Cannabis companies are well served to focus on consumer satisfaction, capital cadence, financial modeling, brand development and monetization. While many executives are keenly aware of and focused on these important business priorities, an area that often falls short is internal focus on human resource structure, policy and compliance. This, as recent headlines show, can be a costly mistake.

Given the plethora of news stories regarding executives publicly shamed for acts committed at varying points in the past, it is paramount that companies take this area of internal corporate management seriously. In addition to the avoidance of detrimental and destructive headlines, there are plenty of reasons cannabis companies would benefit from ensuring human resource and employee-related compliance functions are in order.

The soft stuff can often be harder than the hard stuff

Below are the top five reasons impeccable HR practices and compliance are essential to your business:

Legal Requirement: Labor Law and HR compliance are required by law. With the cannabis industry officially emerging from the shadows, it is important to change the prohibition-era policies of avoiding traceable documentation. As of January this year, cannabis firms are expected to abide by labor laws and employment regulations while maintaining adequate documentation to manage their burden of proof. Failing to adhere to federal and state regulations can result in fines, lawsuits and even jail time.

Avoidance can be costly: Whether you plan to outsource or hire internal HR, ensuring HR policy and practices are reviewed by a certified HR professional or a labor attorney is critical. Lawsuits against employers have risen 400% in the last 20 years, and smaller firms are often the hardest hit as an adverse lawsuit can put them out of business. Focusing on HR policy, practice, and compliance can save money in the long run, as the average out-of-court settlement is $75,000 while the average jury award is $217,000.

Positive Culture: While a sustainable and healthy workplace culture is a wonderful challenge to address, culture improves when guided by HR policy that helps ensure fair and consistent treatment of all employees. Wrongful termination suits alone have seen a 260% rise over the past two decades, and employees are increasingly protected from what were once prevalent workplace abuses. An untarnished reputation can help attract and retain top talent, an integral part of any company’s success and sustainability.

Liability Protection: Management training is essential and falls under HR responsibility. As representatives of an organization, anything and everything a manager says can be held against the firm. A manager can be a firm’s greatest asset and that firm’s greatest liability. Firms that provide their managers with the appropriate training and tools can help improve culture, reduce liability, limit exposure and curtail employee turnover.

Focus on business growth: HR practices such as new-hire onboarding, progressive discipline, performance evaluations, leaves of absence and separation/termination procedures are familiar to many employees and are tested by employee claims and by oversight agencies such as the Department of Labor (DOL) and the Equal Employment Opportunity Commission (EEOC). Shoring up HR policy has much positive impact by allowing management to focus on business growth. Proactive HR policy compliance ultimately serves to protect the entire organization.

It is important for any business to view HR policy compliance as a priority. Business owners in a newly legal industry have the additional responsibility and therefore the obligation to take leadership in this area. Benefits to a business with a sound HR policy include human capital value, conflict resolution, budget control, performance improvement, business sustainability, liability control and corporate reputation management. While these are paramount to the long-term success of your business, valuing human capital while maintaining steadfast principals is also integral to long-term human success.

Investors in the cannabis space are wise to review target firm HR policies as part of their due diligence process. Other less considered aspects of diligence include potential intellectual property infringement, personal and property insurance protection and management team background checks. Entrepreneurs are well-served to focus on these to solidify their businesses while simultaneously increasing their appeal to outside investment.

Thank you, Jen Silva, for your contributions.

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