A significant amount of cannabis waste is produced throughout the commercial cannabis industry.
Each commercial cannabis sector produces various categories of cannabis waste which require proper handling because it is considered to be a susceptible business process for diversion. Regulators need to know where the cannabis waste product ends up to protect the safety and soundness of the licensed cannabis market.
Risk Factors
Disposing of cannabis waste is complex because there are strict rules in place to track cannabis throughout its life, including as it heads to the landfill, recycling facility, or composting plant.
Licensed cannabis product is valued by organized crime and illicit operators, collectively referred to as illicit cannabis market operators. These illicit cannabis market operators are looking for weak inventory controls and susceptible business processes that allow them to access large values and volumes of licensed cannabis product. They are also incented to disguise their activities so that they can maintain continuity in their diversion process. To disguise their diversion scheme, illicit cannabis market operators must include a method to remove the cannabis product from inventory in a way that does not arouse suspicion. Outside of consumer sales of cannabis product, wasting cannabis product is a way to remove cannabis product from inventory in large value and volumes that the illicit cannabis market is interested in.
The following should be considered red flags in regards to wasting cannabis product:
- The risk assessment for wasting cannabis product does not include an analysis of
- Unusual value or volume of cannabis waste
- Reported product destruction lacking a convincing paper trail
- Cannabis waste management is not overseen by a qualified employee such as a compliance or risk officer
- Training for cannabis waste management has not been provided to appropriate employees
- The business does not have a means to appropriately render cannabis product unusable
- Waste management is not periodically reviewed to assure the procedures and training are working as intended
- Procedures for wasting cannabis product do not include segregation of duties and dual control
- An employee exhibits a lavish lifestyle that cannot be supported by his or her salary
- An employee is reluctant to take a vacation
- An employee is experiencing significant financial difficulties including debt
- An employee regularly disregards policies and procedures related to segregation of duties, inventory tracking, accounting, etc. processes
- An employee takes a significant interest in business processes that he or she is not responsible for performing, or has any need to understand
Risk Mitigation
Risk mitigation for wasted cannabis product falls into two key control activities: inventory management and ethics and whistleblowing.
Inventory Management Risk Mitigation
Commercial cannabis businesses should establish or enhance the internal control environment, risk assessment, control activities, and assurance for inventory management.
- Assign a qualified individual for managing wasted cannabis product
- Enhance the risk assessment to identify the commercial cannabis business’s illicit cannabis market risk for cannabis wasting
- Implement risk-based enhanced procedures and processes for managing wasted cannabis product that include segregation of duties and dual control. For example, for unusually large cannabis wasting events, incorporate dual controls and the segregation of duties to the extent possible.
- Assign risk-based training to employees with cannabis wasting responsibilities that cover the company’s policies and procedures
- Implement risk-based enhanced self-reviews for unusually large cannabis wasting events
Ethics and Whistleblowing Risk Mitigation
Commercial cannabis businesses should establish or enhance training on effective ethics and whistleblowing control activities.
- Require risk-based training for employees responsible for wasting cannabis product to detect and report unusual activity
