How can you continue to play a game if the rules keep changing?
The cannabis industry: new, potentially lucrative, volatile as hell and illegal federally. As states legalize marijuana, it seems like everyone wants to join the league of cannabis pioneers. Perception versus reality is two vastly different tracks, with many motivated and eager entrepreneurs only envisioning “killing it.” Plenty of businesses have gone bust with a quickness — losing vast sums of money.
It doesn’t have to be that way, though. Assemble a team and identify where your company is vulnerable. Here’s how cannabis businesses can protect themselves through effective risk management.
Risk management, while sounding like something coming from an investment advisor, is an essential priority if you want to be in the industry in a year (or ten) from now. What does risk management do? Simple. It puts you in the driver’s seat. Risk management works to identify, evaluate and prioritize risk. It also coordinates and allocates economic resources to minimize, monitor and control the probability or impact of what could be classified as an unforeseen or negative event.
Assemble a trusted risk management team — now — even if you’re already a canna-business owner. The most qualified people to assist with this focus is someone very familiar with insurance (including risk management insurance), accounting expertise, and legal savvy. This just might be the powerhouse that means your company survives while twenty others perish. Heck, you might just get rich along the way.
Find your weak spots
Marijuana (even if legal in your state) is still totally illegal federally. Adding insult to injury, due to this federal prohibition, businesses dabbling in the marijuana industry are denied standard insurance coverage, federal protections (like trademarks and patents) and already have one hell of a time trying to secure banking and credit card services.
Cannabis businesses have to put up with federal, state, and local regulations and face additional vulnerabilities as a result. Because marijuana is still considered a Schedule I controlled substance by the feds, claims can be brought against anyone in the entire marijuana supply chain, from cultivators to testing facilities to packaging to transportation.
Combined with all of that, most cannabis-related businesses also have issues in terms of profits and valuation. There’s always the chance of regulatory fines and penalties looming in the background, and the potential for business interruption and lawsuits, as a result, appear to be the weak spot for many marijuana companies.
The most crucial thing after assembling your risk management team and identifying weaknesses is to maintain focus on those areas. The hot spots for business losses come from people (owners, investors, employees, customers, and vendors), property (as in buildings, equipment, inventory, data, cash, and crops) and, as a result, by default, profits. It’s simple in theory: if businesses continue to anticipate losses while also developing plans to mitigate them, they are executing risk management. The ones that will thrive will be the companies that continue to review and evaluate risks while improving their risk-management plan. All in all, these practices mean that in the future, when auxiliary business services are available to cannabis companies, they will have the expertise and funding necessary to participate.