As cannabis businesses continue to establish their roots, state agencies responsible for implementing the complex rules and regulations that govern the industry are beginning to shift their focus from creating the rules to enforcement. Here are a few pointers to help you survive and avoid an enforcement action.
Regulatory agencies can become aware of a possible violation of a rule or law when someone files a complaint, the agency conducts an inspection, or if you self report. [A side note about self reporting: we highly recommend that you talk to an attorney before deciding to self report your possible violation of a law or rule to obtain an assessment of the risks and benefits.] Like most investigations, you will be notified when a complaint is received, but likely will not be given updates or additional information until the investigation is complete. However, you can do some things while you wait for the investigation to run its course that can help with the enforcement proceeding (assuming sufficient evidence is found during the investigation to support enforcement):
- Start gathering and preserving evidence that is relevant to the alleged violation. This may mean accessing backup security camera footage, requesting archived documents from off-site storage facilities, reviewing and organizing old emails, etc. The more you can do to collect and organize relevant evidence in your possession now, the more likely you will be able to respond without delay to discovery later.
- Do not destroy relevant evidence in your possession; there could be severe consequences for intentionally destroying evidence.
- Prepare a public records request and submit it to the enforcement agency. Government documents are generally open to public inspection unless a specific exemption applies, and you may be able to obtain documents the agency is relying on to support its case to help with your defense.
If the case moves forward after the investigation, you will receive something similar to a complaint, detailing the alleged violations and referencing evidence the agency believes supports its case. You will have a very strict time to respond to the complaint and missing the deadline may waive your ability to raise certain defenses. It is very important to meet all deadlines in your case, and to respond to the complaint, petition, or statement of charges with a detailed written response.
Administrative Hearings v. Court
After both parties provide their positions in writing, an administrative hearing will take place before an Administrative Law Judge, or ALJ. The process will be similar to a civil court case, because it can involve discovery, witnesses, motions, hearings, and a decision that can be appealed, but in many ways it will be procedurally less formal than court. There are a few major differences between court and an administrative hearing. While both parties can object to discovery requests in a court case, you can presume that the enforcing agency has significant authority to request a broad range of documents, so your ability to object to requests will be limited. However, if you are asked to provide documents that contain confidential information, such as customer addresses or proprietary business information, you should discuss the need for redaction with the agency and/or the ALJ before handing the documents over. Additionally, some defenses that might be available in a normal court action might not be available in a cannabis enforcement case, such as self-incrimination.
Genius Tips
One of my favorite pieces of life advice also applies to cannabis enforcement: the best defense is a strong offense. So, here are a few tips to help you avoid an investigation or enforcement action related to your cannabis business license:
- As a business owner, you should be at least familiar with the important laws and rules that govern your business. Many governing agencies publish FAQs and bulletins that can be helpful in understanding the major points of the law.
- Generally, a cannabis business can be held strictly liable for the acts and omissions of its employees. So, as you become familiar with the important rules, share that information with your staff and emphasize how important compliance is to you and to the company.
- Because the rules are so complex and ever-changing (at least in California) it is a good idea to designate someone on your team who will be solely responsible for knowing the rules in depth and ensuring that your operations are in compliance.
- If your internal compliance person is not an attorney, it is important to retain an experienced attorney with expertise in cannabis governance who can support and advise, particularly on issues that are complex or nuanced.
- Finally, take the time to prepare a thorough business plan and ask an attorney or experienced cannabis business advisor to review it. This can help you identify major requirements applicable to your business and plan early for regulatory compliance.
If you’re a California cannabis business owner with questions about regulatory compliance and enforcement, we’d love to talk. Submit your intake here.