Risk management is an uncomfortable topic. No one wants to explore the possibility of things going wrong or follow the rabbit hole of negative “what-ifs.” But risk management is an integral part of business for any industry, particularly in cannabis. In fact, we’d go so far as to say that risk management is essential for success because it gives you power over your areas of exposure.
Cannabis is fraught with potential problems and barriers to growth; some in your control and some outside of your control. While you can’t control everything that happens to your business, you can control how events impact your business with a comprehensive risk management strategy.
Understanding Risk Management
Risk management is a broad category that covers the identification and assessment of potential business and financial risks, as well as the prioritization of and planning to minimize the impact of said risks.
In short, risk management is about taking stock of your potential problems and developing processes for how to deal with them.
And the cannabis industry has no shortage of risks. From dealing with banking issues to an increase in theft, it’s essential that your cannabis company is covered from every angle.
There is no one size fits all approach to risk management. It takes a curated, tailored approach. It’s also not about avoiding risk at all costs— it’s about assessing possible exposures and navigating them while mitigating their impact on you and your company.
A few categories of risk management include:
- Regulatory compliance. Regulations change from state to state and from year to year, giving you a lot to keep up with. Failure to comply with a regulation, even a new one, can be costly.
- Changing legal landscape. Do you know what your current exposure is? The cannabis industry evolves so quickly that it’s been dubbed to work in “dog years.” What was true last year may not be true this year, and you have to stay on top of it. New competition, changes in policy, or even changes in regulatory bodies can all affect your business.
- Theft. Since cannabis businesses often operate in cash and have high-value merchandise, storefronts and employees can quickly become targets for smash and grabs. There’s not a cannabis business owner who hasn’t paid attention to the increases in break-ins along the West Coast.
- Social stigmas. Just because cannabis is legal doesn’t mean it’s accepted. Even in “green states,” there are counties, towns, and villages that don’t want cannabis companies to set up shop.
- Financial risk. From a lack of banking options to increasing interest rates and private funding streams, cannabis business owners always have money on their minds. With the SAFE Act stalled on a federal level, it may not get much easier to bank anytime soon.
- Cybersecurity. In this day and age, it’s just as essential to protect your digital assets as your physical ones. How are you protecting your customer and employee information?
Risk Management Provides Solutions
At AlphaRoot, we understand the nuanced challenges that cannabis businesses face. And we know from experience that risk management isn’t a blunt instrument you wield to avoid loss at all costs. Instead, it’s a finely tuned instrument with four prongs:
Knowing which of these prongs to use and when takes experience and industry knowledge. By having tools ready to deal with problems as they arise, you can continue to grow and expand your business while limiting your exposure with a team that has you covered.
That’s why we don’t merely broker insurance; we curate powerful cannabis risk management solutions.
Developing a Risk Management Process
Once you understand the importance of risk management and the four-pronged solution, the next step is developing the processes for your business.
This can seem like a herculean task to any already-stretched business owner, but you don’t have to reinvent the wheel. With five steps, you can create the foundations of a risk management plan that will serve your business for years to come.
- Risk identification. You can’t make a plan without knowing what you’re planning for. Don’t get overwhelmed by trying to think of everything that can go wrong. Instead, start with the big things, the worst-case scenarios, and dig down from there. Can’t think of any? You can talk with a risk specialist who has experience planning risk management.
- Risk analysis. Now that you know what risks you’re facing, you need to assess them. For each risk, analyze the “hurt” level it would bring to your business. Get specific here— the more you can flesh out the damage, the better prepared you’ll be to face it.
- Risk evaluation. You know what could go wrong and the damage it could cause. Now it’s time to decide— are these risks acceptable? Some businesses are more risk-averse than others, so the evaluation phase is the time to determine which risks have the most exposure and what you can do about them. This is the phase to discuss what risks you can bounce back from and what risks could have you facing closure.
- Risk tracking. Once you know your risks, it’s helpful to track them. It’s one thing to hypothesize how risks will play out; it’s another to track them. Older companies have the advantage of time here, but the sooner newer companies begin tracking their risks, the more data you’ll have to assess them moving forward.
- Risk treatment. Creating a risk treatment plan is the most enjoyable part of risk management because it’s the safety net under your feet. What risk treatment means is different for every business and depends on a few things: your exposures, how risk-averse you are, and what you need to be covered. For many companies, risk treatment starts with insurance policies from worker’s compensation, legal liability, or another form of coverage.
Remember, you’re not in this alone. Using experienced professionals to develop a risk management plan covers your exposures, helps you build a strong foundation for a long-lasting business, and gives you a team that has your back.
Protecting your cannabis company can seem confusing; however, we’re a full-service insurance brokerage working with carriers worldwide to offer you the best coverage possible. We’re here to help! Please reach out to us today by emailing [email protected] or calling 646-854-1093 for a customized letter of commitment or learning more about your cannabis insurance options.