Improving Systems and Structures for Cannabis Business Expansion

Cannabis business growthMany of the posts on this blog focus in one way or another on how tightly regulated marijuana industries force cannabis entrepreneurs to adapt their practices to stay within the rules. When you are getting started as a marijuana grower, processor, or retailer, you can afford to stay compliant with less organization. So long as your cannabis company’s key players know the rules, it is possible to keep 5-10 employees in check and make sure they (and you) are doing everything by the book. But as soon as a business starts to grow, whether internally through new employees or externally through new locations either in-state or out-of-state, it loses its ability to maintain regulatory compliance through sheer force of will. At that point It has to update its internal structure and systems so that the cogs of the machine can operate without direct oversight of the founders.

This advice isn’t really limited to regulatory compliance. Businesses looking to build a brand need consistent, reliable operations. At a certain point, the business’s founders are no longer able to micromanage every detail of compliance or operations, but they want the business to continue growing according to their vision. That period of a business — the transition from start-up to going concern — is always hard for founders. A business’s ability to rocket upward without constraints is going to falter sooner or later, and there is a plateau period, where every marginal gain in productivity starts to produce equal or greater levels of operational cost or risk of regulatory compliance.

Going back to compliance, this stage is when it is key to start implementing structures that may at first seem antithetical to rapid growth. I am referring to things like writing and maintaining standard operating procedures, company policies, and clear hierarchies and chains of responsibility. It makes sense to run a startup as a “flat” company, where everyone is expected to pitch in and do everything. But in a highly regulated industry, a clear organizational hierarchy is key. With written policies and procedures and clear levels of responsibility, it is easier for businesses to prevent problems and to develop and institute solutions when problems do occur. In every settlement conference that the Washington State Liquor and Cannabis Board has after it issues an Administrative Violation Notice, the hearing officer asks what steps the cannabis business has taken to prevent similar violations in the future. And if the cannabis business on the hot seat is able to explain clearly why the problem occurred and the corrective actions it has and will continue taking to make sure “it” never happens again, the penalty will be reduced.

But this isn’t just about penalty reduction; it is about a business’s founders being able to move from day to day management and micromanagement to bigger picture thinking. Startups succeed because their founders have a vision and they implement plans to achieve that vision. When a business reaches a certain size, the daily triviality threatens to overwhelm everything. By delegating authority, allocating responsibility, and creating standard operating practices, a founder is able to step back, review the broader picture, and chart the overall course for the business going forward.

In more practical terms, here are some steps to take when your cannabis business starts to hit that plateau period:

  • Adopt written standard operating procedures, written company policies, and a written employee manual;
  • Appoint one or more compliance officers at each business location who are absolutely responsible for knowing state and local regulations and how those regulations fit within the company’s standard operating procedures;
  • Revisit and update the standard operating procedures regularly, and have your company compliance officer(s) recommend amendments to procedures to ensure continued compliance with state and local regulatory changes.

For marijuana businesses with multiple locations, especially locations in different states, it will be important to separate the company-wide policies and procedures from the site-specific policies and procedures. The more that can be company-wide, the better, but vast variations in state marijuana laws call for variations in day to day practices in different states.

If you do take these steps, you have to take them seriously and stick to them. Written policies and procedures are worthless if a company doesn’t follow them. There are some growing pains — it isn’t fun to lose some of the flexibility that you had as a startup — but these steps really can help put your business on a path to healthy expansion and the failure to take them could be your downfall.