Cannabis and the Code: Addressing the hazards of doing business with an industry’s unique needs

By Susan DeGrane | Nov 15, 2022
Construction paper cutout of fire and marijuana leaves. Image by Susan DeGrane.
In May 2020, first responders from the Los Angeles Fire Department encountered an intense blaze.




In May 2020, first responders from the Los Angeles Fire Department encountered an intense blaze. News accounts said a 30-foot-wide fireball melted firefighters’ helmets, tore off their protective gear and burned the seats of a fire truck parked across the street before spreading to nearby buildings. In all, 12 firefighters were injured in an explosion that shook the surrounding neighborhood and sent up a massive tower of orange flames and roiling black smoke. 

What happened in Los Angeles is just one of many fire-related disasters involving cannabis extraction facilities sprouting up across the United States. The intense blazes have killed and injured firefighters and workers while inflicting millions of dollars in losses on businesses.

As of Feb. 3, 2022, 37 states, three territories and the District of Columbia allowed the medical use of cannabis products, according to the National Conference of State Legislatures. As of May 27, 2022, 19 states, two territories and the District of Columbia enacted measures to regulate cannabis for adult nonmedical use.

Well before now, the National Fire Protection Association mounted an education campaign about cannabis-related fire hazards. The effort has included “Safety Issues for Cannabis Related Facilities,” an online NFPA pamphlet.

The publication lists safety hazards related to the cannabis oil extraction process, including mixing gases, off-gassing products, leaks due to improperly maintained equipment, accidents related to improper personnel training and unapproved equipment modifications. 

The booklet also lists hazards commonly found in cannabis-growing facilities, such as high electrical loads, barriers to proper egress and combustible horticulture-related materials. 

In the code

For construction contractors serving cannabis-related businesses, the pamphlet recommends consulting NFPA 1, Fire Code, 2018 edition; Fire Code Handbook, 2018 edition; NFPA 70, the National Electrical Code, 2020 edition; and UL 1389, standard for plant oil extraction equipment for installation and use in unclassified and hazardous locations, 2019 edition. 

A man, Mark Earley, smiles in front of a gray background. Image by Mark Earley, Alumni Code Consulting Group.

Mark Earley, Alumni Code Consulting Group

While the pamphlet provides general understanding and will likely be updated to match the 2023 NEC, Mark Earley, president of Alumni Code Consulting Group, suggests ECs serving cannabis-related businesses become aware of potential electrical installation hazards. 

“Article 512 will give more detail on what electrical professionals need to address in cannabis extraction facilities,” Earley said. 

Cannabis oil extraction often involves using any of four volatile materials—butane, hexane, pentane or ethanol—which qualifies these facilities as hazardous (classified) locations.

“The reason specific changes are being made in the 2023 NEC for cannabis extraction facilities is that there is such a high potential for explosion hazards,” Earley said. “All electrical equipment in the hazardous areas needs to be suitably rated.”

More information on special equipment for hazardous locations can be found in Chapter 9, Table 13 of the NEC, Earley said.

Other hazards and requirements

Grow facilities also present formidable hazards. High-powered lights operate around the clock to accelerate plant growth. Fertilizer and other combustible materials are stored on-site. Growing marijuana indoors also requires constant automated monitoring and management of moisture and temperature. In addition, because crops are highly valuable and susceptible to theft, grow operations call for elaborate security and fire protection systems. 

Special lighting is also essential for grow facilities. Requirements for horticultural lighting were added in the 2020 NEC. New requirements become effective depending on when they are adopted in an installation’s jurisdiction. Some adoptions will take place in 2023, but others may take several years. 

For states not prepared to adopt the 2023 NEC, existing provisions related to hazardous environments still ensure high safety standards, according to two contractors.

In California, which for now follows the 2017 NEC, Schetter Electric LLC, Sacramento, Calif., took Code-appropriate measures when it came to installing an extraction facility. The effort included addressing shortfalls found in engineering specs supplied by another company. 

“We knew this wouldn’t fly with City of Sacramento inspectors,” said Troy Mallicoat, senior project manager at Schetter, referring to electrical equipment not originally specified as Class 1, Division 1 for the hazardous location, which used ethanol in its extraction process. 

Cannabis plant. Image by Susan DeGrane.

The cannabis-growing industry provides many opportunities for ECs, yet is fraught with hazards.
Susan DeGrane

Schetter implemented practices recommended in NFPA 497 for the classification of flammable liquids, gases and vapors for electrical installations in chemical process areas. The company also addressed safety concerns related to high electrical loads—which in this case happened to be 4,000A in an 80,000-square-foot facility, 40,000 feet of which would be a hazardous location. 

Legality effects

Safety considerations aside, Schetter offers a cautionary tale about doing business with the cannabis industry. 

“This is a burgeoning industry, and it’s new. By far, the biggest hurdle is that it’s still considered illegal on the federal level,” Mallicoat said. 

Map of the United States with varied shades of green representing status of cannabis legalization in each state. Image by National Conference of State Legislatures.

Status of cannabis legalization in the United States and its territories
National Conference of State Legislatures

“From a business standpoint, we’re not going to chase after this because of the experience we had,” said Marlin Cole, vice president and manager of special projects for Schetter. “It’s not to say there isn’t opportunity there, but there are definite risks dealing with any cash-based business that has difficulty securing banking services.”

Schetter’s challenges relate to the fact that the Internal Revenue Service still considers the distribution and sale of cannabis to be “trafficking,” which discourages the banks from providing checking, savings, loans and other services. 

The SAFE Banking Act, which passed the U.S. House of Representatives in July 2022 as an amendment to the FY 2023 National Defense Authorization Act (NDAA), would allow banks to provide services to cannabis businesses, but the legislation is not expected to be included in the Senate version. 

“Who wants to deal with a business that pays in suitcases of cash?” Cole said. “We’ve heard through the industry it makes it like money laundering. That makes it hard to take money that way, and hard to get paid.”

The American Banking Association’s (ABA) official position reads, “The possession, distribution or sale of marijuana remains illegal under federal law, which means any contact with money that can be traced back to state marijuana operations could be considered money laundering and expose a bank to significant legal, operational and regulatory risk.”

That risk, according to the ABA, also applies to vendors, suppliers, landlords and employees indirectly tied to the industry. For the cannabis extraction installation job, Schetter asked the general contractor to set up an escrow account to ensure they would get paid. 

“We thought it would help [the general contractor] that the customer owned the building, but somehow there was no way to place a lien on property because the equity suddenly all went away,” Mallicoat said. 

Schetter was unable to recoup $400,000 in construction materials and labor. The general contractor lost more than $2 million. One factor driving financially risky scenarios like this one is that the IRS won’t allow cannabis-related businesses to deduct payroll, building depreciation or other otherwise legitimate business expenses. Some believe the circumstance increases motivation to cut corners.

“It’s like a black market struggling to come into the legal market,” Cole said. “With the federal government still against selling marijuana, these problems will continue.”

Even so, the rapid growth of the cannabis industry remains hard to ignore. 

Since 2016, when California legalized adult-use marijuana, Cole and Mallicoat have seen numerous new grow and extraction facilities and dispensaries crop up in the Sacramento area. Cole seemed more optimistic for Schetter’s San Francisco Bay operations, but for now anyway, he’s comfortable stepping back.

“Until the industry can use the services of the banking industry and pay businesses through legitimate non-cash methods, we’re not really interested,” Cole said.

Schetter has a solid reputation for serving the healthcare market, which composes 50% of its business. 

“We also do a lot of data center and commercial office space work,” Cole said. 

More in line with its regular business mix, the company completed a $300,000 state contract to wire an office space for the California Department of Cannabis Control in Rancho Cordova. The department regulates and issues permitting and licensing for the industry.

As in other states, the California agency has put in place sales and product tracking systems for licensed cannabis facilities in the hopes of facilitating access to state-based banking services. 

Opportunities in the industry

Santon Electric Co. Inc., Youngstown, Ohio, hasn’t wired any cannabis extraction facilities, but company electricians have performed work for grow facilities. Getting paid has not been a problem.

“We see huge opportunity here, because this is a very sophisticated industry that’s into the science of growing in a very efficient way,” said Bud Santon, president of Santon Electric. “A lot of dollars are spent per square foot.”

Indoor growing spaces include variable speed drives for operating fans, temperature and humidity controls, as well as other programmable controllers and timers for lighting to maximize growing time and use of space.

Stone wall with a Santon Electric sign. Image by Santon Electric Co. Inc.

Santon Electric Co. Inc. of Youngstown, Ohio, has wired cannabis-growing facilities.
Santon Electric Co. Inc.

Like the NFPA booklet suggests, the cannabis grow environment requires heavy electrical usage, and involves the presence of fertilizers and other flammable materials, including special wall surfaces and tarps related to indoor horticulture. Contamination also presents significant liability. 

“You don’t usually have to allow 20 minutes before starting a job to suit up in a white paper suit and disposable footies,” Santon said, explaining that mold and impurities from outdoors can easily destroy cannabis crops.

Still, Santon sees opportunity. “There’s more money being spent here right now than on medical facilities,” he said. “We see lots of room for growth.” 

That says a lot, considering the family-owned business is located near three major medical facilities.

Header image by Susan DeGrane. 

About The Author

DeGrane is a Chicago-based freelance writer. She has covered electrical contracting, renewable energy, senior living and other industries with articles published in the Chicago Tribune, New York Times and trade publications. Reach her at [email protected].





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