Risk Management in the Cannabis Industry During COVID-19

Roy Melton


April 20, 2020

The coronavirus (COVID-19) pandemic will be a defining event for entrepreneurs and business owners making their way in the growing legal cannabis industry. Though they may have thrived before despite a lack of traditional capital sources, uneven regulation and intense scrutiny, this crisis could bring new pressures from heightened demand, potential staffing issues, and the possibility of cash shortages.

Vigilance and resilience will be needed to adapt to the rapidly changing realities, and the likelihood that bailout programs may not be available to the industry due to its status with the federal government, which still considers cannabis a Schedule I drug.

“We do not need any more problems in cannabis than we already have,” said Kirk Barry, CEO of Clarion Compliance, a risk management company with clients in the cannabis industry. “The common financial products that are available to other businesses aren’t there. You cannot get a loan or a line of credit, those sorts of things. If you cannot survive as an island, you’ve got problems.”

Barry and other experts associated with the National Cannabis Risk Management Association (NCRMA), a Pittsburgh-based non-profit organization which offers education, support and expertise to its more than 2,000 members, provided observations and advice for weathering these uncertain times, including:

  • Follow the rules in terms of laws and regulations for the industry and measures implemented by federal, state and local government to address the crisis.
  • Monitor receivables and cash flow.
  • Ensure that retail spaces are clean and secure and be prepared for a potential increase or decrease in customers.
  • When uncertain, ask an expert for advice.

The legal cannabis industry, now valued at roughly $20 billion, was projected to rise to $31 billion by 2021, and $50 billion by 2029. Opinions vary whether the pandemic will be good or bad for the industry. Statistics show that demand has surged in dispensaries. According to a recent article in industry news source Marijuana Business News Daily, retailers have reported a spike in sales in during the spread of the virus.

Dr. Brenda Wells, director of the East Carolina University Risk Management and Insurance Program, said that this could be due to people being home from work with additional free time, and a concern about cannabis outlets being closed. This heightens the need for vigilance and an adherence to regulations, she said.

“I think in the cannabis industry, we simply have to be better than good, we have to be the best at risk management,” said Dr. Wells. “Cannabis has a target on its back from people who don’t want to see it be legal. The last thing that we need is a scandal from hygiene or poor product quality. We need to maintain standards. As we go through this crisis, we need to make sure the product is safe, and the places people go to buy it is safe and clean and sterilized as well.”

Some business owners might not be prepared to handle staffing shortages due to illness or the need to care for a sick loved one. “The profound thing that I realized is how confused and uncertain employers are,” said Albert Lee, head of labor and employment law practice for Tucker Arensberg LLP, a NCRMA service provider. “Most cannabis industry employers are struggling with all the range of things that are coming into play with all of this. It is unprecedented and hard to predict the evolving scenarios.”

Cannabis business owners, like all business owners, need to make sure they have an understanding of labor laws and how they may come into play during this crisis, Lee said. “There are a lot of employers who are not experienced; entrepreneurs, smaller operators, in regulated states who will be impacted. This is a perfect storm.”

Barry said financial and staffing pressures might lead some owners to bend the rules or pursue opportunities in the illegal cannabis market. That could be a perilous path, he cautioned.

“When in a time of economic stress, the walls come down a bit,” Barry said. “You look at the black market as an opportunity. The danger of that is to the consumer, and as a licensed entity, you do not want to find yourself in the situation where you are the one who gets caught.” The punishment and fines could be crippling, Barry said.

Rocco Petrilli, chairman of the NCRMA, expects this to result in heightened awareness and attention to standards for the industry. “To this point, solid risk management practice and the role of effective insurance coverages have been on the back burner of the cannabis market,” Petrilli said. “One positive of any crisis are the lessons learned as a result of the experience. The importance of risk management and emergency preparedness should now be on the minds of every cannabis business owner and operator.”

This highlights the need for the education, support and expertise from seasoned industry advisers. “This is pressure that some will survive. There are always survivors in something like this,” Barry said. “Now even more than before, it is all about risk.”

Roy Melton is a content strategist for the National Cannabis Risk Management Association (NCRMA), a non-profit that provides pioneering and innovative risk management and insurance solutions to the national cannabis market.