Vetting partners in cannabis: Award winning advice from AJO

It is always important for companies to vet partners, in cannabis partnerships can mean additional scrutiny, public backlash, regulatory discipline, or even potential license loss.

Choosing the right partners can significantly impact the success and reputation of any business. But for those in cannabis, the rules and regulations that govern what is and is not allowed mean that an uninformed or negligent partner can translate beyond bad branding and into penalization.

When entering into partnerships, companies rely on their partners to fulfill specific roles, contribute resources, share risks, and align with their values and objectives.

By thoroughly vetting potential partners, companies can mitigate risks, ensure compatibility, and maximize the benefits of the partnership.

For answers to our questions about vetting partners in the cannabis industry, Greenway reached out to A Joint Operation’s COO Rachael Herndon. Herndon and the team at AJO have been recognized multiple times as the cannabis industry’s Best Compliance Consultant and were also selected this year as the Best Education and Training Consultant.

Why is it important for companies to vet partners?

“Vetting is a crucial step in ensuring any partner – whether it’s a new manufacturer or an HVAC tech – is qualified to engage with your business,” explains Herndon.

“There is no shame in vetting partners and I’m surprised regularly when operations have not considered their vetting process. For example, consider product liability. Does your new brand on the shelves have product liability insurance? Did you ask for a COI listing product liability coverage? Is the coverage sufficient to cover the sale? What’s the first thing you’re going to ask if returns spike? What if there was a recall and the store in question sold a million dollars of inventory? “

“In addition, there are numerous companies that do not pay bills and are being sued by multiple people in the industry for unlawful business practices.

“The state asked all licensed operations the same questions on the license application – all operations should be maintaining their commitments to the state – not only to protect themselves but to protect partners and customers.

“It is important to check for the appropriate standards for any prospective partner – whether it’s a certificate of insurance, a background check, checking certifications, or calling references.”

How does choosing the right partners impact the success and reputation of a business or event?
“Think about a situation as simple as upgrading a light fixture. If an electrician doesn’t have the necessary education and training to fulfill this job, something that could be simple for a normal handyman now puts staff and customers at risk. To reduce risk, whether it be a circuit being thrown or a chandelier falling on a customer, it is vital to verify ability and qualifications for any job or opportunity – no matter how big or small.”

What risks are associated with bringing on partners?
“A shoddy partner can do anything from steal, harass, abuse, destroy, deface, deactivate, or any other type of disruption. No one in this industry has the time for such, nor the luxury to distract operations or damage morale – especially when a simple, formal vetting process would have limited harm.”

How does value alignment impact relationships and brands?
“As an operation, we are compliance-first. It is a priority that any additional projects, from marketing to events, reflect our brands’ goals and support, not distract, from healthy operations. Before we engage with any marketing endeavor, our company verifies safety first, compliance second, and logistics third.

“It is disheartening to hear horror stories from any operation about their experience, which results in hesitation when exploring future events. In the start-up of a highly regulated industry, we are all learning – but no operations have the time or the money for mistakes and errors that could impact operations, reputations, or the safety and well-being of staff and customers.”

What should companies consider when vetting potential partners?
“Every former athlete has a coach in the back of their head pushing offense or defense. Vetting is an offensive move vital to protecting businesses from any inconvenience that may disrupt operations. Going on offense is cheaper and less time-consuming than having to clean up messes, hire (and vet) new contractors, engage with law enforcement, file a lawsuit, or defend a lawsuit. Why build a business if you’re not going to re-enforce the foundation it’s built on?”

What makes this more difficult in a regulated industry like cannabis?
“In a regulated industry like cannabis, we must remain on offense at all times to protect our businesses.

“It’s also important to keep in mind that cannabis compliance does not end at the door. State rules are generally clear as to what is expected of licensed operators. Licensed facilities must remember brand images and engagement can splash back – working with competent, experienced, and educated partners is the best way to ensure ongoing brand development.

   

“Beyond vetting, it’s vital for any business to have standards for engagement. Are contracts needed? What is needed in the contract? Does the job require competitive bidding? Is a muralist banned from the arts community in a different time zone? Was the chandelier mounted correctly? Did the exterminator do a full job or is there a rate nest under your break room sink? What are the preferred timelines of implementation – and are all expectations clearly communicated by both parties?

“It’s hard work to do things right – but it’s a lot harder to fix damage – whether it’s damage to reputation, building, product, or brand.”

How can companies ensure that they’re finding the right partners?
“It is vital for companies to be prudent and intentional about who they choose to work with – we joke all the time about the privilege – and risk – of being able to choose our “family” from the culmination of an industry. Experience and education are both easily verified – and the best context for exploring a new partner, no matter the context of the partnership.”

“Perhaps the wisest words Ronald Reagan ever said were, “trust, but verify.”

What questions should companies be asking and what steps should they be taking?
“Vetting depends on the opportunity. Background checks and references are always appropriate – more than enough times have I heard stories about operations hiring people with active warrants or with truly dangerous crimes (on their record.). There is no place for that in a regulated industry.

“If a company is vetting a professional, they should first check their professional registrations, if applicable, and read available online reviews.

“If it’s a creative, again, check everything you can – learn about them, and definitely ask for the status of current projects – and talk to their past partners. Go see their work, talk to those they’ve worked with, and keep an open mind.

“If it’s an event company, look at the experience of the team, particularly prior to the start of this industry. What experiences are they drawing from that will be the framework of their production?
In any case, vetting is a great opportunity to put resourceful team members to work – let them creep the social, let them find a vendor’s president’s Xanga from 2004 – whatever information confirms experience, education, and capabilities is appropriate to utilize in determining the adequacy of any partner.

“To be clear, the cannabis industry itself lends an opportunity to provide second chances. The inner acknowledgment of issues in the past – and a record of reformation – has value and should be taken under consideration. However, there are many “sins” that are non-negotiable for our operation – and I encourage all of our partners to have clear standards of engagement for themselves.”

Here are some key things that companies should consider asking when vetting partners

Background and Experience:

• What is the partner’s history, background, and expertise in their industry?
• Have they successfully executed similar partnerships in the past?
• What is their reputation and track record in the business community?

Strategic Alignment:

• Do the partner’s goals align with the company’s strategic objectives?
• How does the partner’s vision and mission complement or enhance the company’s offerings?
• Are there any potential conflicts of interest or competing priorities?

Legal and Compliance:

• Does the partner operate within legal and ethical frameworks?
• Have they been involved in any legal disputes or regulatory violations?
• Are they compliant with relevant industry standards and regulations?

Operational Capacity:

• Does the partner have the necessary resources, infrastructure, and capabilities to fulfill their role effectively?
• How do they handle quality control, supply chain management, and operational efficiency?
• Can they scale their operations to meet future demands?

Communication and Collaboration:

• How responsive and transparent is the partner in their communication?
• Are their values, communication styles, and decision-making processes compatible with the company’s culture?
• Can they effectively collaborate and share information to achieve shared goals?

Risk Management:

• What potential risks or challenges could arise from partnering with this company?
• How do they handle risk mitigation and crisis management?
• Can they provide references or testimonials from previous partners?

Long-term Viability:

• What is the partner’s long-term business strategy and vision?
• How committed are they to the partnership and its success?
• Are there any potential changes in leadership, ownership, or organizational structure that could impact the partnership?

It is important for companies to adapt and tailor these questions to their specific needs and focus, as well as the partnership type, and the business goals of the partnership. Additionally, conducting thorough due diligence, including background checks, site visits, and legal reviews, can provide deeper insights into a potential partner’s suitability.