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3 Ways to Prepare for an Audit of your Cannabis Business

The Cannabis industry is a highly regulated industry and as a business owner in a highly regulated industry, you know that systematic practices must be implemented in order to have a compliant business. 


These practices must be regularly monitored, reviewed, and administered. But how do you know if your practices are indeed keeping your business compliant with regulations? 


The surefire way of knowing whether or not your business is compliant is by undergoing an audit. And the best way to successfully pass an audit is to prepare for a compliance audit. 


Before we get into how to prepare for a compliance audit, we need to define what exactly an audit is. 




In episode 5 of our “Ask The Regulator” podcast, hosts Kady Cravens and Tom Mohan sat down together to discuss how Cannabis Business owners can prepare for a compliance audit of their facility. Kady is the CEO and founder of BuildMySOP.com and has managed and operated many cannabis facilities for more than a decade. She has helped to prepare facilities for a compliance audit many times and continues to consult businesses on their compliance readiness and equip them for success with BuildMySOP’s customizable SOP templates. 


Tom Mohan is a former Colorado Marijuana Enforcement Division (MED) officer and inspector who has conducted thousands of audits of Cannabis facilities in retail, laboratories, cultivation, and more. In this episode, he offers his firsthand knowledge of what inspectors are looking for when they conduct a compliance audit and advises cannabis business owners on how to best prepare for the inevitable audit. 



In this article, we are highlighting the takeaways from the podcast episode, reviewing what types of audits there are, who conducts the audits, what the inspectors are looking for, and 3 ways to prepare your facility for an audit. 


To listen to the full discussion, tune into the full-length podcast, and be sure to download your FREE Audit Checklist from BuildMySOP.com.



Table of Contents

  1. What can Inspectors Audit?
  2. What kind of audits are there?
  3. What agencies perform an audit?
  4. What are Inspectors looking for?
  5. 3 Ways to prepare for an audit
  6. What happens if you are not prepared
  7. Next Steps


What Do Inspectors Audit?

Audits are a highly anticipated event that most business owners in the Cannabis industry dread. Every facility will be audited by multiple agencies, so it is best practice to be well-prepared for the inevitable audit. 


Audits are conducted in every cannabis facility type including dispensaries, manufacturing & cultivation facilities, transfer/delivery services, and laboratories. There are regulations that inspectors will commonly review for all facility types and others that pertain to jurisdiction. 



What Kind of Audits Are There?

There are two types of audits; announced which are scheduled, and unannounced which are random regulatory inspections that are not scheduled. 


Audits are not only done on-site. They are also conducted remotely, researching seed-to-sale systems on the backend, reviewing social media content, and following up with any complaints filed by consumers or employees. There are times that the social media content alone can trigger an investigation if the content shows illegal activity or promotions such as consuming cannabis on the licensed premise or promoting free products. 


Depending on the reason for the investigation, inspectors will decide if the audit will be announced or unannounced. 



What Agencies Perform an Audit?

There are multiple agencies that require your Cannabis business to comply with its regulations. These agencies include:


When you follow the same systematic practices and principles to prepare for one compliance audit, you are ultimately prepared for all agency audits. The regulatory information required for each agency often overlaps since many times the agencies require the same information but for different reasons. 



What are Inspectors Looking For?

Inspectors conduct either a General Audit or a Targeted Audit and will be looking for evidence to support regulatory compliance according to the audit. 


Targeted Audit

Inspectors will look at violations that are trending in multiple businesses in recent months and decide on one specific item to target, conducting a “targeted audit” across facilities to see how the vast majority of operations are operating in relation to this one area and enforce improvements accordingly. 


For example, if many businesses in recent months have had regulatory violations with Visitor Logs, then the inspectors can perform a target audit of facilities to review their Visitor Logs. The intent is to manage the particular issue, educate business owners, and improve compliance across the board. 


General Audit

General audits are specific investigations on the cannabis business licensee where everything in relation to the facility (on-site and off-site) is being reviewed. The audits cover safety, security, inventory, and production quality, taking everything from entryways, door locks, camera and camera angles, gas detectors, plant metric tags, and more into consideration. 



What Happens When There is a Violation?

Inspectors want to relay the message that audits are not intended to put business owners OUT of business, rather it’s to keep businesses IN business. Violations will occur, but depending on the situation, inspectors want to work with the cannabis business owners to make the appropriate modifications and get the facility in compliance. 


Violations

Violations are made to educate business owners and might simply come as a verbal warning depending on the situation and the number of violations that the facility has. 


Violations can come in more severe forms like a written warning, fines, and suspension or revocation of the operating license. 


Administrative Holds

In addition to the violation itself, depending on the situation, there may be an ‘administrative hold’ placed on a product that is subject to investigation. This means that the product needs to be maintained but cannot be sold. 



Training

It is so important that employees and managers know how to perform the probable requests of an inspector during an Audit, so frequent training is necessary. 


Operators who conduct regular monthly employee training to go over these tasks will be prepared for the audit no matter which manager is on duty when the audit is conducted. 


For example, auditors might ask for the past 40-days of security video footage and the manager must know how to find that footage, download the file, and any additional requests. Employees need to be properly trained to perform these tasks and practice regularly. 


Inspectors also want to see that the tools that are required to be used to help maintain compliance are being used by employees. For instance, the ID Book is a great tool to help employees with verifying IDs to sell legalized marijuana and cannabis products, and the auditors will check to see if these books are being used, if there are notes made by employees, etc. 



3 Ways to Prepare for an Audit

As we know, employee training, maintenance of equipment, and daily recordkeeping using Standard Operating Procedures will help facilities maintain their preparation for an audit. But oftentimes, business owners don’t know that they need certain logs and forms until they undergo an audit. 


At BuildMySOP.com, we have created logs and forms that all facilities will need to stay in compliance in their State and jurisdiction. So be sure to visit BuildMySOP.com to find out how you can get your cannabis business prepared for an audit today!


Three ways that facilities can prepare for an audit are by having a current and thorough Compliance Binder, all required Business Records, and using a compliance Audit Checklist. 



1. A Completed & Updated Compliance Binder

Your compliance binder should contain the lease agreement, operation license, alarm system supplier, power bills, contracts, etc. 


The compliance binder must also carry all vendor’s records. For example, retail stores must have manufacturer records of the products they sell.


The binder should be sectioned for each auditing jurisdiction and house all of the information that each agency would require. This means that there will be duplicated information, as many Inspecting agencies require the same evidence. 


For example, the Fire Department needs to know the chemicals and solutions used on-site for fire safety reasons, where the Health Department requires the same information but for different reasons. 


The compliance binder should be thorough, maintained, organized, reviewed and updated often. Managers should be trained on accessing the contents of the binder and scheduling in the frequent maintenance and review it requires. 



2. Maintain & House All Business Records

Housed in the Compliance Binder, you will also need to have all of your business records on file and on-site. Business records include all tax information tax number, the Alarm Permit/Contract, Electrical Bills, lease agreement, etc. 


Your Audit Checklist should list every record your facility will need to provide inspectors. 



3. Utilize & Frequently Review the Audit Checklist

An Audit Checklist is designed to prepare your business for any audit, providing the business owner with a checklist of everything you will need to have documented and maintained for all inspectors. 


The Checklist applies to all facility types and will cover everything you need to maintain and document in your facility to stay compliant. These topics include Required Signage, Emergency Signage, Security, Fire Safety, Health and Safety, Records, and Inventory.


The Audit Checklist By BuildMySOP

BuildMySOP has created a free audit checklist for the Cannabis business community and you can download it here. Designed by Tom Mohan himself, the checklist is designed specifically for the Cannabis industry and contains checklists related to the following information. 


Additionally, BuildMySOP supplies Cannabis businesses with SOP templates that can be customized for every state and municipality, and these templates can supply as logs to maintain compliant records for things like Visitor Logs, DVR access, and more. Visit BuildMySOP.com to learn more. 


BuildMySOP’s VP of Regulatory Affairs Tom Mohan explained how to use the checklist in our AskTheRegulator podcast episode How To Prepare For An Audit and gave helpful tips and insight for each section of the checklist.


You can hear more specific advice by tuning into the episode, or read more about the specifics of our checklist in our article “How To Use the Checklist”. 


The Audit Checklist compiles all of the required documentation and procedures you need for the following regulatory issues:



What Happens if You Are Not Prepared for an Audit?

Being prepared can prevent violations, fines, and license suspension, and personal occupational license ramifications. If you are not prepared for an audit, you and your employees will experience undue stress and likely make mistakes that could be avoided.


By prioritizing the daily tasks and using the checklist to practice maintaining everything that’s required to stay compliant, you will become more prepare for an audit. 



Next Steps

BuildMySOP advises that all Cannabis business owners follow the three keys of compliance which are accuracy, consistency, and transparency. 


Employee training is crucial in being a compliant facility, so scheduling regular training and development sessions and investing in expert training opportunities will set your business up for success.


Be sure to get your free Audit Checklist and start aligning your business to compliant practices. 



For additional product and pricing information, visit our website.


Version 1 Copyright 2022 © BuildMySOP.com Last Updated 2022-06-08 03:18 PM