KYC for Cannabis: Legal Survival in the Previously Illegal Industry

According to international legislation, the supply, possession, and cultivation of cannabis should be allowed exclusively for medical and scientific purposes. Nevertheless, the discussions over this ambiguous topic continue, raising questions of decriminalization vs. legalization, medical vs. personal use, and the corresponding regulatory policies.
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Cannabis legalization worldwide and the emanating risks

The cannabis industry worldwide has vast growth potential. Medical cannabis legal spending worldwide has increased almost four-fold from 2014 to 2022.

What is more, the value of the global cannabis market is expected to reach $82.3 billion by 2027.

Although the legal requirements are stringent, the industry has already become open for business in numerous regions. Still, the cannabis sector legalization has its dark sides, which deal with rising risks, fraud, abuse, and more.

Cannabis legalization worldwide and the emanating risks
Let’s explore which threats drug legalization poses for cannabis merchants.
Increase in regulations. Smooth operations in such a disputed sector come at a price, which includes severe legal restrictions. For a long time, most types of marijuana use were illegal. Now, the new opportunities come together with the larger requirements. For many players, those legal rules may be tough to tackle.
Unauthorized vendors. Third parties may inflict the risk of a data breach whenever they are involved. Unauthorized vendors are challenging for cannabis merchants since they can be money launderers or other fraudsters. Such actors can cause business trouble; therefore, verifying vendors thoroughly is essential.
Cyberattacks. The data breach is a potential threat to any business, including the emerging cannabis sector. Therefore, security and database protection should become the ultimate priority for industry players.
The growing fraud. Back in the day, the cannabis sector was broadly criminalized; now, it’s a challenge to prevent fraudsters from entering the scene. Moreover, advanced technology and digitalization opened new ways for illegitimate individuals to achieve their goals.

Compliance rules and
challenges for cannabis sellers

To operate safely in the sector, all businesses must have a clean background. Legal compliance and verification of customers, suppliers, and other partners are obligatory for every seller. Those countries that have legalized cannabis production and sales have specific regulatory authorities providing guidelines and controlling legal operations. Generally, states must follow the FATF recommendations to counter money laundering and terrorist financing.

Although laws and regulations are changing continually, businesses should keep an eye on several fundamental compliance aspects.

Compliance rules and challenges for cannabis sellers
Each country legalizing medical and recreational cannabis has its own requirements for licensing and documentation. Typical licenses embrace manufacturing, dispensary, retail, and cultivation. In some states, the employees involved in a cannabis business also need a license. It’s the task of business owners to control whether all licenses are actual and up to date.
Health and Safety

Another reason for the stringent regulation of the cannabis industry is a safety concern for customers and employees. Therefore, businesses need to attend to such safety categories as:

  • Staff safety
  • Adequate storage and sanitation
  • Compliance with packaging and labeling requirements
Sales and Reporting

Cannabis compliance violations include:

  • selling to an underage individual
  • surpassing the sales limit
  • selling beyond operating hours
  • failing to properly report inventory and sales

Therefore, merchants need to establish adequate working processes and apply advanced technologies to guarantee adherence to all regulatory requirements.

Thus, they can automate verification procedures and sales reporting to remove the possibility of errors and simplify compliance measures.

Consumer privacy for cannabis compliance
Cannabis dispensaries and stores collect sensitive customer and patient data that can become subject to breaches. To prevent consumer risks, businesses should implement robust protection techniques using advanced technologies.

Dispensary delivery services need to address several areas to avoid legal incompliance.

  • The respective businesses must have a license from the state authority
  • Sellers must ensure that cannabis consumers have undergone ID verification for cannabis delivery.
    To conduct identity verification dispensaries may perform such procedures as document verification and liveness verification
  • Delivery drivers must not be younger than 21 years old and have a copy of the cannabis business license, a driver’s license, and an employer ID badge
  • The delivery must take place in an enclosed vehicle.
    Motorcycles are not allowed for cannabis delivery
  • Every transaction must be recorded through a delivery request receipt, including the seller’s and customers’ data
How Can Cannabis Sellers Mitigate the Existing Threats?

The overall risk mitigation measures in the cannabis business are split into two fundamental areas:

Risk Assessment

Any company conducting activities in the cannabis sector should start by evaluating potential risks and the available preventative techniques. A great deal of the institution’s risk management involves appropriate KYC practices and systems. The business management should ensure sufficient infrastructure and support in their AML compliance programs. For example, they should inspect their institution's tools to scan watchlist data and how the revealed matches are sorted and verified.

Besides, businesses should also consider the potential regulatory impact in terms of legal compliance and exposure to litigation

An exhaustive onboarding process

This is the stage where most part of the institution’s risk management and AML compliance takes place. The process encompasses data capture, initial customer due diligence, and enhanced due diligence for KYC.

It’s worth investing in advanced software technologies employing artificial intelligence to automate and streamline onboarding procedures. Modern KYC and AML compliance solutions can help you effectively conduct all checks and validations for the sake of your safety and prosperity.

Thus, you can enrich your onboarding methods with the following tools and automation:

  • Dispensary ID verification check to validate customer identification or to verify a medical marijuana patient;
  • Age verification to fight risks of underage usage;
  • KYC for cannabis stores to avoid cooperation with illegitimate individuals;
  • KYC for CBD sellers to conduct enhanced customer due diligence;

In general, thorough KYC/AML compliance is essential for legal survival in the cannabis industry. Noteworthy, collaboration with professional compliance management system developers will save significant resources and grant enticing opportunities.

Experience a Risk-free KYC with KYCAID
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Risk-Free KYC for the Risky Sector with KYCAID

KYCAID is an expert in KYC and AML compliance software that addresses all the needs dictated by regulatory standards. We can help your business set up effective procedures, implement the appropriate tools, and develop tailored solutions to meet the requirements of your specific institution.

The essential features of our company that would help you attain stellar results include the following:

Proprietary compliance system Qualified legal professionals Highest security standards proved by ISO certification Efficient solutions that enable immediate documents and selfie verification, liveness check The highest possible SLA for manual checks
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