In an increasingly competitive cannabis market, understanding how to measure and maximize your marketing and PR efforts is essential. Our latest Industry Essentials webinar brought together top industry experts from NCIA’s Marketing & Advertising Committee to break down effective strategies for increasing visibility, proving ROI, and aligning marketing efforts with business growth.

Key takeaways from the discussion included:

• PR isn’t just about press—it’s about measurable business impact. Understanding how earned media translates to sales and brand credibility is crucial.
• Data-driven marketing decisions lead to stronger ROI. Identifying the right KPIs ensures you’re focusing on what truly moves the needle.
• A strong brand strategy outperforms disconnected tactics. Thoughtful, integrated campaigns create long-term success rather than short-term spikes.

Access Exclusive Resources from Our Panelists

Watch the full webinar on demand: Register Now

Learn how to measure PR success: Avaans Media’s Guide for CMOs

Optimize your marketing strategy: Get a free audit & consultation from Hybrid Marketing

Put your numbers to work: Try the KPI Calculator

Stay ahead of industry trends and ensure your marketing efforts deliver real results. Catch the replay now and level up your strategy!

The post Proven Strategies to Maximize Cannabis Marketing ROI: Key Insights & Free Tools appeared first on The National Cannabis Industry Association.

This article explores how cannabis insurance can safeguard your business from legal risks, outlining vital coverage options and the importance of risk management in this evolving industry.

Understanding Legal Risks in the Cannabis Industry

Businesses in the cannabis industry need to grasp the legal difficulties that affect them. The cannabis business operates under strict regulatory parameters which make businesses exposed to major market challenges stemming from compliance problems and legal complications. Several of the most frequent legal risks encompass:

Breaches of Regulatory Compliance

All cannabis companies must follow every law enacted by the federal government and state authorities, together with regional ordinances. Business operations face severe consequences when any compliance violation occurs, regardless of intention since it leads to potential business shutdowns or heavy fines together with legal action. Insurance coverage helps pay for the legal expenses that arise from compliance cases.

Lawsuits for Product Liability

Users may encounter safety risks when using cannabis products that include edibles and tinctures, and vaporizers. Experiencing negative reactions from customers who believe their product is faulty could trigger expensive legal proceedings for a business. The insurance protects companies in case clients bring product liability claims.

Claims Related to Employment

Possible legal challenges arising from workplace discrimination combined with unfair dismissal and harassment issues affect all industries including cannabis. EPLI provides coverage to pay for legal costs and compensation required in employment claims.

Property and Theft Hazards

The expensive marijuana stock maintained by cannabis companies makes them especially vulnerable to theft incidents. Business disruption can occur because of fire incidents combined with vandalism or natural disasters damaging property. The coverage provided by property insurance enables businesses to recuperate after experiencing such events.

Cybersecurity Risks

Cannabis companies currently use online systems to store sensitive corporate and client information. Businesses which obtain cyber liability insurance gain safeguarding against financial consequences and data breach losses together with hacking incidents.

Key Insurance Policies to Protect from Cannabis Operations

Businesses operating in the cannabis industry must buy specialized insurance plans that protect them against relevant dangers. Several mandatory insurance protection plans exist, which include:

1. General Liability Insurance

General liability insurance helps businesses avoid legal expenses after claims from external entities when these entities suffer property damage or experience customer injuries. Every cannabis business needs this policy for essential protection purposes.

2. Product Liability Insurance

Product liability insurance protects businesses from legal consequences that stem from releasing dangerous defective products onto the market. Additions to legal costs and settlement payments, together with damages awarded during legal cases, fall under the scope of this insurance.

3. Workers’ Compensation Insurance

Through the workplace policy employees can receive medical care together with income benefits when their job injuries occur. The manual nature of cannabis businesses necessitates workers’ compensation insurance due to the high risks of workplace injuries.

4. Property Insurance

The protection given by property insurance provides monetary compensation for physical structures including dispensaries along with warehouses and cultivation buildings. This policy protects organizations by paying for costs arising from fire damage as well as theft events and natural disasters.

5. Employment Practices Liability Insurance (EPLI)

Employment Practices Liability Insurance which you may also know as EPLI, protects cannabis businesses from employment-related lawsuits that might occur when employees face discriminatory action and harassment at work and unfair termination.

Benefits of Cannabis Insurance for Legal Protection

Investing in cannabis insurance provides numerous benefits in addition to financial protection. Here are several important advantages:

1. Ensures Compliance with State Laws

Numerous states mandate that cannabis companies possess certain types of insurance to fulfill their licensing obligations. Possessing appropriate coverage guarantees adherence and avoids licensing problems.

2. Minimizes Financial Losses

A business unprepared with insurance faces financial challenges when trying to afford costs of court procedures and payment of settlements. Insurance alleviates the monetary stress of legal actions and claims.

3. Enhances Business Credibility

Being insured at proper levels represents both professional conduct and responsible management of accountability. A cannabis business protected by proper risk management attracts more customers and investors together with business partners who demonstrate trust in its operations.

4. Protects Business Owners and Employees

Insurance provides legal advocacy along with monetary support when defending against lawsuits to shield both organizations and their personnel against unpredicted legal responsibilities.

5. Reduces Business Interruptions

Unexpected incidents, such as theft or property damage, can disrupt operations. Insurance helps businesses recover quickly by covering losses and repair costs, minimizing downtime.

Choosing the Right Cannabis Insurance Provider

Choosing the appropriate insurance company is essential for thorough coverage. Here are several important factors to keep in mind:

1. Industry Experience

Select an insurance provider that specializes in cannabis policies and comprehends risks particular to the industry.

2. Policy Customization

Seek out providers that deliver customized coverage choices suited to your business requirements, regardless of whether you run a dispensary, cultivation site, or distribution firm.

3. Reputation and Financial Stability

Investigate the insurer’s financial stability, customer feedback, and claim handling effectiveness to guarantee dependability.

4. Compliance Knowledge

Due to variations in cannabis laws among states, collaborate with an insurance provider that remains informed about changing regulations to guarantee compliance.

Conclusion

Risk management for the cannabis industry requires proactive strategies since insurance serves as an essential component among such approaches. Companies that invest in wide-reaching cannabis insurance coverage protect themselves from regulatory fines and legal actions as well as property damage and multiple types of liabilities.

Businesses that adopt proper insurance coverage mechanisms get protected from financial instability and also gain regulatory compliance while enhancing their credibility and building enduring business success. The cannabis sector’s development requires businesses to obtain suitable coverage that minimizes their risks and enables secure business operations.

The post Member Blog: How Cannabis Insurance Can Safeguard Your Business from Legal Risks appeared first on The National Cannabis Industry Association.

State-level cannabis regulations are a moving target; or rather, 50 moving targets. Despite nationwide movement in nearly every US state towards a regulated, adult-use market, each state has approached cannabis sales with their own unique flair. 

Although it has been fun to watch each state’s program mature under their own particular point of view, as we move forward into 2025 our committee wants to call attention to some of the states we feel are getting it right.

The National Cannabis Industry Association State Regulatory Committee (NCIA’s SRC) hopes that by highlighting the successes (some of them unlikely) in individual states, we can inspire states to come together to share best practices, work towards eliminating redundancies for multistate operators, and create a streamlined framework that allows for greater access to the market for both would-be operators and consumers.

Without further ado, here are the National Cannabis Industry Association State Regulatory Committee’s CannaStars for 2024!

Best Social Equity Program: Illinois

Through the Illinois R3 Program (Restore, Reinvest, Renew), 25% of Illinois cannabis tax revenue is reinvested into communities disproportionately impacted by the War on Drugs, funding initiatives like job training, reentry services, and legal aid. Since launching, this has amounted to $244M in marijuana-funded revenue grants to community organizations that address disinvestment and excessive incarceration in Illinois. 

Illinois also prioritizes social equity applicants for licensing by offering additional points on applications, reduced fees, and conditional licenses for roles such as craft growers and transporters. Further, the Cannabis Business Development Fund provides low-interest loans and grants to social equity applicants, helping reduce financial barriers to starting a cannabis business.

Like every state, Illinois continues to navigate the complexities of implementing a fair social equity program. However, the state has also backed up their commitment to restorative justice with criminal record reform. They have identified more than 770,000 records of “minor cannabis offenses” that may be eligible for expungement.

Currently, of the 25 jurisdictions with legal adult-use cannabis programs, 18 have an active social equity program. NCIA’s SRC believes that Illinois leads the nation with a model for social equity within cannabis that truly prioritizes a fair, restorative model.

Best Hemp Regulation: Kentucky

Kentucky’s hemp program stands out as a model of safety, transparency, and innovation due to its prioritization of registration and rigorous testing of hemp products. In Kentucky, all hemp-derived cannabinoids must undergo purity testing and remain compliant with THC limits. Packaging and labeling must also be clear and meet rigorous standards, similar to those in the adult-use markets of other states.

Although enforcing hemp producers and sellers to comply with tight standards has been met with some controversy, NCIA’s SRC believes that Kentucky’s efforts are a good thing and reinforce trust in the marketplace for consumers. California’s outright ban on intoxicating hemp derived products in 2024 has made it clear that lax regulations on hemp put the reputation of the entire cannabis industry at risk.

Beyond safety, Kentucky’s Cabinet for Health and Family Services does an outstanding job fostering collaboration. They engage farmers, processors, and retailers through education and support, and are transparent about regulatory changes and best practices. Their forward-thinking approach has positioned Kentucky as an ideal place for farmers and cultivators throughout the country.

Best Balance of Cannabis and Hemp Regulations: Minnesota 

When Minnesota voted to legalize adult-use cannabis in 2023, the state already had a thriving hemp-derived THC product market. Instead of bulldozing the existing hemp market, Minnesota has instead worked to bridge the gap and create a cohesive framework that supports existing businesses, innovation, while also prioritizing public safety and further economic growth.

One of Minnesota’s key strengths is its integrated approach to regulation: hemp and adult-use cannabis are regulated centrally. This is a substantially different model than many other states, where cannabis and hemp are managed by separate regulatory bodies. By overseeing hemp-derived THC products and cannabis under a unified system, the state avoids market confusion and ensures consistent quality standards. 

By carefully integrating cannabis and hemp regulation, Minnesota has positioned itself as a model for other states. NCIA’s SRC believes that the Minnesota model – a two-tiered system where lower THC products can be manufactured and sold more readily while higher concentrates of THC are sold through a traditional adult-use framework – merits consideration nationally as a way to increase access, safety, and roll-out adult-use without disrupting existing businesses.

Best Legislator: New Mexico State Senator Katy Duhigg 

Elected in 2021, Senator Katy Duhigg (D) represents Albuquerque Senate District 10. Duhigg is the former Albuquerque City Clerk, with a background in election and consumer protection, and is currently one of the premier cannabis attorneys nationally, as a member of Sutin, Thayer & Browne’s litigation group. Her current practice is focused on cannabis law, including corporate development and governance, regulatory compliance, administrative advocacy, and contracts. As a State Senator, she brings extensive cannabis knowledge to her role, and has been critical in allowing New Mexico to emerge as an unlikely success story in adult-use cannabis.

Senator Duhigg serves as Chair of the Senate Rules Committee, and as Vice Chair of the Senate Judiciary Committee, where cannabis-related legislation enjoys the most rigorous discussion. Her commitment to the cannabis industry was witnessed during her very first legislative session, wherein the Cannabis Regulation Act was passed, legalizing cannabis for adult use in New Mexico. 

The Cannabis Regulation Act was signed by Governor Lujan Grisham in June, 2021 and New Mexico was able to roll out their program quickly and effectively. Less than a year later, on April 1, 2022, New Mexico was open for business. There are now 2866 active license holders. 

Since the passage of the CRA, Sen. Duhigg has been absolutely implemental, leading the charge in the Senate to improve the enabling legislation and to ensure New Mexico’s cannabis industry continues to mature, with strong equity protections that include uplifting the existing medical operators who have been serving the state since the beginning of New Mexico’s medical cannabis program in the 1970s. 

Best Age Verification Guidelines: Nevada

Cannabis is frequently subject to “think of the children” style regulations and moral panic, but states often miss the mark when actually trying to put guidelines in place that protect minors and keep products out of their hands. 

Nevada is still the first, and only, state to require any type of ID authentication to detect fake and suspicious IDs, and the Nevada Cannabis Control Board remains the most well-educated regulatory body on the subject of the forensic document analysis required to actually separate adult users from minors presenting false identification. 

Furthermore, in March 2023, Nevada Assemblyman Brian Hibbets introduced AB342 – special interest legislation – that would have required onerous, and expensive third party checks as part of the Nevada dispensary age verification process. The Nevada State Legislature smartly shot down this amendment, which was vendor-specific language desperately seeking a problem that doesn’t exist in a state where every dispensary is doing the absolute most to detect fake IDs and keep minors out. 

As of May 2024, Nevada is also the only state to include any guidelines for age verification of cannabis purchase via eCommerce, or age verification for cannabis delivery. This makes Nevada the top state in the nation for preventing underage sales, but with a common-sense approach that doesn’t try to add unnecessary burdens to their cannabis operators.

Best Challenge to the DEA: Georgia 

In 2023, Georgia took the bold step of deploying their medical program directly into independent pharmacies across the state. With a limited product mix and a nascent patient base, this was an innovative way to jump-start a program and avoid high capital costs. The program was on track to get 90% of the medical cannabis patient base accessible within a 30-minute drive within 6 months of launch. 

Unfortunately, in November 2023, the DEA sent an ominous letter to ice the exciting new rollout, reminding pharmacists that cannabis is still a Schedule I substance. However, instead of capitulating to the threat, the industry persisted and the state stood by to support the program with 52 pharmacies remaining active license holders. NCIA’s SRC celebrates Georgia’s commitment to medical cannabis patients and increasing access, in spite of federal threats. 

Best Tax Rate Reform: Washington State

The culmination of a 5-year effort finally succeeded in removing all state taxes from Washington Department of Health-compliant products when purchased by registered medical patients. This matches the standards for pharmaceutical purchases in nearly every US state, where prescribed medications are non-taxable. Washington now joins 10 other states who do not tax medical cannabis purchases.

Since 2016 The Cannabis Alliance, Washington’s largest cannabis trade organization, has been advocating for the reduction or removal of the 37.5% state excise tax on medical cannabis products. Now, as of June 6, 2024, registered medical patients can purchase prescribed cannabis tax-free, a nearly 50% reduction in total cost to medical consumers. The state also introduced new higher testing standards for medical products, a patient registry, and a medical cannabis consultant license provided to budtenders. 

Although adult-use cannabis in Washington still remains subject to a 37% tax, and the NCIA SRC acknowledges that taxes are needed to continuously fund state cannabis programs, we want to highlight Washington as the first state in the nation to treat medical cannabis as a medical necessity under the tax code, easing consumer financial burdens, and helping better position medical cannabis as a legitimate and needed treatment for many conditions.

Best Employee Protections: Nevada

Nevada leads the way with some of the strongest employee protections in the United States to ensure legal users of medical or adult-use cannabis do not face workplace discrimination. In 2020, Nevada was the first state to prohibit most employers from rejecting job applicants based on pre-employment marijuana tests. This landmark legislation, codified under Assembly Bill 132, effectively protects job seekers who legally consume cannabis, while still allowing employers to maintain workplace safety standards for positions in safety, aviation, and other high risk roles. Additionally, Nevada law protects employees from penalties for lawful off-duty cannabis use. This includes the stipulation that employers cannot take adverse actions against employees for testing positive for cannabis unless there is a direct safety concern or violation of company policies. 

For medical cannabis users, Nevada law goes a step further by requiring employers to attempt reasonable accommodations for qualifying medical conditions. This requirement, enacted under Assembly Bill 453, emphasizes that individuals using medical cannabis for legitimate health concerns are entitled to workplace protections, similar to those afforded to employees using other prescription medications.

Notably, the Nevada Supreme Court has affirmed employees’ right to sue for violations of these protections, cementing the legal precedent that employees have the right to challenge discriminatory actions based on cannabis use. The court’s decisions have reinforced Nevada’s position as a model for other states considering similar workplace protections for cannabis consumers. These legal safeguards represent a forward-thinking approach to balancing employee rights with workplace safety, and have set a gold standard for workplace cannabis policies across the United States.

Best Regulatory Addition for Market Diversification: Massachusetts

Better late than never, the Massachusetts Cannabis Control Commission recently drafted new social consumption regulations and has moved to the formal public comment stage. As mature markets struggle with oversupply and overlicensing the rate of entity failures and state court receiverships (both voluntary and involuntary) of licensees are steadily on the rise. Massachusetts is among the first states to proactively offer a diversification opportunity for their cannabis program in the form of consumption lounges. 

The draft regulations contemplate three different varieties of social consumption licenses – supplemental, hospitality and event organizer – and would restrict social consumption licenses to only Social Equity Businesses, Social Equity Program Participants, Certified Economic Empowerment Priority Applicants, Microbusinesses, and Craft Marijuana Cooperatives for the first 5 years after program launch. Supplemental licenses would be available to certain existing marijuana establishments and allow for on-site consumption within or attached to an existing facility. Hospitality licenses would permit non-CCC licensed entities to host on-site consumption events in partnership with certain existing marijuana establishments. Finally, event organizer licenses would permit certain existing marijuana establishments to host temporary consumption events.

9 states have already active consumption lounge licensing, and Massachusetts has been considering a social consumption pilot program since 2019, but the NCIA SRC wants to highlight Massachusetts for a considered approach focused on increasing revenue streams for smaller operators and social equity license holders.

Lifetime Achievement Award for Innovation: California

California has consistently led the nation when it comes to innovative and inclusive cannabis policy, going back to their first legalization ballot initiative in 1972. They were the first state to legalize medical cannabis in 1996, and today California still remains a leader in the cannabis industry, driven by its vast market, progressive regulations, and culture of experimentation. 

A key milestone in this evolution was the 2024 California State Fair, which became the first state-sanctioned fair to integrate cannabis sales and consumption on-site, embracing cannabis culture into the mainstream. The state is also pioneering new business models, with cities like West Hollywood and San Francisco operating cannabis lounges that combine cannabis with art, food, and entertainment, reshaping consumption and creating new opportunities and economic growth in hospitality and entertainment. 

California’s commitment to research further enhances its role as a leader, with the University of California system partnering with private enterprises to explore cannabis’s medical potential, including at the UC San Diego Center for Medicinal Cannabis Research. Together, California’s groundbreaking events and innovative business models position it as the epicenter of cannabis innovation.

NCIA’s SRC expects that California will continue to lead the way with an innovative and focused approach to growing its legal cannabis industry.

Conclusion & Congratulations

Congratulations to the 2024 National Cannabis Industry Association State Regulatory Committee’s CannaStars winners! The committee has enjoyed supporting the progress of medical and adult-use cannabis programs across the US, and can’t wait to see what new developments every state has in store for 2025.

The post Committee Blog: Announcing Winners of NCIA’s State Regulatory Committee 2024 CannaStar Awards appeared first on The National Cannabis Industry Association.

In an industry as scrutinized as cannabis, a crisis can escalate quickly—having a solid plan in place can make all the difference.

Given its unusual balance between federal illegality and regional legality, the cannabis industry sometimes feels like it’s under a microscope.  Indeed, because of this microscope, a cannabis crisis can blow up fast. From product recalls to regulatory and legal issues, the Avaans Media team has worked with cannabis companies – and non-cannabis companies –  can face in moments of crisis. No crisis is ever “planned.” Because the very nature of a crisis is that it creeps up when you least expect it. Think it can’t happen to you? Seventy-nine percent of companies will experience a crisis with service disruption and media implications. 

A moment of crisis doesn’t even have to be the brand’s fault. Many companies have gotten caught up in social media rumors, it could have to do with police, government officials or product recalls and yet in those cases, it is the company’s crisis to handle. 

A crisis plan can be the unsung hero of an emergency. Putting a crisis plan in place may seem tedious, but a cannabis crisis is high stakes, and understanding when, who and how your company will handle a moment could save you millions in legal and PR fees, while also preserving the valuation of the brand, and the reputation in the eyes of customers, regulators, and the media. Crisis PR professionals can assess a situation quickly and guide you through this process. And a crisis plan will help you in those early critical moments. Tabletop exercises and media training are the muscle behind a crisis response.

Yet, if you find yourself in a crisis without a plan in place, there are three strategies to employ in a crisis.  

Follow the traditional process of response. 

We see this played out repeatedly, the traditional response to a crisis is to address the facts publicly, acknowledge the concern and the problem, apologize, and rectify.  This is a well-worn process, and the media are all very familiar with this process.

It’s important with this strategy to consider the methods of response and that the urgency matches the level of the crisis. Spokesperson, media format, and timing are essential elements in this strategy.

What level of response does this moment demand? If the problem hasn’t hit the media, but your customers are upset, how will you deal with that differently than if the media is calling?

The truth is always your north star. That’s particularly true during tumult. Tell the truth, stick to the facts.  If you don’t know the answer, it’s perfectly OK to say you don’t know and will return with an answer when you have one. Don’t make promises you aren’t sure you can keep. 

Where and how you issue a statement is a message. Who issues the statement? Will you issue a statement on YouTube or on Instagram. Both? Will you talk to the media at a press conference, or will you issue a written statement to the media?

Use the Crisis to Effect Change

Sometimes, a crisis can be used as an opportunity. No doubt, this is a risky choice and should be taken with sincere consideration and expertise about when and how to share the story. 

High Seas Dispensary in Costa Mesa, California did this recently when they ran into a sudden brick wall with city leaders who were withholding their city business permit.   This came a surprise to the founders of High Seas Dispensary who had always been reputable players in California cannabis. 

News coverage of the situation soon started bubbling up and the withholding was rescinded, allowing the dispensary to finally open its doors, albeit months later than planned.  

The pre-opening crisis created an early interest with cannabis media, and it helped secure coverage of its opening.  

Let The “Crisis” Die

This may be the riskiest choice of all. Because response is critical if a crisis has or will reach the media level. The first step in a crisis is to decide if it is an actual crisis and if so, what response there should be. 

Indeed, some low-level crises feel stressful in the moment, but the reality is that a public response will only fan the flames. An example of this is when things heat up with a few negative social media comments. It feels alarming, and it feels urgent, but unless those comments are part of a larger issue that should be addressed, feeding the trolls is only going to make more people aware of the situation.

Yet, a fast response may allow you the opportunity to tell your side of the story. An example of this is a cannabis recall client we worked with who called us after the story hit the TV news; there’s no going back. What’s done is done. We would have put the CEO on the news to respond which would have given the story a more well-rounded presentation and put a face to the recall, and because the CEO was highly credible, empathetic and well spoken, could have actually improved the brand reputation.  

But ignoring a crisis is a risky choice, too. We’ve all seen brands that wait days before responding to a crisis that continues to spiral out of control, at which point, the public statement feels inadequate.  This is a strategy, again, which should only be taken with a clear view of the risks. 

Think of a crisis PR plan as business insurance. A good plan can stop a crisis its tracks. Feeling prepared is the difference between panic and composure.

The post Member Blog: The Cannabis Crisis Plan – Business Insurance for the Future appeared first on The National Cannabis Industry Association.

20+ Cannabis-related associations shared their thoughts on the value and member benefits they offer and these “INSIGHTS” were shared on Cannabis NewsHub’ s social media channels and are posted on their website.  In addition, attendees of MJBizCon’ s Association Day had the opportunity to meet these associations in person on December 3 in Las Vegas.

The “INSIGHTS” shared in this series vary greatly and provide for the benefits of membership to each organization. Examples of benefits include professional networking, business development, trend tracking, advocacy, educational programs, continuing education credits, federal lobbying efforts, engagement, promotion, foster economic opportunity, industry specific training, and more.

It is our hope that sharing these INSIGHTS will help you navigate the various member benefits, learn about organizations, and help you determine what memberships best align with the mission of your business.

Thanks to all who participated as well as thanks to our partners at MJBiz  who promoted this campaign to the participants of the 2024 MJBizCon pre-show forum, Association Day.  In addition, a special thanks to the  National Cannabis Industry Association (NCIA), and the International Cannabis Bar Association who helped to kick off this series.

For more information on Cannabis NewsHub  or how to subscribe,  please contact Samantah Hobbs, Sr. Marketing Manager shobbs@newsbank.com

The post Member Blog: The Value of Associations appeared first on The National Cannabis Industry Association.

Contributors:

• Tapan Ramachandran, Otterz Inc. | hello@otterz.co
• Neil Rosenfield, Baker Tilly – neil.rosenfield@bakertilly.com
• Steven Gotsdiner, HBK, – sgotsdiner@hbkcpa.com
• Rochelle Dallons, Yield Bookkeeping Services – r.dallons@yieldbookkeeping.com
• Naomi Granger, National Association of Cannabis Accounting and Tax Professionals – naomi@nacatpros.org
• Curtis Winar, MGO CPA – cwinar@mgocpa.com
• Dorothy Kolb, Planet Earth Accounting & Advisory – dorothy@planetearthaccounting.com
• Pat Gately, Leyton – pgately@leyton.com

As the cannabis industry continues to expand, operators face unique challenges in tax compliance and financial management. Among the most daunting prospects for any business owner is an IRS audit, and for cannabis companies, the stakes are even higher. Proper preparation is key to ensuring your business is ready for this possibility.

The Increased Likelihood of an Audit

Cannabis companies are significantly more likely to be audited than those in other industries. A 2020 study by the Treasury Inspector General for Tax Administration found that cannabis businesses were 4.7 times more likely to be audited than non-cannabis businesses of similar size. This heightened scrutiny underscores the importance of being thoroughly prepared.

Building the Right Support Team

Assembling a team that understands the intricacies of the cannabis industry is essential. Key players include:

• Cannabis-Specific CPA: Expertise in 280E compliance, state-specific tax laws, and cost accounting methods tailored for cannabis businesses.
• Cannabis Tax Attorney: Specializes in cannabis tax law, provides regulatory guidance, and represents your business during audits.
• Compliance Officer: Ensures adherence to regulations, maintains proper documentation, and implements internal controls.
• Inventory Management Specialist: Oversees tracking systems, accurate inventory valuation, and optimization of Cost of Goods Sold (COGS).

Accurate Accounting and Documentation

Maintaining precise accounting records and documentation is critical. Essential records include sales receipts, vendor invoices, bank statements, payroll records, and inventory logs. Well-organized documentation supports your accounting entries and provides a solid foundation during an audit.

Standard Operating Procedures (SOPs)

Documented SOPs covering all areas of operation are vital, especially in a cash-heavy industry like cannabis. SOPs help mitigate risks such as misappropriation of funds, fraud, theft, and safety issues, ensuring consistency in your operations.

Consistent Employee Training

Regular training for employees is crucial due to the high turnover in the cannabis industry. Staff should be well-versed in handling cash, maintaining accurate records, and following SOPs to ensure compliance and security.

Internal Audits and Controls

Given the fluid nature of the cannabis industry, internal audits are essential. Regular self-audits help identify and correct potential issues before they escalate into major problems during an IRS audit.

Cost of Goods Sold (COGS) and IRC 471(c)

Accurate COGS calculations are vital for compliance with Section 280E, which disallows most business expense deductions except for COGS. Additionally, under IRC Section 471(c), small businesses may use a simplified inventory accounting method, potentially reducing tax burdens by including more costs in inventory rather than disallowed deductions. Ensure your business qualifies as a small business under IRS guidelines and maintain proper documentation to support the use of 471(c).

Managing Multiple Banking Relationships

If your cannabis business maintains multiple banking relationships, it’s essential to keep all records reconciled, including any intercompany and inter-bank transfers. Proper record-keeping and reconciliation are crucial for transparency and audit readiness.

State Audit Considerations

State audits can be particularly rigorous in the cannabis industry. Here are key considerations:

• Licensing and Compliance: Ensure you have all necessary licenses and permits, and can demonstrate adherence to state regulations, security protocols, and quality control standards.
• Financial Projections: Develop detailed financial projections, including revenue, expenses, and profitability. Use a cannabis-specific Chart of Accounts (COA) for accurate tracking.
• Operational Plans: Document all operational processes, from cultivation to distribution, and be prepared to present these during an audit.
• Risk Assessment and Contingency Planning: Identify and mitigate potential risks such as supply chain disruptions, regulatory changes, and security vulnerabilities.
• Security Measures: Most states require comprehensive security plans, covering aspects like surveillance, access controls, product storage, cash handling, and employee background checks.
• Document Management: Establish an organized system for storing essential documents, including licenses, compliance records, financial statements, and operational manuals.
• Policies and Procedures: Ensure that your policies and procedures are well-documented, covering safety, inventory reconciliation, and waste disposal.
• Professional Assistance: Hiring an accounting and tax professional with cannabis industry expertise can be invaluable for audit preparation and compliance.

Strengthening Your Approach to IRC 471(c) Compliance

IRC Section 471(c) offers cannabis businesses the opportunity to simplify their inventory accounting and potentially reduce their taxable income. However, successfully leveraging 471(c) requires careful planning and meticulous record-keeping. Here’s how to optimize your compliance strategy:

Key Requirements and Best Practices

1. Eligibility and Qualification:
   • Under 471(c), small businesses with gross receipts under $25 million (adjusted for inflation) can use simplified inventory accounting methods.
   • Ensure your cannabis business meets the IRS’s small business threshold, and keep records that prove your eligibility. This includes tracking and reporting your gross receipts accurately.
2. Accurate Categorization of COGS:
   • One of the main benefits of 471(c) is the ability to allocate more expenses to Cost of Goods Sold (COGS). This can include indirect costs that were previously non-deductible under 280E.
   • Carefully document and categorize every expense that contributes to inventory costs, ensuring you capture all eligible expenses without overstating them. This may include direct materials, labor, and even some overhead costs.
3. Detailed Documentation and Record-Keeping:
   • Maintaining thorough documentation is critical when applying 471(c). Every transaction, from purchasing raw materials to labor costs, should be meticulously recorded.
   • Keep records of how you allocate expenses to COGS under 471(c). This includes detailed explanations of the methods used for allocation, supported by invoices, receipts, and financial statements.
4. Regular Financial Reviews:
   • Conduct regular internal audits and financial reviews to ensure ongoing compliance with 471(c). This helps identify discrepancies early and allows for adjustments before filing tax returns.
   • Regularly reviewing your financials also helps ensure that your accounting methods align with both federal tax laws and state-specific regulations, reducing the risk of errors during an IRS audit.
5. Use of Specialized Software:
   • Employ accounting software specifically designed for the cannabis industry that supports 471(c) compliance. These tools help streamline the process of categorizing expenses, managing inventory, and generating accurate financial reports.
6. Professional Guidance:
   • Work with a tax professional who understands the intricacies of IRC 471(c) and the cannabis industry. They can provide tailored advice on optimizing your tax position and ensuring that your accounting practices align with the latest IRS guidelines.

By strategically implementing IRC 471(c) and maintaining strict adherence to its requirements, your cannabis business can benefit from reduced taxable income while remaining compliant with federal tax laws. Proper documentation, regular financial audits, and the use of industry-specific software are essential to maximizing the benefits of 471(c) and minimizing the risks during an IRS audit.

Conclusion

Preparing for an IRS audit as a cannabis operator requires a proactive approach and a knowledgeable team. By assembling the right professionals, maintaining accurate records, implementing strong internal controls, and staying informed about regulatory changes, you can navigate the complex world of cannabis taxation with confidence. Remember, the cost of proper preparation is always less than the potential consequences of being caught unprepared.

Investing in competent professional service providers may seem costly, but it can save you significantly in the long run. A 2022 survey by the National Cannabis Industry Association found that cannabis businesses working with industry-specific accountants and lawyers were 62% less likely to face major compliance issues during an audit.

For more detailed information, you can refer to the IRS guidelines for the cannabis industry and explore the Cannabis Industry Frequently Asked Questions. Additionally, these sources offer valuable insights on how to avoid an IRS cannabis tax audit.

The post Committee Blog: Cannabis Companies – Be Ready and Prepared for an IRS Audit appeared first on The National Cannabis Industry Association.

Following state legalization and/or decriminalization, it doesn’t take long for dispensaries to be fully stocked with cannabis brands eager to get their products on shelves. Unfortunately, the flood of flower from cultivators that invest early into the new markets quickly turns into a creek as small independent farmers struggle to meet margins to remain profitable. The price per pound of cannabis quickly drops, and many of those hopeful farmers have no other alternative but to sell their business or close down.

Not unlike the alcohol and tobacco industries, some brands are creating a lane for themselves by differentiating their product as Craft or Artisanal.

Industry Comparison – Craft Beer

We can look to cannabis’ distant cousin, hops, to get a taste of what it means to have a successful craft market alongside thriving value products like domestic beer. According to the Brewer’s Association, a non-profit trade association of craft brewers, a brewer is considered craft if they meet the definitions for “small” and “independent” listed below:

Small: Annual production of 6 million barrels of beer or less (approximately 3 percent of U.S. annual sales). Beer production is attributed to a brewer according to rules of alternating proprietorships.

Independent: Less than 25 percent of the craft brewery is owned or controlled (or equivalent economic interest) by a beverage alcohol industry member that is not itself a craft brewer.

In short, craft brewers measure production throughput and ownership share to be considered craft. Some argue that the 25% ownership plays the biggest role in the success of a craft brand since even a smaller stake in ownership from a large corporation could give them enough capital to outcompete their non-corporate funded counterparts.

Can similar qualifiers be applied to cannabis cultivation and manufacturing?

Putting the Craft in Craft Cannabis

Unlike its distant alcoholic relative, cannabis is used to produce more than one type of product. While the most common craft product is flower, it can also be extended through the manufacturing process to make edibles, pre-rolls, tinctures, and more.

The process of cannabis cultivation and manufacturing is far more complex to narrow the craft definition to just the final weight of the yield. For flower alone, multiple variables are considered when defining craft—lot size, total yield, harvesting techniques, pest control solutions—just to name a few.

California has taken an impactful step forward by introducing the Cannabis Appellations Program to the cannabis industry. “An appellation of origin is a protected designation that identifies the geographical origin of a product and typically includes production requirements.” The most common use of appellations are in the wine (true Champagne must come from grapes grown in the province of Champagne, France) and coffee industries.

Craft Cannabis Webinar Series

Consumers play the largest role in the success of a cannabis brand and, with the help of small business advocates like NCIA, are now learning about the smaller craft cannabis brands available in their state. So then, what does it mean when your jar of fresh flower says “Craft Cannabis” on the label? What and who defines the craft? What does this new appellation program mean for craft cultivators? How can consumers and retailers support these specialized brands?

NCIA’s Cannabis Manufacturing Committee has partnered with the Retail and Cultivation Committees to present a series of #IndustryEssentials webinars to answer these questions. Starting next month, we’ll speak with industry leaders across the country to gain their perspectives on this topic and learn about their craft.

Stay Connected with NCIA

As the cannabis industry continues to evolve, staying informed about the latest trends and insights is crucial. To keep up with everything happening in the world of craft cannabis and beyond, we encourage you to follow us on LinkedIn for updates, event announcements, and industry discussions. Join our community on LinkedIn today!

Don’t miss out on valuable information—sign up for our newsletter to receive the latest news, resources, and event updates straight to your inbox. Stay ahead of the curve and be part of the growing cannabis community. Sign up for NCIA’s newsletter here!

We look forward to keeping you informed and engaged with the best in the cannabis industry!

The post Committee Blog: What is Craft Cannabis? Understanding Small-Batch Cultivation and Artisanal Products appeared first on The National Cannabis Industry Association.

The hemp industry has been a lifeline for many farmers, but it’s a minefield for consumers. Everyone tells you to check lab reports, but much of the time they don’t include safety testing, and sometimes they’re even outright fake. Brands talk a big game about not selling to youth but then don’t check IDs on purchase or delivery. And even if you do find a brand that doesn’t do this stuff, their labels are probably still misleading and there may be unintended and unknown ingredients that even the lab doesn’t mention.

There is a lot of talk about self-regulation, but with very little top-down control, bad actors are still widespread and the challenge of finding safe, reliable, and effective products falls primarily on consumers. At the same time, honest brands are faced with competing pressures, hoping to put out products that tick all the right boxes but balance this out against profitability.

CBD Oracle set out to address these issues, interviewing 22 experts and two governmental agencies about what they’d look for in a hemp product if they were recommending one to friends, family, or patients. The result is a set of objective criteria for evaluating cannabinoid products, covering everything from the plant on the farm right through to the labeling and marketing of the finished product.

For consumers, it’s a guide for what to look out for, but for brands, it’s a blueprint for making the highest-quality cannabinoid products you can and standing out from the bad actors.

You can read the full report here: A Comprehensive Framework for Evaluating Cannabinoid Products (PDF) 

The Problems With the Hemp Industry and How They Affect Consumer Trust

While the 2018 Farm Bill left the regulation of hemp products to the FDA, the agency has dragged its feet in establishing regulations and left the task to the states. The end result of this is often described as a “patchwork of regulations,” but this misses what is arguably the biggest issue: enforcement varies drastically from state-to-state and this lack of oversight means that customers cannot depend on anything, even if their state theoretically has solid rules in place. 

This leaves consumers facing many issues including inaccurate labeling, deceptive marketing, unsafe products (often containing unknown and unreported byproducts), and a general lack of consistency.

For brands, this has serious knock-on effects:

• Reduced consumer trust: Consumers know that many brands don’t hit the mark, so they are more likely to stick to one or two brands they can rely on and shop around less.
• Governmental scrutiny: The lax standards in the hemp industry attract negative media coverage and in turn encourage state governments to crack down on hemp.
• Market uncertainty: The lack of trust from consumers and skepticism from the government brings uncertainty into the industry. The threat of increased regulation or even outright bans hangs over the future.

A Comprehensive Framework for Evaluating Cannabinoid Products: In Brief

CBD Oracle spoke to 22 experts from the industry, research, medicine, and the law, as well as the FDA and the California Department of Public Health, and reviewed existing standards to come up with their Comprehensive Framework for Evaluating Cannabinoid Products.

The entire framework is in CBD Oracle’s PDF report and blog post, but briefly, the experts identified several key factors consumers should look out for and the industry should strive towards.

The plant’s origin and cultivation method 

The plant should be grown in the US, ideally using organic farming methods, outside under natural light, from a single strain and single origin, and preferably in states with ideal climates and robust hemp programs.

Extraction

The extract should be made from flower using a clean method that removes contaminants while preserving beneficial compounds, such as CO2, with natural cannabinoids (not converted) and terpenes (or at least 99% purity for isolates).

Third-party lab testing

There should be full-panel tests publicly available for each batch/lot of each finished product, ideally including tests of raw materials, from an accredited lab with a credible reputation, which confirms that the product is free from contaminants and the potency is within 10% of the advertised amount (20% for low-dose products). The lab report should be less than a year old and should have a QR code for easy verification.

Quality control

The company should be a GMP-certified manufacturer, with an FDA-registered facility, that oversees the entire production process (i.e. not a white-label brand) and has a chain of custody documentation. The hemp should ideally be USDA certified organic, and with NSF sport certification if it’s intended to be 100% THC-free.

Ingredients and additives

The product should be made without harmful or unnecessary additives, including (but not limited to) vitamin E acetate, synthetic fragrances, artificial colorings, parabens, or synthetic cannabinoids, shouldn’t include unregulated supplements, and any vape products should preferably use a base of propylene glycol (and/or vegetable glycerin).

Packaging and labeling

The product should comply with all labeling requirements, be packaged in a child-resistant container, with packing and expiration dates shown, clear dosing instructions, a batch/lot number for traceability, complete ingredient listing, a QR code linked to the lab report and appropriate health warnings.

Reputation, transparency, and marketing

The company should not make unapproved medical claims, use marketing intended or likely to appeal to youth, or sell hemp products without substantive age verification. They should be transparent about their team, work with experts, ideally engage in advocacy or be a member of industry organizations, and offer good customer service, including a money-back guarantee.

Conclusion – Working Towards a Better Industry

It’s likely that the upcoming update to the Farm Bill will come into force before we get any substantive regulation of hemp at the federal level, with the update likely restricting intoxicating hemp. The only way to show the industry is responsible before then is to hold it to higher standards, pushing customers to expect more and companies to do more to ensure their products are safe, efficacious, and reliable. While the criteria won’t solve the problems facing the industry, they offer a clear path forward for the industry and empower consumers to expect more of the companies whose products they buy.  

You can access the full report in a PDF here: A Comprehensive Framework for Evaluating Cannabinoid Products

The post Member Blog: CBD Oracle Launches Consumer Protection Standards to Address Industry-Wide Issues in Hemp Products appeared first on The National Cannabis Industry Association.

Farm Bill of 2018

When Congress passed the Farm Bill in 2018, the intent was to provide a legal framework for the cultivation of hemp for industrial uses. In 2022, the sales of hemp and CBD products in the U.S. were estimated to be around $5 billion. For 2023 and 2024, projections indicated continued growth at approximately $6 billion. The market has been driven by increasing consumer interest in wellness products, new product innovations, and the expanding availability of hemp-derived items across various retail channels. Overall, the 2018 Farm Bill has opened doors for innovation and research in the hemp industry, benefiting consumers and producers alike.

Unintended Consequence

The Farm Bill was not designed to create synthetic hemp derived products that have the ability to cause intoxication, as an unregulated product, that allow minors to buy products easily available at gas stations and convenient stores. Nor was the Farm Bill designed to compete with products from the highly regulated cannabis industry.

Hemp-derived intoxicating products (HDIP), such as those containing delta-8 THC or other cannabinoids, have found a niche by leveraging their legal status under the 2018 Farm Bill, which allows for hemp products with less than 0.3% delta-9 THC. This legal framework enables them to be marketed and sold in many states where traditional cannabis products remain highly regulated or illegal.

Key Competitive Factors of Hemp vs Cannabis Products:

1. Legal Accessibility: Hemp-derived products can often be sold in a wider range of locations, including convenience stores and online, whereas cannabis products may require specific licenses and be limited to dispensaries.
2. Price Point: These products often come at a lower price than regulated cannabis, appealing to cost-sensitive consumers.
3. Variety and Innovation: The hemp market has rapidly introduced various products, including edibles, vapes, and beverages, catering to diverse consumer preferences.
4. Target Demographic: Many consumers who are curious about cannabis but wary of the higher THC levels in traditional products may find hemp-derived options appealing.

Challenges:

• Regulation and Safety: As the market grows, so does scrutiny from regulators. Concerns about product safety, labeling, and quality control can affect consumer trust.
• Market Confusion: The overlap between hemp and cannabis can create confusion among consumers regarding the legality and effects of different products.

The insurability of unregulated hemp-derived products, such as those containing delta-8 THC or other cannabinoids, presents several challenges:

1. Lack of Regulatory Standards:

• The absence of uniform regulations for hemp-derived products can make insurers wary, as there may be variability in product quality and safety.

2. Inconsistent Labeling and Testing:

• Many products lack third-party testing for potency and purity. This inconsistency increases the risk of legal claims related to mislabeling or contamination.

3. Legal Ambiguity:

• The legal status of some hemp-derived cannabinoids varies by state, leading to uncertainty about liability and compliance for manufacturers and retailers.

4. Consumer Safety Risks:

• Without strict regulations, there are potential health risks associated with unregulated products, which can lead to consumer harm and subsequent lawsuits.

5. Limited Market Data:

• Insurers often rely on historical data to assess risks. The hemp-derived market is still relatively new, and there is insufficient data on claims and losses, making it challenging to determine appropriate premiums.

6. Reputation and Brand Risk:

• Companies in the unregulated space may face reputational risks, which can affect their insurability. If a brand is associated with negative consumer experiences, it can lead to increased claims.

7. Evolving Legislation:

• Rapid changes in laws and regulations regarding hemp and cannabinoids can create uncertainty for insurers regarding coverage requirements and risks.

8. Product Liability:

• Insurers may be concerned about potential product liability claims, especially if products lead to adverse health effects or if consumers experience negative reactions.

Due to these challenges, companies dealing in unregulated hemp-derived products may find it difficult to obtain insurance or may face higher premiums and more stringent underwriting requirements.

As both markets evolve, the competition will likely lead to further innovations and changes in consumer preferences, but more importantly has led to a response from Congress and from a variety of states who are acting to change regulations and/or ban hemp derived products, putting the hemp industry and consumers who use hemp and CBD products as medicine at risk.

State by State Regulatory Response

States such as New Jersey, Virginia, Georgia, California and New York are contemplating changes or have already made changes to hemp laws to restrict and/or regulate sales. Please see links below for more state specific responses and information. 

New Jersey

• Gov. Murphy signs controversial bill restricting sales of hemp products

• Hemp businesses sue to stop New Jersey law that restricts hemp sales

Georgia

• Here’s what you need to know about Georgia’s new hemp law that just took effect

California

• California Bans Hemp Products With Any Amount Of THC

• California sued by hemp advocates Cheech and Chong over controversial hemp THC ban

Virginia

• Hemp Product Enforcement

New York

• Cannabinoid Hemp Regulations Guidance for Licensees

Conclusion

There are many complexities to the Farm Bill of 2018, and there are complexities of each state’s highly regulated cannabis market. It is believed there can be a balance and existence of both the cannabis and hemp and CBD market. At the end of the day, anyone can order hemp, CBD products via e-commerce due to federal laws. There are manufacturers who are good actors and some who are bad actors, as always, “Caveat Emptor”.

The post Committee Blog: The Tale of Two Cities – The Complexities of Cannabis vs Hemp appeared first on The National Cannabis Industry Association.

The DEA’s Chief Administrative Law Judge (ALJ) Mulrooney recently granted a request for leave to file an interlocutory appeal, resulting in the cancellation of the merit-based hearing and effectively pausing the proceedings for at least three months. With a new administration being sworn in imminently and a new DEA Administrator who has yet to be selected, future action remains uncertain.

The movants (Village Farms International, Hemp for Victory, Office of the Cannabis Ombudsman of Connecticut, Ellen Brown [Massachusetts Cannabis Advisory Board], and My Doc App) behind the request were Designated Participants (DPs) without standing who purport to be pro-rescheduling, despite the fact that their motion will require operators to continue paying the exorbitant tax rates that 280E imposes and has galvanized prohibitionists.

The interlocutory appeal was filed in an attempt to remove the DEA as the proponent of the rescheduling rule due to evidence the agency was biased against cannabis and had engaged in communications with prohibitionist group Project SAM and other opponents outside of the legal process. 

While we agree that the DEA is not free from bias (no surprise there), NCIA did not subscribe to this strategy because removing the DEA from its own administrative court was never a viable legal option and would have only resulted in delay or perhaps the end of the rescheduling process. 

As the only pro-cannabis party granted standing in these proceedings, we are very disappointed in this unfortunate but predictable turn of events initiated by parties without legal standing.

“We believe this to be an ill-conceived strategy that benefits no one but the prohibitionists seeking to hinder reform and perhaps the attorneys who can now bill more hours to deep-pocketed clients while this process drags on further,” said NCIA CEO & Co-founder Aaron Smith. “Our members need rescheduling and tax relief now, and we remain committed to advancing reform despite the misguided actions of some who claim to be allies. This serves as a stark reminder that the most well-funded entities are not always the most effective public advocates.”

Our pro bono legal teams at Greenbridge Corporate Counsel and Fox Rothschild are exploring every avenue possible to get the proceedings back on track and ensure meaningful progress continues.

The post NCIA’s Statement on Interlocutory Appeal in Federal Cannabis Rescheduling Hearing appeared first on The National Cannabis Industry Association.