5 ways cannabis firms mismanage risk

“Never attribute to malice that which is adequately explained by stupidity.” Napoleon

When it comes to safeguarding the interests of #shareholders and #stakeholders , the buck stops with the board.  Their effectiveness will be judged by how they undertake a key responsibility, #riskmanagement .  

Unfortunately, the track record of many public and private company boards in this area leaves a lot to be desired.  

#cannabis #boards regularly misunderstand and mismanage #risk .  They don’t intend to be stupid or malicious, but they often can’t help themselves.   They often lack the time and systematic approach to identifying and analyzing all relevant, high-impact risks.   

Even the right people, intentions and risk management systems will still come up short without a comprehensive approach to analyzing and mitigating risk. 

Here are 5 ways boards can improve their approach:

1. Assemble quality data
At most cannabis firms, there is a dearth of quality and current & historical financial, industry and operational information. This, combined with rapid market change, makes forecasting and decision making a challenge. 

#management should be triangulating valid quantitative & qualitative data from multiple sources in their reporting so that the board faces no blind spots or shaky strategic assumptions.    

2. Choose the right metrics
Many cannabis boards focus on narrow or the wrong metrics, given their firm’s level of maturity.  For large producers, if cash flow, margin and consumer/channel loyalty should be top of mind, you are not effectively managing your risk and making the right strategic decisions.

3. Look at all risks
Many boards have a laser focus on cannabis compliance and financial risk – but overlook operational threats.  These could include cyber-attacks, potential product & workplace safety issues and people concerns, including leadership succession, labour unrest, and high turnover.  

Thanks to social media, these risks can quickly be magnified and exacerbated.  

4. Consider Black Swans
Companies regularly ignore the likelihood of Black Swan events. These are low frequency/high impact risks that can disrupt the enterprise. Examples include Covid, the 2008 financial crisis and the Russia-Ukraine War. These types of threats are difficult to predict.  However, the data shows they are becoming more frequent and global in nature. 

5. Ensure quality communications
Boards can’t assess and act if they don’t have digestible information in due course.  In many cases, problems become apparent inside the company but are never communicated quick enough to the board – if at all.   

Furthermore, state-of-the art enterprise risk management systems will fail if a nonexpert board cannot understand how they work or what the reports say. In fact, having a costly system may inspire unwarranted confidence in its capabilities.

#riskmanagement #Boards #governance #risk #strategy #Boardofdirectors #management