How to Manage Risk in Cannabis: Make Sure Good Things Happen to Good People

How to Manage Risk in Cannabis: Make Sure Good Things Happen to Good People

Pixabay / CC0 Public Domain / rexmedlin

By James Forbes

As business owners, managing risk is something we are all aware of, but it’s often pushed to the side, especially with new businesses, in the battle for cash flow and stability. We tell ourselves that we will work on risk once we are making money.

Well, bad things happen to good people all of the time. To put an exclamation point on that, the rapidly-expanding cannabis industry brings with it a long list of opportunities for any combination of bad decisions and bad luck … most of which can be protected with a little planning.

While insurance is my business and the foundation of risk management, we first encourage business owners in the cannabis bloodstream to create a formal risk management strategy that addresses five major categories of risk—theft, fire, pests, utility failures, and legal penalties—and defines specific solutions for each.   

Theft

With a large black market operating today in the cannabis industry, legal growers, dispensary owners, distributors, and caregivers are prime targets for theft from both inside and outside their companies. Investing in the following will give you a solid risk management foundation:

  • Professional security / security system – The foundation of a security strategy includes a combination of security professionals, an alarm system and cameras. It will also send a message to would-be thieves that you are serious about protecting your investment.
  • Inventory management and protection – Invest in technology that allows you to keep up-to-date records of your inventory; ensuring your inventory is not easily accessible without a valid representative present is crucial to minimizing theft.
  • Keep cash offsite – The marijuana industry is still, for the most part, a cash-only industry, with businesses regularly carrying around millions of dollars. Keeping your hard earned money physically away from your inventory limits the possibility of a double loss.
  • Investing in the right type of employees – Unfortunately, the temptation for employees to steal from a marijuana business is high, especially considering the high demand for cannabis on the black market. There are measures you can take to reduce this type of theft:
    • Conduct background checks – If you do nothing else, do this. While time consuming, a third-party background check can provide valuable insight into the quality of character of a potential hire.
    • Grill their references – While employment seekers often provide references that are likely to give glowing reviews, your job is to ask questions that force a deeper discussion of their skills. How do they handle conflict? What are examples of how they went above and beyond? How well did they get along with other employees?
    • Incentivize honesty – Employees appreciate being appreciated. Make sure they understand what’s most important to you—protecting your assets—and reward them with good performance. Maybe it’s simply an afternoon or day off. The key is recognizing honesty in a business full of dishonest opportunities.

Fire

Fire prevention should be your priority.

  • Consult with an electrician – This is the classic ounce of prevention. An expert opinion on amps, wattage and proper GFIs will go a long way to lower your risk.
  • Proper electrical usage – Many indoor fires are caused by improper electrical loads being carried through inadequate wiring. Be sure you are following manufacturers’ recommendations for lighting, and never overload electrical outlets.
  • Fire detection – This should go without saying, but sprinklers, smoke detectors and fire extinguishers are a basic part of an overall solution against fire.
  • Prescribed fires (controlled burns) – Mother nature can prove to be a cold mistress, or in this case a fiery jezebel capable of destroying millions of dollars in inventory and potentially sinking a business. Consult with local authorities to schedule a controlled burn to give you an extra layer of defense in the event a wildfire occurs.

Pests

Mites, aphids and many other bugs can destroy a crop and a bottom line. Using safe pesticides, daily monitoring, and proper ventilation can help prevent these little bugs from taking a bite out of your inventory and wallet.

Utility Failure

It cannot be stressed enough how much a power loss or other major utility failure can ruin months of hard work in a short time frame. Backup measures:

  • Generator – Plants grown indoors or requiring other electrical means can suffer greatly should a storm or other unforeseeable reasons cause a loss of power. Having a backup generator on hand could save your crop.
  • Water reserve – Keeping a water supply on hand such as large aquatic tanks or IBC totes can come in handy should water contamination or shortage rear its ugly head.

Legal Penalties

One of the biggest elephants in the room regarding the cannabis industry is that marijuana is still a Schedule I narcotic as classified by the federal government. There are many gray areas, as well as outright black and white scenarios that an owner must be wary of, but you can implement the following to protect your business:

  • Hire an attorney – Lawyers are the butt of many jokes, but the joke will be on you if you don’t have a good one. We know several good attorneys if you would like a referral.
  • Know the law – Having said that, don’t leave everything legal to just your attorney. Understanding the current legal landscape and, in the case of cannabis, understanding what’s potentially around the corner will put you at a competitive advantage.
  • Only operate in your municipality – With interstate, RICO, and state laws greatly varying, it is highly recommended that you only operate your business in the local municipality that issued you your permit, anything else is playing with fire.

All of the major categories of risk can keep a business owner up at night and lead to a belly full of ulcers. Our last article covered the types of insurance coverage that marijuana business owners should consider such as theft, fire, crop and duty to defend.

We work with some of the best property and casualty insurance companies focused on cannabis. Consulting with an experienced broker is the best bet to safeguard your operations and provide a layer of protection to your assets.

 

Prior to becoming an insurance broker, James Forbes, a graduate of the University of Missouri–Columbia, was involved with the auto industry, federal government and the IT industry. As a CLCS (Commercial Lines Coverage Specialist) Insurance Broker for Bell’s and Associates, a Missouri General affiliate, James specializes in custom tailoring commercial coverage packages for local, national, and international risks and exposures. His primary goal is to represent his clients’ best interests, and work with every insurance company that can provide the most value. If you’d like to connect with James, you can reach him at jforbes@misourigeneral.com.

Guest Contributor designates a writer who is guest publishing content with MJINews.

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