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Cannabis Loss Prevention: The Sweet Smell of Success in a Blossoming Industry

Cannabis has been used for both recreational and medical purposes for thousands of years. Medical cannabis applications have been commonly used for centuries to treat disease, improve symptoms, and manage pain. Today, cannabis provides therapeutic relief with clinically proven benefits like reducing pain in cancer patients, decreasing PTSD symptoms in veterans, and reducing seizure rates in epileptic children by up to 50 percent.

A versatile plant with uses dating back as far as 3500 BC, it has even been used to make rope and clothing by ancient civilizations. However, by the mid-twentieth century, despite that versatility, the use of cannabis was banned by most countries.

In recent times, however, the perception and use of cannabis products have shifted. Controlled use and distribution is now seen as an area of opportunity, outweighing the real or perceived risks of potential misuse. Whether based on social norms, medical application, or economic opportunity, the topic of cannabis and all its applications has gained the attention of our society—and the interest of the retail community.

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Although the use and possession of cannabis has not been legalized under federal legislation, medicinal and recreational cannabis use has become increasingly widespread across the country. Today, support for marijuana legalization has grown substantially, with thirty-eight states and Washington, DC having legalized cannabis for medical reasons, while twenty-three states and Washington, DC now have laws allowing for recreational use. Individual opinions on the use of cannabis products may vary, however, the numbers support these changes:

  • Current research indicates that up to 88 percent of adults are in favor of legalizing cannabis for either recreational or medical use.
  • With the total US cannabis supply expected to top nearly 50 million pounds, cannabis cultivation efforts are ramping up across the country as states increase production to meet growing product demands.
  • Recent reports indicate that the legal cannabis industry supports almost 430,000 full-time equivalent jobs, with the industry creating an average of around 280 new jobs per day.
  • With increasing consumer demand and new legal markets opening every year, projections anticipate that the value of the industry will be closing in on $100 billion by 2030. Nearly $3 billion in retail cannabis taxes were collected last year alone.

Debates continue over the risks and benefits of legalizing marijuana, but there is no doubt that change isn’t just coming—it’s here. And as social norms continue to evolve and different products become available, the business model is still changing and developing as well. The introduction of cannabis into the retail market requires more than just a shift in attitudes—it requires a shift in perspectives as well.

Cannabis products containing .3 percent of tetrahydrocannabinol, or THC, are still considered Schedule I controlled substances that require strict controls and regulations. How the products are farmed, processed, tested, moved through the supply chain, displayed, and sold in the stores must be managed based on stringent standards and meticulous compliance guidelines to ensure the safety and security of the process.

- Digital Partner -

To learn more about the entire process, LP Magazine sat down with Bo Keyes, vice president of growth at C1 Compliance Group. With more than ten years of experience as a business owner and compliance expert in the cannabis industry, Keyes also currently chairs the technical advisory committee for Cannabis Safety & Quality (CSQ), a cannabis certification program designed to ensure benchmarking requirements for the cannabis industry from seed to sale. With regulations and compliance considered the top challenges facing the cannabis industry, his insights provide a greater understanding of where the industry is, where we are headed, and the role that asset protection will play in the ongoing growth and development of the industry.

Jacque Brittain: What can you tell us about the way that the cannabis industry is growing and evolving today?

Bo Keyes

Bo Keyes: There’s a great deal to consider from a quality management and standards perspective. The entire industry is constantly evolving, with states legalizing the sale of products and setting standards to ensure the safety and quality of the product. Loss prevention considerations include various audits, video monitoring, pharmaceutical compliance, the training and development requirements necessary to maintain a license, responsible vendor training, certifying employees, and other related tasks.

- Digital Partner -

Compliance issues are among the biggest challenges the industry faces. When compliance is not top of mind, it can be a huge problem at every level of the business. Following operating procedures, the handling of the product, traceability through the supply chain, and the safety of the operation are among the top priorities.

Labeling is another big issue for both the end consumer and the company. It’s critical to understand what’s in the product, dosage and testing, the effect it has, batching, the shelf life, and the safety of the product. These are all very important considerations.

Coming up with a consensus on each of these issues is still a work in progress. There are state requirements for every program, whether through voter initiative or legislation, and the state will issue very clear guidelines.

With the recent passage of legislation calling for a review of the federal rescheduling process, the cannabis industry is once again poised for growth as the next wave of state programs start to open. This growth presents both opportunities and challenges, especially to ensure consistent product quality, a prepared workforce, and newly drafted regulatory compliance. I have seen firsthand how critical it is to promptly establish rigorous quality and operating standards from cultivation to retail. Consumers rightfully expect safe, accurately labeled products that deliver a consistent experience and seek out those products in the marketplace.

Brittain: So, are we talking about the potency and the quality of the product? Are there different standards for an edible versus something you smoke?

Keyes: From a consumer standpoint, I think the primary issues involve understanding what’s in the product and ensuring it’s used safely. Is the labeling accurate? Does what it says on the label actually reflect what’s in the product? And if so, what does that mean? What effects will it have on you? Balancing all that information from a compliance standpoint and then appropriately educating the consumer is critically important.

From the business perspective, the primary compliance issues deal with the management of the supply chain, the ability to understand the best ways to accomplish industry goals and determining how to most effectively reach those objectives. Effective training programs that stress compliance and safety issues are a critical aspect of the process. These issues are really prevalent right now, ultimately driving the long-term mission to reach a complete consensus across all states.

Brittain: So, what exactly are the testing standards? How is that determined?

Keyes: What you want to know with cannabis is the content—what’s in it? Is this going to get me high and have the effects I am looking for? The best way to answer those questions is to test the potency and quality of the product. Basically, the product is run through a machine that accurately measures the content and potency of the active ingredients found in the product. People want to know what’s in the product they are buying; and for safety reasons so does the state, so there are requirements for everything to be tested.

There are state requirements for every program. The consumer will be looking to buy a product with a higher level of THC. The product is sold in the stores based on the level of THC and needs to be tested to make sure it falls within the required range. Currently, the labs must follow industry standards that will vary somewhat from state to state, but we are still working to write universal quality management standards for cannabis.

Brittain: What are the most typical products purchased in the stores?

Keyes: The classic flower remains the most popular. People smoke cannabis and that’s the classic way to consume the product. However, that’s quickly evolving. With new products hitting the market like vapes, edibles, and beverages, the consumer continues to look for the most familiar and comfortable consumption methods. I foresee a surge in beverage products, as this is a very familiar form of social engagement.

But there are other ways to consume the product as well. You may wear a transdermal patch on your skin. You may choose a sublingual product that looks like a hard candy. You may have oils that can be consumed in different ways. There are even bath balms and body lotions you can purchase.

Brittain: Bath balms and body lotions?

Keyes: Yes, absolutely. You have receptors all throughout your body and on your skin. The transdermal patches and lotions allow people with pain issues to find relief, and they’ve had a lot of success with these targeted relief solutions for pain.

Brittain: I can imagine that with all these various products, things can go missing. If you look at the retail outlets, what are some of the more common concerns?

Keyes: Specific to retail, employee training is definitely a big concern, more specifically the mistakes that can happen in a fast-paced retail environment. This is not necessarily something that is nefariously done wrong, but rather completed or documented incorrectly in some way, shape, or form. This could be as simple as miscalculating the THC limit conversions or having improper documentation due to regulatory updates. Those are typically the more common problems we see.

But there can also be issues on the licensing side and keeping the business compliant. For example, keeping up with certain requirements like training, paperwork, systems, and updates from the state—things of that nature. There can be a high turnover rate in these positions, which is why training is so critically important. The employees need to fully understand that this is still a controlled substance, and it must be handled and managed in a certain way.

Brittain: Can you walk us through the process of purchasing the products in the stores? What types of controls are in place and how is that managed?

Keyes: Let’s first clarify that the entire environment is very controlled, similar to a bank environment or a retail pharmacy. Before you can even gain access to where the product is being displayed, you must present certain personal identification information and be scanned into their system. They verify who you are, look at purchase history to ensure you haven’t eclipsed your daily limit, and confirm that there aren’t any other issues in the system that would limit or prohibit you from purchasing products. The state will also have access to that information and can monitor the state compliance issues as well.

Once provided entry to the controlled area where the products are held, direct access to the products is also controlled by employees for safety and security reasons. When purchases are made, that information is also entered into the system, providing an ongoing register of customer activity. Similar to other high-end retail best practices, there are camera systems and other controls that monitor the flow of operations with items behind glass cases and budtenders walking you through the process. It’s all very controlled with stringent guidelines that must be followed. This is one of the most regulated and observed industries, so the 400,000‑plus hands-on workers must know what they’re doing.

For retail business owners, the primary compliance issues surround employee execution and having a knowledgeable and educated workforce.

Brittain: So how does the supply chain operate? How does the product get from the farmer, through processing facilities and distributors, and along the supply chain to the point that it arrives in the stores?

Keyes: The supply chain can vary a great deal from state to state. In some instances, you can control every aspect of the supply chain and never have to work outside your own entity. There is vertical integration in this industry that allows for growing the product from seed all the way to selling it to the adult consumer. However, a more common practice would involve those situations where the business and licensing requirements are more segregated, and you can only have a certain license or a certain number of licenses throughout the supply chain management process. Usually, you’re growing product as a farmer and have that license, and as a result, the “farmer’s market” mentality does not apply. You will sell to a distributor or directly to the retail outlet. Along the way, it has to be tested and approved to determine what it is, whether it’s proven safe, and if it meets all the necessary requirements.

The distribution piece is a huge aspect of crop management, and a lot can get lost in the process. The industry is less than ten years old and we’re still learning a lot more about managing that whole process. It’s continuously being refined, but you’re typically going to see a very controlled supply chain.

Brittain: So, what exactly is it that you do?

Keyes: There are two ways to look at my role in the process: I help manage pre-license and post-license responsibilities. The first step is to help businesses get a license—establishing how you set everything up and what needs to be done to get the business up and operational. That has been an important aspect of what I have done since I started and a big piece of how we support operations, because this is still considered a new and growing business field.

Once the business becomes operational, those responsibilities move to help establish standard operating procedures, audits, training programs, and other assessments to help the business move forward. That’s where my role is more focused now. As the market continues to grow, the focus has moved more to the operational side.

Brittain: What would be considered part of a typical audit?

Keyes: If it is a quality control audit, we primarily review the manufacturing aspects and the requirements that must be met to keep the business safe and compliant. If it’s a security assessment, that tends to focus more on incidents or issues that have occurred, along with potential vulnerabilities and the solutions necessary to support that part of the business. It really gets down to meeting the requirements in your state, best practices deemed important, and improving the system.

Brittain: Are these businesses operating more as chains, or are they more independent operations?

Keyes: Currently we’re seeing both. We have what we call MSOs, or multi-state operators, that have licenses in different states. That trend started a few years ago when big money came into the industry, injecting large amounts of capital that sparked growth. However, there are a lot of single license holders as well that are very successful. It’s difficult to be more specific than that because the different states and different markets are operating based on their current guidelines and statutes.

Brittain: From an asset protection perspective, when looking at hiring people, difficult customers, theft issues, security concerns, and the similar aspects that impact every business, what have you seen as the primary issues?

Keyes: This is and will continue to be an important piece going forward, especially as the chains begin to establish themselves. There are those issues to contend with and others as well. For example, there may be branding issues with counterfeit products, tracking issues, and other concerns. From a retail standpoint, there are not as many concerns with robberies and theft during business hours because of the access control measures in place that are part of the required standard operating practices. Issues are more likely to occur with someone driving a car through the front of the building when the store is closed, or typical burglary issues with individuals breaking the windows at night and trying to steal as much as they can. Preemptive measures include staff training on threat assessments and standard operating procedures around open and close. Those are some of the more common concerns we face.

Asset protection takes on more of a dual role, similar to the way it’s managed in many other retail businesses—handling the thefts, robberies, and other investigations while monitoring all the different compliance needs through audits, training, and similar critical functions. There are other issues that asset protection may get involved with as well simply based on the nature of the business, such as de-escalation training, protests, and other threats that require both direct attention and training for the associates. As this industry continues to develop, there’s going to be a greater need for those types of services. It’s pretty much the next step as the industry grows and matures. There are strong measures that have already been taken, but it can always get better. It’s something that has to be managed—and managed well for the business to remain successful.

Brittain: This would appear to be a tremendous growth industry. Where do you see that going?

Keyes: If you look at the entire industry from a global perspective, there are exponential growth opportunities. We’ve talked primarily about the controlled aspect of the business, focused on products that exceed the .3 percent THC threshold and require licensing and other restrictions. That market has tremendous prospects. But when applied to the potential across different types of retail industries, there are even more possibilities.

For example, from a hemp standpoint, there are different over-the-counter products being sold at convenience stores, gas stations, and other businesses that are below the .3 percent THC threshold and aren’t held to the same strict standards. Now you can go to a gas station and purchase chewing gum that has a cannabinoid product in it. That just makes the potential market so much bigger.

Brittain: What direction do you see the industry taking as we move forward?

Keyes: I see tremendous growth opportunity, heading toward a market where pharmaceutical companies participate under the FDA approval process and Schedule III, where federal law and state law coexist beyond attorney generals and the Farm Bill.

Small operators find their markets and niches with future access to all states and possibly the world. Corporate brands will boggle the mind in size and scope when stretching from recreational cannabis products with massive retail footprints and consumer data to FDA-approved cannabis-derived treatments, supported by massive farming and agricultural holdings for their consumer textiles and industrial construction materials divisions as well as their hemp foods portfolio including animal feeds and supplements.

The cannabis industry is growing and it’s going to have some bumps along the way. The number of markets that will participate is about to explode as these proven but novel ideas become sustainable solutions on an industrial scale, all backed by institutional capital—so you know it can’t fail.

We’re entering a new era in a blossoming industry, and that requires patience and flexibility as well as consistency and control. But there are solutions. Right now, we need to focus on bringing together the right experts who can help take us in the best possible direction. We need leaders that can help grow the business. We need the kinds of minds that can help develop the standards to keep the business safe and secure. We need operations experts who push for consistency and control. And we need well-trained teams that bring it all together. That’s the best path forward and the one I believe we’re following.

Rolling It All Together

The cannabis industry would appear to have far‑reaching retail opportunities but based on the diverse guidelines and state-by-state interpretation and application of the laws and regulatory standards, the entire industry is still a work in progress. Economically, the possibilities are far-reaching, only limited by consumer demand and agricultural sustainability.

However, there are challenges that remain to be addressed to ensure the stability and sustainability of the industry. The science of the industry must be standardized so that it applies in every market. Until the time that universally accepted standards are established on a national level, interstate commerce will remain a significant challenge. Compliance and controls will drive the success of the entire operation, anchored by sound practices and strong leadership. Training and development of the entire team must also be emphasized to ensure the safety, security, and sustained growth of the entire industry.

This is an industry where asset protection principles will largely determine success and failure. Without that critical aspect of the business, the entire operation could go up in smoke.

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