Risk Management in the Cannabis Industry

Risk Management in the Cannabis Industry

Author: Barry Adams, Community Outreach Coordinator for AlphaRoot

The cannabis industry is gaining momentum toward profitability, despite the strict regulatory environment by the US government. But the risks still persist. Your cannabis company can mitigate the worst-case scenarios by employing sound cannabis risk management strategies.

The cannabis regulatory system by the US government has been making steady progress. New licenses are being issued and bold new initiatives have been taken by cannabis insurance sectors on a regular basis.

It's not shocking that new cannabis businesses are sprouting up with ambitious growth plans. The challenges begin when you start adapting to the ever-changing demands of consumers and a cash-only environment.

However, cannabis insurance and other forms of cannabis risk management planning are important to growing steadily as a cannabis business.

Why Cannabis Risk Management is Important?

The goal of cannabis risk management is to reduce, monitor, and control the likelihood of undesirable events while keeping the bad effect to a minimum.

Putting Together a Risk Management Group

To avoid failure, newbie marijuana-related businesses (MRBs) should put together a risk management cannabis insurance, as well as an accounting and legal advisory team.

This group of people will help as the new business won't have any access to traditional risk management tools. For example, bankruptcy law protection, credit cards, and federal patents plus trademarks.

Poorly constructed MRBs could be wiped out by even a minor loss. So it's crucial to work with a risk management group. Due to the granularity of regulations covering cannabis production cycles, waste disposal, and finished products, understanding the most vulnerable risks is essential.

You will be able to effectively manage the cannabis insurance needs of your cannabis business prior to its launch.

Avoiding Fraud and Theft

The fact that many cannabis companies work in a cash-only environment, increases the industry's risk exposure. This is because the newbies are easy targets for theft and fraud.

As long as banks face criminal penalties for providing services to cannabis companies, they will remain at risk. Financial organizations would be less likely to face losses by partnering with cannabis businesses if the Secure and Fair Enforcement (SAFE) Banking Act were passed.

The measures by this bank act would shield financial institutions from federal prosecution for providing services to cannabis companies, operating legally under state law.

There is a need for crime and theft coverage to help mitigate the risks associated with running a cash-based company in the cannabis industry. The company needs it until banking regulations are put in place to allow legitimate businesses to operate in an environment that is stable and secure enough to deter criminal activity.

Methods for Managing Risk Together

Leaders in the cannabis industry are concentrated on expanding their businesses. As a result, they may be unable to dedicate adequate resources to risk management. That's why it's important to build cannabis risk management into your regular operations rather than treating it as a separate function. The best methods for integration should include:

  • Documentation: Creating and refining processes, committing them to paper, and providing evidence of continuing compliance via an auditable paper trail are all part of a sound documentation practice.
  • Collaboration: If you, as a cannabis company owner, discover vulnerabilities in financial management procedures that endanger its employees, you need to strengthen cash handling SOPs. Next, compile them into a handbook, and train employees multiple times on the new policies.
  • Integration in Practice: Integrating practices across departments, eliminating risk silos, and determining what constitutes an acceptable degree of risk, all contribute to productive collaboration.

Recent Developments in Cannabis Risk Management

Many cannabis companies have appointed a compliance manager or head to oversee compliance and cannabis risk management. When compliance projects across multiple departments are not coordinated, they often fail due to inefficiency, wasted time, and confusion.

Poor cannabis risk management is a drain on both, labor and money. The modern risk management development in the cannabis business deal with:

  • Difficult and disjointed issues
  • Insufficient oversight of core company processes
  • Inadequate management of the initiative
  • Complying with regulations using either spreadsheets or overpriced, badly developed software

The identification, management, and reporting of risk depend on moving beyond cannabis regulations, and toward integrated cannabis risk management and scoring.

Risk Management Aids Cannabis Expansion

The cannabis industry is likely to have a higher risk profile for the foreseeable future. This is the major result of regulatory uncertainty and limited access to tools that other industries have access to. The biggest example is the national or large regional banking and insurance relationships.

As a result, the requirement for a structured, enterprise-wide cannabis risk management approach has become even more vital. While many external variables are beyond the control of cannabis businesses, the industry's risks can be drastically reduced by focusing on internal strategies and procedures.

The owners and CEOs can do this by constructing efficient cannabis risk management practices as per their company’s needs. On the other hand, taking advantage of cannabis insurance will provide you with a safety net while you sleep peacefully.

Collaborating with a cannabis insurance expert can help you cover your exposures and put your business up for success in the long run. Depending on the findings of your cannabis company assessment, the risk treatment may involve making changes to internal policies or even discontinuing sales of the product altogether.

Cannabis companies that have efficient, pertinent, and well-documented risk management practices are in a better position. They are able to create and preserve capital, attract investment, and achieve long-term sustainable development.


Due to the fast-shifting regulatory environment and the increasing complexity, organizations in the cannabis industry need to focus on developing a structured approach to managing cannabis risk management.

Less time should be spent on data collection, spreadsheets, or handling expensive compliance applications, and more time should be spent on risk analysis and problem-solving.

Take advantage of the many benefits offered by expert cannabis risk management strategies and cannabis insurance guide to deal with unforeseen risks.

Barry Adams | Community Outreach Coordinator for AlphaRoot


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