Not just blowing smoke: Time to take cannabis compliance seriously

Those were the opening questions posed by Charles Smith, a cannabis regulatory consultant and moderator of a Compliance Week 2019 conference panel on the impact of cannabis legalization on corporate compliance. As would be expected amid the current pot boon and electoral push for state-level legalization, a healthy number of hands shot in the air.

Even the casual, informal survey reveals deep conundrums. As consumers and medical patients in the U.S.—and around the world—demand access to their recreational and medicinal drug of choice, risks and challenges abound.

The CW2019 session focused on the emerging area of the cannabis business. How will corporate compliance and ethics officers deal with the impacts of the legalization of cannabis within organizations? What of the employment issues that emerge, as well as what will be vital third-party due diligence in preparation of mergers and acquisitions.

“It is important to frame this conversation, that your employees are already using cannabis. This is a real issue for your companies. People are using cannabis, people are using cannabis at work, people are going outside and vaping on their lunch hour or on their smoke break using innovative delivery systems, so they are not going to smell like they were just hanging out with a skunk. There are discreet ways for them to consume. It’s a very real issue.”

Charles Smith, Founder, Cannabis Compliance

Smith, a former criminal defense attorney, assists and advises companies in all aspects of the cannabis industry, including the licensing and regulatory process, ongoing compliance, strategy, and expansion efforts.

“As you saw from the show of hands, many of us in the room live in jurisdictions where individuals are permitted to use cannabis legally, whether on the recommendation of a physician, or if they walk into an adult use dispensary and are able to purchase a certain amount of product and use that product,” said Smith, who was clad in marijuana leaf-print socks. “The landscape is evolving.”

Currently, 46 states/U.S. territories have some type of medical or adult recreational use law, and that includes the District of Columbia, Guam, and Puerto Rico. Nevertheless, cannabis is classified, according to the U.S. government, as a Schedule 1 substance and therefore federally illegal.

Optimism remains that a legislative redress will soon be in the offing in Congress.

“There are efforts on the federal level to reform antiquated cannabis laws, but as we all know, the wheels of justice spin very slowly, and the machine of government moves very slowly,” Smith said.

Joining Smith among the panelists was Jessica Feingold, senior legal counsel for Stem Holdings and its operational affiliates. It owns cannabis facilities in Nevada, Oklahoma, Oregon, Maryland, and South Africa.

Also joining the discussion was Kristine Robidoux, senior compliance and regulatory counsel for Gran Tierra Energy and “the only one of the three that did not have a cannabis background.” Together with its subsidiaries, Gran Tierra is focused on oil and gas exploration and production in Colombia and Ecuador. Based in Calgary, Canada, the company is incorporated in Delaware.

The multi-geographical presence of the business raises the compliance challenges, Robidoux said. The perspective she hoped to bring to the panel was “from a safety-sensitive industry,” in light of the fact that Canadian citizens are now permitted to use, both medically and recreationally, cannabis and related products.

Delays in fully implementing Canadian legalization between 2017 and 2018 did have a positive side-effect for businesses in the country. “It really gave employers a much-needed timeframe to consider the workplace issues that would arise,” she explained.

In Canada, national law provides for 30 milligrams of personal possession and up to four plants for personal use. Edibles “are not yet permitted only because they haven’t quite figured out the regulatory kind of landscape for that, but we do expect that that will be in place by the end of 2019.”

Substance abuse and safety

For Robidoux, labor law and employment issues are tantamount concerns.

“You start from the premise that drugs and alcohol in the workplace have always presented employment issues,” she said. “[Cannabis legalization] is going to increase that risk because you’re going to be increasing consumption.”

What obligations and concerns should a company have as an employer?

“The biggest issue you’ll have in the workplace is that unlike alcohol, which wears off over time at roughly the same rate depending on your weight … and you can quantify the level of alcohol in your blood, you can’t really do that with cannabis,” Robidoux said. “If you are in a safety-sensitive industry, like oil and gas, as I am, how are you going to police whether employees are permitted to use?”

Are they permitted to use on duty? Are they permitted to use off duty? Are you going to test for consumption? How are you going to establish whether an employee is fit to work? What are you going to do when employees use cannabis for medicinal purposes? Or, if they have a dependency? Will you have an obligation to accommodate that employee?

“Those issues arise with the use of alcohol, but it is now going to be that much more heightened with cannabis.”

“It is important to frame this conversation, that your employees are already using cannabis,” Smith said. “This is a real issue for your companies. People are using cannabis, people are using cannabis at work, people are going outside and vaping on their lunch hour or on their smoke break using innovative delivery systems, so they are not going to smell like they were just hanging out with a skunk. There are discreet ways for them to consume. It’s a very real issue.”

“I think employers would be remiss to overlook this issue or to implement some antiquated policy like zero tolerance,” he added.

A top-of-mind query emerged during the discussions: What is sound policy-making in the age of cannabis legalization?

“We want people who are excited about our products and our brands but, obviously, we want productive employees that are going to be effective and efficient,” Feingold said. “My perspective on how to manage cannabis employees is probably different than everyone else here knowing that 90 percent of my employees will consume cannabis.”

Feingold likes to start with the baseline of whether someone is intoxicated or medicated, “because really, people are using cannabis for medicinal purposes, you know, for all different kinds of set debilitating conditions.”

Her key: managing everyone’s expectations.

“We have developed and worked on extensive employee handbooks, training, and clear and concise policies,” she added. “When we hire people, we set their expectations.”

Some demands fall beyond Feingold’s ability to control or manage.

“A lot of states have rules where you can’t have onsite consumption,” she said. “As long as you’re in a licensed facility, you’re not allowed to consume cannabis, and that is a very strict rule with absolute zero tolerance. You will be immediately terminated if we catch you consuming on the premises and we will have to report it to the regulatory authority. But, obviously, we don’t have a broad, comprehensive zero drug policy in place. That’s not something that we can support in our business.”

Setting policies

“I would recommend that people get with their management team and discuss what you want for your policies,” Feingold advised. “Obviously, for our employees who are driving or engaged in any activities that require the user operation of heavy machinery, we certainly do not allow any employees to consume cannabis at all during work hours.”

Smith latched onto, and stressed, the concept of “fitness for work.”

“A lot of these policies are already written, and they just need to be adapted to cannabis,” he said. There is a biological challenge, however, that complicates matter: “the way that cannabis is metabolized in the body differs for every single person.”

“It’s a challenge, but I think if we go back to that fitness-for-work standard, you’re not really creating new policies. You’re just adapting them to, to the world as it stands in 2019,” he explained.

A key question for any CCO is how to create the right culture. What is the objective in terms of your company’s culture and environment?

“Obviously, our environment is different than most other businesses, but at the same time, we want to be profitable,” Feingold said. “So, we play this delicate balance of wanting to have our employees be happy and passionate, but at the same time, we want them to be effective and productive.”

Robidoux says she, and her firm, “represent the opposite end of that spectrum.”

“We’re dealing with drilling rigs. One of our drilling contractors, for example, had a rig fall down in January, and a man with four kids under the age of 15 lost his life. There are very, very real dangers that our people work with. Our culture must be one of safety.”

“A rig could fall down without there being any impairment due to any drug or alcohol consumption,” she added. “But when setting policies, we look at our obligation to provide a safe workplace. How can we ensure that employees who now have the ability legally to consume outside of work hours as they wish doesn’t lead to any unreasonable risk in the workplace?”

“If I had to put a line in the sand for my industry, I would say that if you’re using cannabis for any medicinal or other purpose whatsoever, you’re automatically knocked out of the box for being able to perform any safety sensitive role,” she continued. “If you’re a driller, there’s not really much else that we can accommodate you with.”

Other considerations include policies for operating company vehicles, or even your own vehicle on company time. What about client entertainment and social hosting? Does your policy allow for employees to go out and have a glass of wine at lunch? Have a beer at lunch? A joint?

Life isn’t all freewheeling accommodations at Feingold’s company, she admitted.

“I should mention at our company, we have a motto that we’re a compliance company first, and a cannabis company second,” she said. “Compliance is always number one for so many different reasons, mostly because we could lose our license with no recourse and go to jail. I want to keep my guys out of jail.”

As is often the case in multiple business sectors, the panelists sounded an alarm for adequate vendor and supply chain due diligence. Especially amid M&A deals and public offerings, audit responsibilities cannot be shirked.

“It boggles my mind, from a due diligence perspective, that you always see these kinds of haphazard processes,” Smith said. “People are taking a due diligence checklist from another area and just trying to apply it to cannabis businesses.”

Among his warnings: “If your client wants to be a landlord to a cannabis company, they better get comfortable with the risk that any debt on that property could be called immediately, and they could be putting their entire debt portfolio in jeopardy by renting to a cannabis company because of the federal illegality.”

“I do incorporate provisions in our agreements that if my client does, in fact, commit a compliance blunder that results in us losing a license, I try to negotiate some kind of liquidated damages provision for that particular kind of event,” Feingold said.