With cannabis legalization steadily coming to more states nationwide, there’s never been a better time to jump into the industry. Running a cannabis business can certainly be profitable, but it also comes with unique challenges that can land owners in financial and legal hot water.
In this guide, you’ll learn everything you need to know about asset protection for the cannabis industry.
Introduction to Asset Protection in the Cannabis Industry
Whether you’re just entering the cannabis industry or you’re already a seasoned pro, proper asset protection is one thing you can’t afford to ignore.
Overview of Industry Growth and Risks
As of 2024, 24 states have legalized the recreational use of marijuana, and 14 allow its use for medical purposes. According to industry analysts, the U.S. cannabis market is projected to grow from more than $57 billion in 2023 to more than $444 billion by 2030.
Such growth is impressive, but it also presents increasing risks, such as intellectual property issues, asset seizure, and physical loss.
Importance of Asset Protection for Cannabis and CBD Businesses
Asset protection for the cannabis industry provides benefits such as:
- Enables compliance with regulatory requirements
- Safeguards intellectual property
- Protects cannabis products from damage and theft
- Prevents business asset seizure
Legal and Regulatory Compliance
Those in the cannabis industry must meet strict regulatory requirements to keep their business’s doors open and avoid costly fines.
Federal and State Regulations
Federally, cannabis remains illegal, but it’s currently legal in 24 states. Cannabis business owners must walk a delicate tightrope to avoid violating state or federal laws.
Some laws and regulations that cannabis business owners must comply with include:
- Businesses must comply with regulations regarding the advertising of cannabis products. For example, advertising can’t claim that such products can treat or cure medical conditions.
- Cannabis businesses must regularly test their products for contaminants, purity, and potency before offering them for sale.
- Cannabis businesses must keep accurate records of their inventories.
- Cannabis businesses must provide a safe working environment for employees. That means providing proper safety equipment, lighting, and ventilation. Failing to ensure a safe environment opens businesses up to costly lawsuits.
- Like all other types of businesses, cannabis businesses cannot discriminate against employees based on age, gender, religion, disability, national origin, or marital status.
Compliance Requirements for Cannabis and CBD Products
The Food and Drug Administration (FDA) has stringent rules on the labeling of cannabis and CBD products. This includes information about ingredients and dosages, as well as warnings about potential side effects. Failing to meet compliance requirements can lead to expensive fines.
Navigating Regulatory Changes
Cannabis business owners must keep up with constantly changing regulations and laws. An asset protection attorney who is familiar with the industry can offer invaluable guidance in this area.
Financial and Real Estate Protection
Companies that sell cannabis products face unique challenges when it comes to real estate and liquid assets.
Managing Financial Assets and Cash Flow
If you’re running your business as a sole proprietor, you have full banking control over your financial assets and cash flow. If you’re working with a partner, it’s wise to require signatures for money wired out of your bank account as well as checks over a certain amount.
Protecting Real Estate Investments: Leasing vs. Buying
If it’s within your budget, buying an office for your cannabis business is preferable to leasing one. This is because ownership gives you full control over what you can do with your property. When leasing, on the other hand, a landlord can choose to shut you down.
Banking Challenges and Solutions for Cannabis Businesses
Although cannabis is legal in many states, banks remain wary of dealing with customers who sell marijuana products. Credit unions and regional banks are more likely to work with you than large national banks. Accepting cashless payments is another option.
Risk Management and Insurance
Next, let’s take a look at insurance and risk management tips that can help with asset protection for the cannabis industry.
Identifying Key Risks in Cannabis Operations
Narrowing down your key risks is a critical factor in keeping your cannabis business running smoothly. Three of the largest risks include:
- Keeping up with ever-changing compliance regulations
- Product tampering
- Employee theft
Risk Mitigation Strategies
Tips for mitigating risk include:
- Don’t launch your cannabis company without a rock-solid business plan.
- Create a limited liability company (LLC) to protect your personal assets.
- Create an asset protection trust. This involves offshoring assets to jurisdictions outside of the U.S.
Insurance Solutions for Cannabis and CBD Companies
Regular liability insurance isn’t adequate for cannabis businesses. You’ll need to find a provider that offers cannabis business insurance, which may cover:
- Business liability
- Product liability
- Auto accidents
- Equipment breakdowns
- Product theft
- Cannabis crop failure
Note that cannabis business insurance doesn’t cover everything. Policies usually won’t cover:
- Damage caused by mold and pests. These are considered inherent risks of cannabis growing, so policies typically exclude coverage for such damage.
- Losses due to federal laws. For instance, if federal law enforcement raids your business and seizes your products, your policy won’t cover those losses.
- Risks associated with the illegal cultivation or sale of cannabis.
Intellectual Property Protection
You’ve worked hard to create a custom cannabis blend; now it’s time to protect your intellectual property from theft.
Patents and Trademarks for Cannabis Innovations
Just like any other product, you can apply for patents and trademarks for your cannabis products. You can apply for a patent or trademark through the U.S. Patent and Trademark Office (USPTO).
Safeguarding CBD Formulations and Branding
Trademarking your cannabis product names prevents other businesses from using them as their own. Patents, on the other hand, stop others from stealing your product formulas. Both are a must for protecting your IP.
Legal Aspects of IP Protection
Patenting and trademarking your cannabis products involves jumping through quite a few legal hoops. To avoid running afoul of the law, it’s wise to work with a patent and trademark attorney or asset protection lawyer. Asset protection attorneys specialize in safeguarding your business assets – such as intellectual property – from potential claims and legal risks. They can put together a tailored strategy to mitigate liabilities and take steps to help ensure your cannabis innovations are protected.
Operational Security
Protecting your formulas and navigating banking issues aren’t the only challenges you’ll face as a cannabis business owner. You’ll also need to take steps to protect your physical and digital assets.
Physical Security for Cannabis Facilities
Security challenges differ depending on whether you own a cannabis processing plant or a dispensary. If you have a dispensary, product theft by customers is a serious concern. Processing facilities may be more concerned with employee theft.
Security measures for your cannabis business can include:
- Install a reliable alarm system.
- Install fencing around the perimeter of your facility.
- Hire an adequate number of security guards.
- Store cash in a mesh-lined vault, or at the very least, a safe.
- For dispensaries, lock products in secure casing and only give the keys to trusted employees.
- Use reinforced glass for store windows, such as laminated safety glass or polycarbonate panels, which are impact-resistant and difficult to break.
Inventory Management and Theft Prevention
Proper inventory management goes hand-in-hand with preventing theft. By keeping a close eye on your inventory, you’ll realize when products go missing.
You can choose from a few types of inventory management systems, including:
- First in, first out (FIFO): The FIFO system involves selling cannabis products that have been on your shelves the longest.
- Last in, first out (LIFO): This strategy is the opposite of FIFO. It involves selling the newest items first. It’s largely ideal for perishable goods. Because cannabis is not perishable like meat and vegetables are, LIFO isn’t a good fit for the cannabis industry.
- Just in time (JTO): This strategy is ideal for large dispensaries that want to lower the amount of equity held up in dead stock. It’s good for reducing holding costs but requires very accurate reporting.
Cybersecurity Measures
Many who work in the cannabis industry are small business owners, which makes them an attractive target for savvy hackers. Additionally, because cannabis can be used medically, it’s important to protect your customers’ medical details.
Follow these tips to lock down your cannabis business from digital threats:
- Secure your business website with a Secure Sockets Layer (SSL) certificate, which provides encryption that’s tough to break.
- Create regular backups of your website. You can restore your site from a backup if it falls into the hands of a hacker.
- Deploy a web application firewall (WAF), such as Cloudflare, to block malicious packets from reaching your site.
- Protect your Wi-Fi network with a strong password, and be careful who you give the password.
- Implement multi-factor authentication (MFA), which requires website users to verify their identities on a separate device before logging in.
- Protect customer information from data leaks by implementing data loss protection (DLP) tools.
Learn More About Cannabis Compliance Regulations and Offshoring Assets From Blake Harris Law
If you sell marijuana products, it’s critical to pay attention to asset protection for the cannabis industry. Blake Harris Law can assist your cannabis business by creating an offshore trust and answering any questions you have about asset protection strategies.
To schedule a consultation with an asset protection attorney, contact Blake Harris Law today.
