The Cannabis Industry’s Environmental Compliance Conundrum | Vicente Sederberg LLP

Operators in the nascent cannabis industry have a lot to worry about on a daily basis, but compliance with state and federal environmental laws hasn’t been an issue of concern for most. Instead, they’re concerned about recruiting and training talent, compliance with stringent cannabis-specific laws and regulations, banking, unpredictable supply chains, investment, stock prices, M&A, marketing, and a host of other day-to-day business challenges. With all that to worry about, compliance with long-standing environmental laws hasn’t been on the radar, much less a priority (except, perhaps, with regard to pesticides). That needs to change immediately.

Over the past several months, environmental compliance regulators started setting their sights on recalcitrant operators. Recently, federal and state environmental regulators have taken significant actions against cannabis companies for “bread & butter” violations of bedrock environmental laws — laws that operators should know better than defy.

For example, WellgreensCA, a San Diego company engaged in the extraction of cannabis oils, along with the owner and a manager, pleaded guilty in federal court to offenses related to the transportation and dumping of hazardous waste. As part of the plea agreement, the company agreed to pay the state a $45,000 fine and restitution of $26,484, with the company owner facing additional fines and possible jail time.

Meanwhile, in Massachusetts, Sira Naturals received a nearly $18,000 fine from the MA Department of Environmental Protection for Volatile Organic Compound (VOC) emissions from their Milford, MA facility without a Clean Air Act permit, and were found to have flushed ethanol waste down the drain without a Clean Water Act pre-treatment permit (and other associated hazardous waste storage violations).

Then, there’s the case of the landowner in Calaveras County, California, who was held liable for over $680,000 for environmental violations on their property, despite claiming that they were not directly involved in the cannabis cultivation activities that occurred on their property. And these are just three examples to hit the news in the past couple of months!

To be fair, in most cases the issue isn’t likely one of intentional deficiency but rather a failure on the part of operators to have in- or out-of-house personnel with experience in basic Environmental, Health, and Safety (EHS) laws and regulations. Operators will often focus on Occupational Safety and Health Administration (OSHA) compliance to some degree, given the potential for serious injury or worse, as they are given robust state and federal resources to maintain regular inspections and compliance. But in the world of EHS, there is a compelling case to be made that with exposure on both the state and federal levels, and significant potential for the assessment of daily penalties (and possible criminal charges), the “E” in EHS is equally important.

Environmental law violation penalties can add up quickly when you’re looking at Clean Water Act fines accumulating at a maximum of $50,000 a day for every day of violation and up to three years in prison for a first violation. These fines are lesser for negligent violations and more for knowingly placing another person in imminent danger of death or serious injury. Similar punitive penalties can be found for violations of the Clean Air Act. For companies not aware of their responsibilities under state and federal environmental laws, violations of these bedrock laws can start to add up to real money and negative publicity, among other consequences.

So, what is a cannabis operator to do before state and federal environmental regulators start to regularly inspect facilities — something that is bound to happen in the not-so-distant future given the exposure and community concern?

Here are some easy steps:

  • Audit: Establish a relationship with a knowledgeable EHS company and hire an EHS compliance consultant to give your facility a thorough audit inspection. They should review all of your cultivation and/or manufacturing practices to ensure you have the necessary permits and licenses to address all of your activities. For example, suppose you regularly flush your grow with various chemicals and/or utilize cleaning solvents when flipping a grow room. In that case, you likely need to notify your municipality’s publicly owned treatment works and obtain some kind of pre-treatment permit under the federal Clean Water Act (or a state equivalent, if your state has priority). Similarly, you might need to obtain a state or local air emissions license and monitor your emissions if you have an extraction facility that emits VOCs under the Clean Air Act.

  • Obtain: Companies should review the audit results, address any noted issues, and obtain all required permits as soon as possible.

  • Understand and monitor: Hire an environmental manager who can keep track of all environmental, health, and safety regulations to which your facility may be subject. They should have experience appropriate for the size and complexity of your operations. Depending on the size of your operation, this could be a part- or full-time role or an outsourced position.

  • Record: Keep records as required by your specific state and federal environmental laws. It is recommended that records be kept for a minimum of 10 years and stored to be accessible and available, should an issue arise.

  • Report: Reporting, especially self-reporting any permit/license violations, is critical to minimize civil penalties and potential criminal charges by regulatory agencies. Reporting can also be a helpful marketing tool to demonstrate a commitment to environmental sustainability and tell a positive story about your company’s operations.

  • Engage: Engage legal counsel as soon as environmental compliance issues arise. As noted above, the penalties for environmental violations can quickly accumulate and/or criminal charges could ensue for acts seen as “intentional” or “grossly negligent.”

As the cannabis industry continues to mature, operators need to become more sophisticated about all obligations around well-established laws that could result in civil and criminal liabilities, especially Environmental, Health & Safety laws and regulations. As enforcement activities increase in this area, it’s up to cannabis companies to understand their obligations and engage relevant resources to help them navigate and comply with these complicated and nuanced issues.

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