of complying with marijuana regulations. However, because of the lack of certainty or clarity around hemp, hemp oil, CBD, people are taking risks now in order to get a large part of the market. Because that’s really what people are going for is market share. In doing so, they might be taking risks that will cause them to lose their business.

I believe it was either Washington or Oregon that had a bill that allows them to enter into an agreement with another state to transport products back and forth, but they would avoid anything that was governed by the federal government, whether it be federal airspace or federal highways, they would just take state roads. So there are a lot of logistical problems that people are trying to get around right now.

Unfortunately, then you get to the state level, and the states themselves have very different standards as far as what’s legal and what’s not legal. For example, in Oregon, folks are trying to take hemp and transport it to different states, but surrounding states might arrest them for marijuana possession because they still consider hemp to be marijuana, and marijuana is still a schedule I drug.

Is marijuana compliance only unique in the sense that it’s not quite legal everywhere yet, or are there other differences between legal compliance in cannabis and that of other regulated industries?

Ameel: I’ve been doing enterprise compliance solutions for financial industries for a very long time, and the regulations in the marijuana industry are very similar to those in the financial services industry. So you have the registration process, you have the licensing board, the ownership limitations are very similar to those followed by the financial markets. What we’re really doing is taking those good practices that we use in the financial markets and applying them to the cannabis industry and the hemp industry.

What about regulation and compliance do you believe people to know before starting a business in the cannabis industry?

Levine: I’d tell someone going into the cannabis business now that compliance is easy, that there are tools available to make it so. That it shouldn’t be relegated to your lawyer to handle for you, you should understand what the rules are, and it’s easy to comply. Loop your business around complying with the rules, and you hold onto your license. The fact of the matter is that, if you’re going into a licensed business, like cannabis, and you don’t know the rules, you really, really run the risk of losing that license—that you fought hard for—and not being able to ever get another license, anywhere. So you might as well bring in a partner that could help you comply with the rules, give you tools to comply with the rules and you can build a very nice business out of it.