Written by: Craig Small, Hoban Law Group

September 2020

In the multiverse of marijuana regulatory agency interactions between marijuana business licenses, their counsel, and regulatory agency officials, a few modes of operation have emerged as critical to an attorney’s success in negotiating with such officials on behalf of their clients.  Certainly, there are an infinite number of approaches licensees, or their attorneys, have taken when engaging in these interactions—aggressive, passive, evasive, academic, etc. However, what the licensee really wants out of these interactions is a positive and successful result.  After thousands of these interactions with dozens of regulatory agencies, I have found the following three methodologies vital towards attaining a high percentage rate of positive results.

Honesty is the Best Policy In The Marijuana Industry

The old adage, “Honesty is the best policy,” has never been truer than in the marijuana industry. This is further amplified as it applies to communications and interactions with marijuana regulatory agencies.  Marijuana businesses are expensive, risky, and time-consuming ventures.   Getting caught in misrepresentation or misunderstanding, whether accidental or intentional, immediately sends a red flag to the regulatory agency, often resulting in heightened scrutiny and more administrative, and possibly enforcement, attention with respect to a particular licensee and/or application.  All regulatory agencies have limited bandwidth and resources to investigate licensees, so it follows that those limited resources will be focused on licensees that the regulatory agency deems deserving of that attention.  The licensee’s goal should be to avoid attention and generate the perception in the regulatory agency’s mind that the licensee is “one of the good ones.”

 Once a positive, trusting, and collaborative relationship is established with the regulatory agency,  the licensee’s reputation and goodwill generate positive results. Those positive results reverberate beyond the borders of that particular regulatory agency to seep into other regulatory agencies.  Regulators, both within an agency and between agencies, interact with each on a consistent basis and share experiences and war stories they have had with different licensees.  A licensee that has proven to be honest with the regulatory agency will benefit from that honesty in the form of banked goodwill and a much smoother application process.

Marijuana Industry Disclosure Traps: Err on the side of Excess

A frequent issue that arises out of the licensee-regulatory agency relationship is a lack of clarity in the inquiries that the agency provides to licensees.  The inquiries are often ambiguous and subject to multiple interpretations, which makes it difficult for a licensee to accurately and precisely respond to the inquiries.  This is often perceived as a trap by licensees, albeit the regulatory agency may not intend it to be so.

Ambiguities in regulatory agency requests for information have many sources.  Perhaps the underlying regulatory rule the request is meant to address is poorly drafted.  Possibly the regulatory agency application is attempting to use a “one size fits all” application that does not align with the licensee’s factual scenario.   A common response to these situations is to interpret the request as narrowly as possible so the licensee will have to disclose as little as possible.  The problem with this response is that, although the regulatory agency may not know how to phrase the questions, they definitely want to know the answers.  If a licensee’s disclosures, although technically responsive, do not answer the poorly presented questions, then the licensee runs the risk of raising a red flag with the regulatory agency as to whether the licensee is really attempting to answer the question or intentionally interpreting the request in an effort to omit information in the response.  Essentially the regulatory agency asks itself, “What are they hiding?”

The solution to this dilemma is fairly simple; pick up the telephone and contact the investigating officer from the regulatory agency and talk to them.  Explain the conflicting interpretations of the request to determine what they are really asking for.  You do not need to disclose everything, or even anything, on this call, but once you get a sense of what they are asking for, you can tailor a response that is actually responsive to the questions they are trying to ask.  This also gives you the opportunity to frame the question how you believe it should be asked and answered.  As importantly, this establishes an open, honest, and collaborative dialogue with the regulatory agency official.  Best of all, investigators are remarkably busy people. The sooner you can answer their questions, the sooner the investigators will move onto the next question, or better yet, the next licensee.

Got Relationships?

Science has proven that relationships influence outcomes; therefore, it behooves a licensee to cultivate a positive relationship with as many regulatory agency personnel as possible.  Depending on the medium of communication, a licensee can promote positive interaction with the regulatory agency.  It may sound hokey, but if you smile when you write an email, you tend to write more productive emails.  When you are cheerful on the telephone, it conveys the verbal cues of positivity and problem-solving.  Do not be sarcastic, do not raise your tone and, above all, be professional! 

The right attitude to take with regulatory investigators is that we are all in this together to legitimize the industry and promote safe production and sale of marijuana-based products to the public.    Let us work towards a common goal of creating a responsible marijuana industry that defies the stereotypes of what marijuana opponents erroneously purport the industry to be.  Licensees and regulators absolutely have different agendas, but they are not always opposed to each other.  Regulatory authorities are responsible for creating a robust regulatory structure that promotes public health and safety in the marijuana industry.  A marijuana licensee’s fundamental goal is to generate the highest quality product for the lowest consumer price.  These are not mutually exclusive goals.

The tangible benefits to a licensee’s good relationship with the regulatory agency manifest itself in a few different ways.  Where regulatory rules meet regulatory policy is a middle ground of discretion.  If a licensee has a good relationship with the regulatory agency and has demonstrated themselves as a responsible marijuana license operator, then that may make the difference when a complaint is lodged with the regulatory agency against the licensee.  Regulatory agencies have limited resources to investigate complaints, and experience has been born out; they will focus enforcement actions on known bad actors rather than proven responsible licensees.

In Summary.  The Web We Weave

As you can see, the three key factors discussed above operate on their own but also in tandem with each other.  Ultimately, when taken together, the sum of these factors is greater than their parts, and it behooves licensees to weave these factors into their regulatory agency interactions.  The marijuana industry is highly competitive, and licensees should seize every advantage they can. By promoting honesty, transparency, and positive relationships with regulatory agencies (and the very real people who work for these agencies), a licensee is setting themselves up for the opportunity to succeed over their licensee competitors that choose to take a more fraudulent, secretive, and combative approach.  This is not to say that there is not a time for a licensee to push back on overreaching and abusive regulators, but those situations should be the outliers, not the norm. Aa large segment of the world wants the marijuana industry to fail, and nothing looks better for regulators than when they find the bad actor licensees and prosecute them to the fullest degree of the law.  Do not be the bad actor that ruins it for the rest … and don’t forget to smile when you are on the telephone with those regulators.