Cannabis companies in regulated states like California often find themselves needing to report to their licensing agency or the municipal government that gave them permits when it comes to pretty much any change in their business, owners, or financiers. These communications typically include:
- Requesting to modify business operations or their premises
- Reporting changes to the business
- Reporting the addition or change of owners or financial interest holders
- Asking questions about the agencies’ interpretation of rules
- Self-reporting potential rule violations in order to mitigate potential enforcement
- Responding to allegations from agencies that rules have in fact been violated
In any of these situations—or in virtually any other situation where a cannabis company is interacting with a state or local agency—it’s important to know exactly how to interact with regulators and what exactly to say and how.
First, what you say to regulators matters. A lot. Our cannabis attorneys have seen licensees ask routine regulatory questions, only to be told that they are violating some obscure rule, which jeopardizes the license. It’s often a challenge to communicate with agencies or governments, but that’s especially so for cannabis companies that don’t have a firm understanding of the applicable laws, regulations, and guidance materials (and especially often buried FAQs) that agencies may rely on to interpret their own rules (such as final statements of reasons for rules, guidance issued in press releases, etc.). While there are situations where even the most seasoned experts can’t avoid enforcement by the agencies, it’s still important to understand the rules before you ever open your mouth to a regulator.
Second, when you communicate with agencies or governments, you are creating a record that can either be used by you or against you. If a cannabis company ever finds itself in a position where it needs to appeal an agency decision, the communications it’s had with the agency on a specific point will be relevant in that appeal. The cannabis company will want the neutral evaluator to see that the company adequately explained how it was in fact complying with the agency’s rules or taking steps to mitigate any potential rule violation before the agency penalized it. If you have an opportunity to effectively communicate with an agency and make your case in writing, you shouldn’t hesitate.
Third, and most importantly, if a rule violation penalty is inevitable, you’re going to be neck-deep in the Administrative Procedure Act of your state, which is pretty difficult to sort on your own. Prosecuting an administrative appeal requires fairly significant litigation experience as well as a deep understanding of an agency’s rules and general administrative procedures. These appeals can carry serious consequences if not charted properly, so get your administrative appeal plan and strategy together now.
The bottom line is that regulatory compliance hinges a lot on your communications with your direct government overseers, and you need to learn the dance of how to interact with those regulators accordingly before you find yourself wading into serious rule violations from which you cannot recover.