Risk is inherent in any venture, from a simple walk to the store to opening and operating a new business. Risk is such an ingrained concept in the business world that an entire industry was developed to help traditional businesses identify and mitigate risk factors that may compromise their goals or financial health.
The services of this industry extend to those companies that operate within the typical bounds of the law and regulatory boundaries that exist today. Unfortunately, that does not include the legal cannabis market, as Chris Eggers of CCSS explains in Chapter 19 of his book Securing Cannabis: A Comprehensive Guide To Increase Security, Reduce Costs, Reduce Liability, and Avoid Landmines. This means that LCOs must abandon traditional risk management strategies in favor of one that fits their unique circumstances.
Risk management refers to a process of identifying, assessing, and mitigating potential risks or uncertainties that may impact a business and its goals. Risk management categories include operational, compliance, information security, financial, and project risk management.
LCOs operate in a radically different regulatory, financial, and legal environment from other industries. The product they sell is not legal on the federal level, leading to a lack of financial infrastructure and significant local variation in regulation.
Cannabis also retains a healthy black market value, which poses a double-sided risk. First, illegal competitors are poorly policed and aren’t subject to the same regulatory burdens, giving them a comparative advantage. Second, criminal elements view legal establishments as attractive targets filled with goods that can be easily fenced.
The end result is that the legal cannabis industry is an extremely high-risk business environment, a fact that insurance companies are keenly aware of. Insurance is an absolute necessity for LCOs, but these risk factors have caused premiums to spike to obscene levels and policy stipulations to become increasingly burdensome and complex.
This business environment necessitates that LCOs adopt a completely different approach to risk management. Eggers emphasizes that LCO risk management should focus on three key areas: security and safety, compliance, and insurance.
A well-crafted security plan that considers these priorities will have significant, long-lasting benefits for the LCO. It ensures that the business is properly insured, avoids unnecessary financial blows from regulators, and creates an effective system of mitigation that will lower insurance premiums and incidents of loss down the road.
The chapter ends with a comprehensive checklist for creating an effective risk management system for the unique circumstances of the legal cannabis industry. To access this checklist and every other piece of information you need to create an effective and compliant security system, we recommend checking out the full book. Securing Cannabis: A Comprehensive Guide To Increase Security, Reduce Costs, Reduce Liability, and Avoid Landmines is now available here!
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