The Cost of Compliance in the Cannabis Industry

Kim Anzarut, CEO and founder of Allay Consulting | Image Credit: © Kim Anzarut

The cannabis industry is one of the fastest-growing sectors in the U.S. and globally, with legalization expanding across various jurisdictions. However, with rapid growth comes regulatory scrutiny. Compliance with regulations such as the Food and Drug Administration's (FDA) current Good Manufacturing Practices (cGMP) and the Occupational Safety and Health Administration's (OSHA) standards is not a legal requirement yet, but a crucial component of a sustainable business strategy.

Many cannabis companies question whether they can afford compliance, but the real question should be: Can they afford not to comply? The financial and reputational risks of non-compliance far outweigh the upfront investment required to establish robust compliance systems. In this blog, we will explore the true cost of compliance, what non-compliance can mean for a business, and why investing in compliance is a proactive, strategic decision rather than a burdensome expense.

Understanding the Financial Implications of Non-Compliance

Failure to comply with regulatory standards can lead to severe consequences, including hefty fines, product recalls, lawsuits, license revocations, and even business closure. The cannabis industry, given its status as a highly regulated and scrutinized sector, is particularly vulnerable to these risks. Since cannabis is not yet legal at the federal level, some companies argue that they don’t need to comply with regulations like FDA/cGMP and OSHA. However, federal regulation is inevitable, and preparing now could be the key to a company’s survival.

Despite its federal status, the cannabis industry is not exempt from regulatory oversight. Both the FDA and OSHA currently have jurisdiction over cannabis companies and can intervene based on complaints, workplace injuries, product contamination, or outbreaks. While regular audits may not be routine due to federal restrictions, regulatory agencies still have the authority to investigate and take enforcement action when necessary. The bottom line: cannabis businesses are not off-limits to federal regulators—especially when something goes wrong.

Because the cannabis industry is still emerging and heavily scrutinized, any high-profile issue—whether it's a compliance failure, safety incident, or bad actor—can cast doubt on the entire sector. Unlike established industries with long histories and regulatory frameworks that the public trusts, cannabis is still fighting for legitimacy in many ways.

This is why consistent compliance, quality control, and ethical business practices are so critical. Every company has a responsibility not just to its own success but to the industry's reputation as a whole. It's frustrating, but until federal legalization and standardized regulations level the playing field, one company's mistake can set the entire industry back in public perception and policy.

1. The Cost of Product Recalls

Product recalls are one of the most expensive consequences of non-compliance. If a cannabis company produces a product that does not meet regulatory standards, contains contaminants, or is mislabeled, it may be forced to recall the product. This not only results in direct financial losses but also damages brand reputation and consumer trust.

When I was a regulator, finding contamination issues or food safety violations was devastating for companies. I remember one day in particular when I had to dispose of $4.2 million worth of cannabis products. Over my three years as Denver’s cannabis specialist, I had many days like that. Most companies that went through a recall never recovered and, unfortunately, are no longer in the industry.

The most frustrating part? Many of the issues I encountered during audits—issues that led to recalls—could have been easily avoided with a strong cGMP program. That realization is what led me to start Allay Consulting. I saw firsthand that many companies simply didn’t know how to prevent these problems, and I knew I could help them avoid costly mistakes that could jeopardize their entire business. In most cases these mistakes were not malicious in nature, the operators truly just didn’t know that there was an issue or how to prevent these issues from happening.

For some examples of recalls in the industry please see Colorado’s list of health and safety advisories: https://med.colorado.gov/health-and-safety-advisory

2. Legal Liabilities and Lawsuits

If a non-compliant product causes harm to consumers, companies may face lawsuits that result in substantial settlements or legal fees. Beyond financial penalties, these lawsuits can lead to long-term damage to the company’s reputation and ability to operate.

In the food and beverage industry, which follows similar cGMP regulations, some companies have faced lawsuits exceeding tens of millions of dollars due to contamination issues. The cannabis industry is not immune to such risks, and as it becomes more mainstream, lawsuits related to product safety are expected to increase.

One of the services I personally provide is expert witness testimony in these kinds of cases. In every case I’ve been involved in, the issues at the root of the problem were completely preventable. In many instances, operators knowingly ignored these issues rather than taking the necessary steps to prevent them—ultimately making them liable for failing to produce safe products.

3. OSHA Penalties and Workplace Safety Violations

Ensuring workplace safety is another critical aspect of compliance. OSHA enforces regulations that protect employees from hazardous working conditions, and violations can lead to severe financial penalties.

OSHA can impose fines of up to $15,625 per serious violation and up to $156,259 per willful or repeated violation. If a cannabis company fails to implement proper safety protocols, such as proper ventilation in extraction rooms, proper OSHA SOPs in place, and adequate personal protective equipment (PPE) for employees, it risks incurring these penalties. Beyond fines, workplace injuries can lead to lawsuits, increased insurance premiums, and workforce instability. Having a proper OSHA program in place can prevent all kinds of issues and make the working environment in your company safer leading to less incidents and improving employee job satisfaction.

4. Loss of Licensure and Operational Shutdowns

In many states, cannabis businesses must comply with strict licensing requirements, and state-specific regulatory standards. Non-compliance can lead to license suspension or revocation, effectively shutting down operations. The cost of regaining a license—if possible, at all—can be astronomical and may require months or even years of rebuilding regulatory trust.

This is something we have seen in every state and hear about all the time. If you lose your license, you will lose money from not being able to operate, and getting your license back takes a lot of time and money.

In some states, like New York, cGMP certification is required to maintain your license. Operators are given a grace period to obtain certification, but if they fail to meet the deadline, they risk losing their license. Unfortunately, many companies underestimate the time it takes to achieve cGMP certification and start the process too late. I always recommend beginning the cGMP certification process as soon as you receive your conditional license to avoid this from happening.

5. Employee Turnover and Its Hidden Costs

Beyond regulatory fines and lawsuits, non-compliance also affects the workforce. Employees want to work in a safe, stable environment. If a company is consistently violating safety regulations or failing to uphold quality standards, it can lead to high employee turnover.

The cannabis industry already experiences high turnover rates, with some sectors reporting rates as high as 55% within a year. Constantly hiring and training new employees is costly, with estimates suggesting that replacing a single employee can cost up to 150% of their annual salary due to lost productivity, recruitment fees, and training expenses.

The Cost of Compliance: A Worthwhile Investment

While achieving compliance requires an upfront investment, it is generally far more cost-effective than dealing with the repercussions of non-compliance. Compliance costs vary depending on the size of the operation, the complexity of the supply chain, and the level of regulation in a given jurisdiction.

cGMP Compliance Cost

cGMP Certification has two sets of costs: first for the initial set up, and second for long term compliance and certification costs. Most companies spend about $30,000–$60,000 to get all of the initial compliance systems in place. Most companies find it more cost and time effective to hire a consultant or firm to gain cGMP Certification.

These costs include expenses related to:

• Initial Gap Analysis Audit – good to know where you stand right now
• Initial employee training
• Documentation creation (about 40 SOPs) and recordkeeping
• Certification Audit support
• Corrective Action plan after Certification Audit

The next Costs include the long-term upkeep of the certification. The Certification Audit needs to be conducted by an accredited certification company and is a separate fee from any consultant you may have hired. Cost and scope of the cGMP Audit is different for each certification company. If you are using a consulting firm, they should be able to give you several options to choose from.

These costs include expenses related to:

• Certification Audit- $4,000–$20,000 annually depending on company
• Ongoing SOP updates (in house or outsourced about $10,000 annually)
• cGMP Gap Analysis to ensure compliance before Certification renewal about $2,000–$4,000

If the initial cGMP protocols are in place and your staff is well trained, keeping your certification should be rather simple. Just make sure that when things change in the facility you are updating SOPs to reflect those changes, you follow all SOPs that were put in place, and you keep up on all your documentation and training throughout the year.

OSHA Compliance Costs

Ensuring OSHA compliance involves investing in proper safety protocols, employee training, and equipment. Key costs include:

• PPE and respiratory protection programs
• Annual training in house for staff
• Annual compliance gap analysis
• Fire suppression systems and grounding for extraction rooms
• Alarm and ventilation systems for hazardous areas
• Regular safety training and documentation
• Standard Operating Procedures (about 35 required for OSHA Compliance) updated and in place

While these investments may seem substantial, they pale in comparison to the potential cost of workplace injuries, lawsuits, and OSHA fines.

The Bigger Picture: Compliance as a Competitive Advantage

While compliance is often viewed as a burden, forward-thinking cannabis companies recognize it as a competitive advantage. Being known as a company that prioritizes safety, quality, and regulatory adherence can differentiate a brand in an increasingly crowded market.

Consumers are becoming more educated and demand transparency regarding product safety and quality. Companies that proactively comply with cGMP and OSHA standards can leverage this as a marketing advantage, positioning themselves as trustworthy and reliable.

Additionally, regulatory compliance can open doors to larger investment opportunities. Investors and financial institutions are more likely to back companies with strong compliance records, as they present lower risks and higher long-term sustainability.

Pay Now or Pay Later

The cannabis industry is at a pivotal moment. As regulations tighten and consumer expectations rise, companies must decide whether to invest in compliance today or face the much greater costs of non-compliance in the future.

The choice is clear: Investing in compliance is not just a regulatory necessity; it is a fundamental business strategy that protects revenue, builds brand reputation, ensures employee safety, and secures long-term success. Whether a company is a small startup or an established enterprise, compliance should be viewed not as an expense but as an investment in the future of the business.

For more information regarding the cost of compliance in the cannabis industry check out the webinar that inspired this blog: https://allayconsulting.com/webinar-recording-can-cannabis-companies-afford-compliance/

About the Author

Kim Anzarut, CQA, CP-FS is the CEO and founder of Allay Consulting. Direct correspondence to: kim.anzarut@allayconsulting.com.