You are Justifiably Confused, and Likely at Risk

Merriam Webster defines:

RISK- possibility of loss or injury PERIL

INSURANCE- An arrangement by which a company provides a guarantee of compensation for specified loss in return for payment of a premium.

COMPLIANCE-the act or process of complying (to conform, submit, or adapt (as to a regulation or to another's wishes) as required or requested) to a desire, demand, proposal, or regimen or to coercion

RISK MANAGEMENT - The discipline of forecasting and evaluation of financial risks together with the identification of procedures to avoid or minimize their impact.

Unfortunate for grass roots cannabis businesses, varying “professionals” travel the industry using these terms interchangeably. If you are confused…don’t feel badly…you have every right…

As detailed by the definitions above, however, each are distinctly different with all having their place in a cannabis company’s strategy and business plan.

Let’s try to untangle this web...

Risk management or mitigation is fundamentally defined as taking an action to reduce the possibility of an event taking place. Insurance is designed to supplement these actions by financially transferring the portion of certain risks whose probability can’t be lowered to an acceptable level.

To further understand the differences between risk management and risk transfer, let’s look at the comparison below

Risk Management vs Risk Sharing

Risk Management

  • Lowers the odds of a happening
  • Keeps you whole
  • Makes you better

Insurance

  • Partial compensation for damage if it happens
  • Never, ever makes you whole
  • Always creates a setback

Additionally, many risks cannot be insured affordably, and certain risks can not be insured at all. Take talent optimization for example. One of the largest risks facing not only the US cannabis market but American businesses in general is finding the right people, putting them in the right paces and retaining them. There is no insurance market that transfers an ounce of this risk. Risk management is the only route of control (SEE PRESS RELEASE LINK).

Similarly, typical cannabis insurance and other financial services products are “pricey” as a result of the much overplayed “external risk of cannabis.” This is in a time where loss claims are low because of the presence of substantial coverage exclusions in a market where demand significantly outweighs supply. The likelihood of losses and their associated costs increases without effective risk management and further increases coverage prices.

Based on the above, one can only conclude that…

Risk management without insurance is imperfect …but insurance without risk management is illogical”

Now let’s look at compliance. The definitions cited above clearly point to compliance as something that YOU do to satisfy SOMEONE ELSE. I am in no way stating that compliance is not important as it provides many of the tools required for successful operation. Compliance is also key in maintaining licensing status and conformance with any multitude of regulatory requirements.

Where compliance falls short is that it does not necessarily teach one as to what tools to use and how to use these tools in certain situations. This is where risk management comes in. Where compliance is the tool box, risk management is the real application of the right tools to solve a cannabis company’s problems efficiently, reduce their fixed and variable costs and enhance their profitability.

Hopefully this clears some of the confusion. Now take action to put your compliance investment to work by clicking on the link below and completing the NCRPS 5-minute risk assessment.

Author:
Rocco Petrilli
CEO and President

Are you ready to be accountable for your business?

Complete this form to talk to one of our risk managers today to ensure financial success in your cannabis business.

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Commercial Growth of Cannabis on a Farm

Cannabis Companies Can't Make Money? My Response

In this month's column, Rocco responds to a recent Politico article pointed to high taxes, siloed state markets and access to capital as the three main reasons as to why cannabis companies cant make money.

My response:

While all are contributors to the absence of financial success today's cannabis markets, the article overlooks the interaction of capital access and the vital importance of a major discipline in achieving positive financial results.

Cannabis business leaders have become versed at blaming "external" risk factors, or those that are, for the most part, out of their control for their poor financial performance. While the negative impact of these contributors can not be discounted, true business success comes from maximizing the benefits from issues in a leader's circle of influence and not the less accessible issues in their areas of concern. The time is now to replace blame with accountability <footnote>

Cannabis needs to show profitability to create sustainable growth. Profitability, in turn, is generated at the COST line, not the REVENUE line. EFFECTIVE RISK MANAGEMENT is not only a process but a culture that fuels the discipline, accountability and execution required to drive cost out of a business or operation. Discipline, accountability and execution are cornerstones of successful companies that gel to create successful markets. Thriving markets are then led by best in class who raise the bar and drive improvement in others.

Additionally, capital availability traditionally trails profitability. Now the irrational exuberance of early cannabis valuation has been replaced by concern and expectation, the limited capital will flow to the companies who are profitable. This will establish sustainability and growth within this group of companies, while the others will stumble and some will die.

Market leaders in cannabis will follow the proven market leadership route of "operational excellence" by securing the best total product costs. EFFECTIVE RISK MANAGEMENT provides the roadmap through its combination of process and discipline.

Author:
Rocco Petrilli
CEO and President

Are you ready to be accountable for your business?

Complete this form to talk to one of our risk managers today to ensure financial success in your cannabis business.

[contact-form-7 id="1578" title="Newsletter Contact"]