Marijuana Business Self-Policing

One of my clients committed an administrative violation last week. It wasn’t on purpose, and it was basically harmless, but their actions violated Washington’s rules for marijuana retailers. They asked me for advice, and I told them the advice I give almost everyone in the same situation — get out in front and self report. I wrote the same thing a year ago.

But when I was checking up on the violation category and standard penalties, I noticed something notable about the rules. Washington doesn’t actually list self-reporting of an administrative violation as a mitigating factor in determining violation penalties. Washington only lists a few broad mitigating factors:

  • “[D]emonstrated business policies and/or practices that reduce the risk of future violations,”
  • “Having a signed acknowledgment of the business’ responsible handling and sales policies on file for each employee,” and
  • “Having an employee training plan that includes annual training on marijuana laws.”

For comparison’s sake, I went to Colorado’s rules, and though their mitigating factors are more precisely listed, they also do not mention self-reporting as an independent mitigating factor for penalizing violations.

Marijuana Businesses in WashingtonNow, my firm and I have been at this for a while, and we have dealt with regulators in a bunch of different industries. Even where self-reporting is not precisely listed as a factor that would tend to decrease violation penalties, it almost always is treated as such. When our clients listen to us and self-report, they are almost always better off than if they are caught by an enforcement officer.

That said, things would probably be better all around if the regulatory agencies we deal with, like the Washington State Liquor and Cannabis Board, adopted a clear policy encouraging self-policing. The Environmental Protection Agency, for example, has a clear policy encouraging self-disclosure of penalties. Under the EPA system, self-reporting is one of 9 conditions for penalty mitigation. If all of these conditions are met, the EPA doesn’t penalize the infraction at all. If all but one condition is met, the EPA cuts its penalties by 75%.

The EPA’s disclosure policy has been quite successful, according to a 2011 study. The EPA successfully reduced its own workload, as facilities engaged in self-policing to an extent that the EPA could reduce its day to day scrutiny. Companies that committed to voluntary disclosure and self-policing improved their regulatory compliance as well. It makes perfect sense. If penalties for non-compliance are sufficiently high, and adherence to certain mitigating factors including self-policing sufficiently reduces those penalties, companies will naturally follow the self-policing procedures laid out by the regulators.

The current systems in Washington and Colorado aren’t inconsistent with a truly self-policed industry, but both states should do more to encourage industry self-policing. One of the main problems in the marijuana industry right now is that companies in similar circumstances are spending vastly different amounts of time and money on compliance. And too often, it seems like the businesses trying hardest to be compliant aren’t seeing as much benefit from those efforts as they should. Businesses in the industry will only benefit from specific, beneficial guidance offered for establishing compliance programs.

So, to regulators in marijuana-legal states: adopt voluntary disclosure as part of a broader list of mitigating factors for administrative violations of your industry regulations. It’ll make both your jobs and those of industry participants significantly easier.

One response to “Marijuana Business Self-Policing”

  1. We service money service businesses and most recently, banking for cannabis oriented companies. Money service businesses (MSB’S) are HIGHLY regulated! Self-reporting generally does not work out for industries “big brother” – the FED’s – deem unsavory. One of the largest publicly traded MSB’s “self-reported” a couple of years back with disastrous results.

    Granted, your counsel appears to make sense for the long-term for the cannabis space. However, at this stage, who wants to go first?

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