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Regulatory Compliance Challenges in the Cannabis Industry: August 2023 Disciplinary Report

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Michigan’s cannabis industry continues to evolve and there are strict regulations that have been and will continue to be updated by the CRA to ensure safety, quality, and legality in the production and distribution of cannabis products. Periodic disciplinary reports are released to publicize violations and these reports provide reminders that facilities must adhere to the rules or face consequences. The August 16, 2023 disciplinary report highlights a range of violations and fines incurred by various cannabis companies.

There were 23 companies fined for non-compliance with their Annual Financial Statements (ASF) - some of these companies had to pay fines for multiple licenses. Some of the other types of violations involved Employee issues, METRC non-compliance, Surveillance/Security, Non-compliant sales, Failure to Report Material Changes, and Packaging & Advertising.

Employee-Related and METRC Violations

One company faced a $6,000 fine for employing three individuals under the age of 21 to work with marijuana plants. Another facility created a METRC package tag by merging two harvest batch tags, and neither of the original tags underwent safety compliance testing before the merger. This resulted in a $5,000 fine. A third license holder, a medical marijuana grower, was fined $5,000 for not having an active employee on staff with a minimum of 2 years’ experience as a registered primary caregiver.

Another company found itself in hot water for multiple infractions, which led to a fine of $8,000. The company employed two individuals under 21 at their adult-use grow, didn't enter two employees into METRC within 7 business days, and an ex-employee's access to METRC was not promptly revoked after termination. Along with the fine, the company was required to provide a new standard operating procedure (SOP) for vetting new employees before hire and for removing employees from METRC upon termination.

Packaging and Advertising

One company had a complaint filed against it about the labeling on an edible marijuana product. The investigation found that the product did not have an expiration date, did not disclose potential THC and CBD content variations, and missed a required warning for use by adults and keep out of reach of children. This resulted in a fine of $5,000.

At another facility, the CRA found, after making an unannounced visit based on a complaint, that a product was missing the harvest date, lab name, and test date. The products in question had already been sold. This resulted in a fine of $5,000 and the company had to create new SOPs and train their employees on these within 30 days.

The largest fine assessed during this report period was to a company that created a marijuana flower package with a METRC tag using a combination of eleven different strains/packages. This action resulted in false and misleading information on the product labels, including incorrect unique identification numbers, strain names, THC and CBD concentrations, activation time, and laboratory information. Additionally, the Company was found to have created multiple similar packages using flower from different strains/packages.This resulted in a fine of $28,600 against the adult use retailer and a fine of $46,200 against the medical provisioning center license. The same company’s medical processing facility was fined $6,000 after it produced a medical marijuana gummy product with incorrect labeling and a deceptive test analysis date, and after being in possession of untagged marijuana products during a spot check.

Material Changes to Legal Entity

Attempting to make ownership changes without proper approval led to regulatory violations for one license holder. The business operated without a qualified member from November 2020 to April 2021. Violations included failing to report material changes and executing an ownership change agreement without agency approval. This resulted in a fine of $5,000.

Surveillance and Security

Surveillance and security issues resulted in some heavy fines in this report. One company’s surveillance system, consisting of eight Ring cameras connected via Wi-Fi extender, malfunctioned. They realized that the extender was broken as none of the cameras could be accessed, and no video could be retrieved. They replaced the extender the same day, but it was revealed that they didn't have 30 days of video coverage. This resulted in a fine of $16,000.

Another company contacted CRA themselves to report a surveillance video outage. Unfortunately, further investigation led to the discovery that the company made approximately 78 transactions of marijuana sales during the outages, and there was no video recording of the point of sale during these transactions. The company later stated that they were unaware of the initial outage until shortly before surveillance was restored, indicating a lack of a functioning failure notification system. The medical provisioning center licensee was fined $7,200 and the adult use retailer license was fined $14,000. New SOPs and training on the new SOPs were ordered for both licenses.

The August 2023 disciplinary report emphasizes the ongoing need for cannabis businesses to prioritize compliance with a multitude of regulations. Violations result in substantial fines and penalties, potentially jeopardizing the entire business.. Businesses must stay informed about the latest regulatory changes, and make comprehensive compliance training programs a routine part of business operations.

It is not enough to have standard operating procedures. They must be rigorously followed (with periodic audits to measure compliance), and contemporaneously updated as regulations are issued (sometimes on the spur of the moment) Following the rules alone will not make a company successful, but in the highly regulated cannabis industry, full compliance at least makes success possible.

For more information about cannabis business compliance, or to schedule your first compliance audit with our cannabis attorneys, give us a call at (313) 446-2235 or fill out the form on our homepage.

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