Cannabis Entrepreneurs Face Regulatory Hurdles

Without federal oversight, businesses must contend with a patchwork of laws in marijuana-legal states.

January 09, 2020

This is the final in a four-part NACS Daily series on the one-day NACS pop-up, “The Future of Cannabis in Retail,” held December 10, 2019, in Las Vegas. NACS gathered an exclusive group of 50 convenience and fuel retailers and suppliers for an up-close look at the nascent legal cannabis marketplace.

By Kim Stewart

LAS VEGAS, Nev.—Attendees at the NACS cannabis pop-up heard directly from representatives of companies already working in the legal cannabis space, who shared how they grapple with the challenges of complying with piecemeal regulations at the state and local level in the United States, where marijuana use and sales are still illegal at the federal level.

“Regulatory compliance is the most challenging part of the business,” said Brandon Wiegand, regional general manager, The+Source|NV Organic Remedies, which operates dispensaries in Nevada. “It’s inconsistent, which is probably the most maddening part for me,” he said. “What’s good one day can be changed on a dime the next day.” Regulations vary by locale, so his company models policies for each dispensary on the jurisdiction with the strictest regulations, which in his case is Henderson, Nevada, to achieve some operational consistency.

There’s a strict seed-to-sale chain of custody tracking system for cannabis products, from accepting deliveries of stock to waste disposal—everything has to be accounted for down to weighing and reporting “green” waste. Retailers face higher costs for capital and banking services in the cash-intensive business, plus limitations on what operating expenses they can deduct for tax purposes.

Still, Wiegand offered an encouraging outlook for convenience retailers. “I think convenience stores are very well positioned to take advantage of this market in the future,” Wiegand said. “You already do age verification in retail today, probably better than any other channels. You have a high level of accuracy and social responsibility. You could be positioned as the channel of choice for FDA and other regulators. You are experienced in retailing regulated products and OTC medication, plus gasoline and propane sales.”

Pay attention to what CBD products are selling well and what consumers are asking for to get ready for THC products, he advised. “CBD is the stepping stone to cannabis,” he said. CBD “is opening the door and allowing people to see the health and wellness benefits of cannabis.”

Considerations for Employers

Don Rhoads, president and CEO, of the Vancouver, Washington-based Convenience Group and Rochester, Washington-based Landrace Brands, a cannabis retailer, envisions that his Washington state c-stores, where marijuana is legal, will one day have a store-within-a-store with a separate door for legal cannabis sales. “It’s slowly going to evolve into our storefront,” he said. “We are the right industry to make it happen,” he said.

“You need an educated workforce,” Rhoads said. “You have to maneuver through all the regulation. And for that the wages are a little higher.”

Dealing with piecemeal regulations is difficult. “I believe this industry has to be regulated at the federal level,” Rhoads said. He advised retailers to retain good legal counsel on employment law and work with state regulators on policies like drug testing employees who can legally use marijuana—but still can’t come to work intoxicated.

David Dornak, partner, Las Vegas, Fisher Phillips LLP, a national law firm that focuses on labor and employment law for employers, told retailers to base their drug-testing decisions on the laws in the states where they operate. “This is one area of law that’s changing so rapidly you really need to get educated on it,” Dornak said.

“If you want to test, test” and “be consistent.” Consider whether marijuana use poses a threat to workplace safety, he said. “Make sure all your employees know what your policies are, and they know the ramifications for violations.” He added, “If you don’t want to do [drug tests], don’t do it.”

When cannabis might become legal nationwide is anyone’s guess. Scott Sinder, partner, Steptoe & Johnson, highlighted recent FDA warnings sent to 15 companies selling CBD products in ways that allegedly violate the Federal Food, Drug and Cosmetic Act. “We are in this unregulated land, and you have products that are technically illegal under federal law,” Sinder said, so selling them “can expose manufacturers and potentially retailers to liability.”

Without any inklings of legalization from the Trump White House, any action is coming at the state level, NACS President and CEO Henry Armour said. “Right now, today, the deck is really stacked against us.” He noted that the states where marijuana is legal all prohibit sales in convenience stores. And with the election year ahead, Armour cautioned about expecting things to change anytime soon.

“If there’s anything this industry likes it’s a challenge,” Armour said. To succeed in the cannabis marketplace, “We have to be the most respected, socially responsible retail channel” and “very serious about protecting youth and our communities,” or the door will close, Armour said. “The second thing is we have to energize and activate. This will not come to us. If we’re passive, this is not going to be an opportunity for us.”

If you want to experience the full learnings from the event, session recordings are available on-demand in a streaming video format for $295. Visit our online store to download. (Please note: Sessions by Rick Maturo of Nielsen, Dr. Nick Jikomes of Leafly and Jeremy Bergeron of Alimentation Couche-Tard aren’t included.)

Kim Stewart is editor in chief of NACS Magazine and editorial director of NACS.