California soon will have one of the worlds most tightly-regulated marijuana markets, with a digital tracking system that will follow every plant legally grown and sold in the state.
Many licensed marijuana business owners are applauding the so-called “seed-to-sale” tracking system, slated to go online in a few weeks, as a way to cut down on competition from the states still-massive black market. But many also say a lack of information about how the new system will work — and the abrupt shift from what has been a fairly lax attitude about tracking product — is causing chaos in a fledgling industry thats reeling from hefty new taxes and regulations.
“This is our livelihood. This is how we feed our children,” said Terra Carver, executive director of the Humboldt County Growers Alliance, which represents nearly 200 businesses in the heart of Californias cannabis country. “Weve worked so hard to get to where we are. To have such a key piece (of the industry) be so uncertain is very concerning.”
Part of the deal[hhmc]
The new rules arent surprising. Proposition 64, which legalized recreational marijuana use, included a requirement that marijuana businesses put a tag on every plant, and digitally monitor each gram of cannabis, as it makes its way from farms to consumers. The requirement was a key selling point to voters when the law was passed two years ago.
One reason for the scrutiny is to reduce the flow of cannabis to states where marijuana laws are more stringent. The system also can help keep black market weed — which likely hasnt been taxed or tested for safety — from ending up on shelves at licensed dispensaries.
The digital tracking system also figures to generate important new data about Californias marijuana industry, including identifying which parts of the state have the most growers and which have the most consumers. Such information will make it easier for state regulators to halt shipments if a marijuana product is recalled for contamination or any other health reason — something not currently feasible with food, cigarettes or alcohol.
Platinum Scout cannabis strain grows at THC Design, where they are tracking their product using barcode labels, in Los Angeles on Tuesday, September 18, 2018. Soon all cannabis produced and sold in California will have to be tracked from growth to sale. (Photo by Sarah Reingewirtz, Pasadena Star-News/SCNG)
Employees clip cannabis flowers at THC Design, where they are tracking their product using barcode labels, in Los Angeles on Tuesday, September 18, 2018. Soon all cannabis produced and sold in California will have to be tracked from growth to sale. (Photo by Sarah Reingewirtz, Pasadena Star-News/SCNG)
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Raul Rojo harvests Tahoe OG cannabis plants at THC Design, where they are tracking their product using barcode labels, in Los Angeles on Tuesday, September 18, 2018. Soon all cannabis produced and sold in California will have to be tracked from growth to sale. (Photo by Sarah Reingewirtz, Pasadena Star-News/SCNG)
Raul Rojo harvests Tahoe OG cannabis plants at THC Design, where they are tracking their product using barcode labels, in Los Angeles on Tuesday, September 18, 2018. Soon all cannabis produced and sold in California will have to be tracked from growth to sale. (Photo by Sarah Reingewirtz, Pasadena Star-News/SCNG)
Cannabis plant seedlings grow in a THC Design office in Los Angeles on Tuesday, September 18, 2018. The company is tracking their plants using barcodes after their plants reach a certain age. Soon all cannabis produced and sold in California will have to be tracked from growth to sale. (Photo by Sarah Reingewirtz, Pasadena Star-News/SCNG)
A cannabis plant grows in a THC Design office in Los Angeles on Tuesday, September 18, 2018. The company is tracking their plants using barcodes. Soon all cannabis produced and sold in California will have to be tracked from growth to sale. (Photo by Sarah Reingewirtz, Pasadena Star-News/SCNG)
Cherry Pie cannabis strain grows at THC Design, where they are tracking their product using barcode labels, in Los Angeles on Tuesday, September 18, 2018. Soon all cannabis produced and sold in California will have to be tracked from growth to sale. (Photo by Sarah Reingewirtz, Pasadena Star-News/SCNG)
Nelson Perez harvests Tahoe OG at THC Design, where they are tracking their product using barcode labels, in Los Angeles on Tuesday, September 18, 2018. Soon all cannabis produced and sold in California will have to be tracked from growth to sale. (Photo by Sarah Reingewirtz, Pasadena Star-News/SCNG)
Cannabis flowers dry at THC Design, where they are tracking their product using barcode labels, in Los Angeles on Tuesday, September 18, 2018. Soon all cannabis produced and sold in California will have to be tracked from growth to sale. (Photo by Sarah Reingewirtz, Pasadena Star-News/SCNG)
Member Berry 2 cannabis strain grows at THC Design, where they are tracking their product using barcode labels, in Los Angeles on Tuesday, September 18, 2018. Soon all cannabis produced and sold in California will have to be tracked from growth to sale. (Photo by Sarah Reingewirtz, Pasadena Star-News/SCNG)
Member Berry 2 cannabis strain grows at THC Design, where they are tracking their product using barcode labels, in Los Angeles on Tuesday, September 18, 2018. Soon all cannabis produced and sold in California will have to be tracked from growth to sale. (Photo by Sarah Reingewirtz, Pasadena Star-News/SCNG)
Employees clip cannabis flowers at THC Design, where they are tracking their product using barcode labels, in Los Angeles on Tuesday, September 18, 2018. Soon all cannabis produced and sold in California will have to be tracked from growth to sale. (Photo by Sarah Reingewirtz, Pasadena Star-News/SCNG)
A batch of Tahoe OG cannabis flowers are clipped at THC Design, where they are tracking their product using barcode labels, in Los Angeles on Tuesday, September 18, 2018. Soon all cannabis produced and sold in California will have to be tracked from growth to sale. (Photo by Sarah Reingewirtz, Pasadena Star-News/SCNG)
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State officials initially hoped the digital system would be active when legal marijuana sales kicked off on Jan. 1. But that didnt happen, and cannabis businesses have complied with tracking rules this year by putting data on everything from private software to handwritten invoices.
“Its utter madness,” said Hezekiah Allen, executive director of the California Growers Association, the states largest trade group for cannabis cultivators.
“We are tracking hundreds of millions of dollars of consumer product by paper in a market thats never been regulated before.”
The digital tracking system has actually been ready to go since Jan. 2, according to Richard Parrott, director of CalCannabis, the division of the state Department of Food and Agriculture that oversees cannabis cultivation. But per state code, regulators cant make companies start using the tracking system until theyve been issued full annual licenses. And to date the state has issued only temporary licenses to more than 6,000 marijuana businesses.
The state hopes to approve its first annual licenses “within the next month,” Parrot said Monday. That means Californias digital tracking system could be online by Halloween.
Big change for industry[hhmc]
For two decades, attorneys and industry experts discouraged anyone involved in Californias gray medical marijuana market from keeping written records. The idea was to make it tougher for prosecutors if the business was raided by federal or state authorities.
“Every single piece of paper would be something they could use against you,” said Ryan Jennemann, founder of the Los Angeles-based cultivation company THC Design and a board member on the Southern California Coalition, a cannabis trade group.
But that lax strategy made it difficult to prevent internal theft, Jenneman said, and generally reduced efficiency.
The new digital tracking should actually offer businesses and marijuana-friendly states a layer of protection against federal interference.
A 2013 memo issued by then-U.S. Deputy Attorney General James Cole discouraged federal authorities from targeting marijuana programs in states where the drug was legalized, so long as those states took steps to prevent cannabis from getting into the black market — and as long as the businesses in those states made sure all revenues were “tracked and accounted for.”
Today, while cannabis remains illegal under federal law — and Attorney General Jeff Sessions has revoked Coles 2013 memo — federal regulators so far have not stepped up enforcement against the cannabis industry in states where it is legal. And most states that have legalized medical or recreational marijuana continue to follow the Cole memo guidelines, which call for seed-to-sale tracking systems.
Thats a major reason why Jennemann said hes embracing the required tracking system.
“Now that we can actually keep track of everything accurately, and not have to worry about a paper trail and email chain, its like a 500-pound gorilla has been lifted off our chests.”
Under the system, growers will put a tag with an embedded radio transmitter on each marijuana plant. That tag will be tied to a unique ID number. As the plant moves through each phase of the supply chain, workers will scan the tag, weigh the processed material, and update information about growing conditions. The tags also will include information such as the strain of marijuana and lab test results until every product made from that plant is sold.
Some industry insiders say the system could help make their operations more efficient and profitable. Matt McLean, chief digital officer at Caliva, a San Jose company that grows, manufactures, distributes and sells cannabis, wants to add sensors throughout his facility that will read radio signals from plant tags and send that information into his companys own database. That way they can virtually monitor all products at their one-acre campus.
But businesses wont get to test the tracking system before it goes live. Some business owners also have heard complaints about the state-chosen tracking program not communicating with existing software, resulting in temporary product shortages in other states. Some remote farmers in Northern Californias famed Emerald Triangle region who pride themselves on being off the grid may have to install satellite internet so they can connect to the system and operate legally.
Another issue is money. While the tags are included in license fees for California marijuana businesses, Jennemann said hes allocated one staff member dedicated just to tracking compliance at each of his companys eight grow locations, a move that adds roughly $400,000 in annual payroll.
That cost, Jennemann notes, comes in addition to a host of other new expenses incurred by legal operators, who are spending that money even as they try to compete with a black market that he says is bigger than ever. The rules, he said, are crippling an industry “that doesnt have the profit margins to bear any more costs.”
Choosing a system[hhmc]
In June 2017, Florida-based Franwell beat out four other software companies to win the contract for Californias track-and-trace system. Franwell hit something of a pot-tracking jackpot, with a contract valued at up to $60 million for the first two years.
Franwell started making tags with radio transmitters in the early 1990s as a way to track fresh foods. Then they focused on items that need to be traced securely, such as pharmaceuticals and weapons. Five years ago, when Colorado set out to implement the countrys first cannabis seed-to-sale tracking system, regulators in that state contracted with Franwell to develop the Marijuana Enforcement Tracking Reporting Compliance system, better known as METRC.
“It has been a critical component of Colorados accountability, and arguably the success of our framework, since the advent of the recreational marijuana market,” said Jim Burack, director of Colorados Marijuana Enforcement Division.
In Colorado, the METRC system automatically notifies regulators if something seems off with data submitted by businesses, such as a gap between the amount of cannabis expected to be harvested from a plant and what actually gets sent to market. Data analysts for the state regularly review the information gathered by the system to look for red flags.
When discrepancies are noted, Burack said his investigators can visit a site and request security camera footage that all businesses are required to keep so they can try to determine what went wrong. Often, he said, its simply an employee training issue. But last year Colorado took administrative action against 210 businesses. And sometimes, Burack said, data discrepancies can lead to criminal investigations.
Colorados track-and-trace system also gives regulators and the public a robust picture of the states regulated marijuana market, including what happened to the nearly one million pounds of usable cannabis produced in the state in 2017. And Colorados taxing authorities use the data to make sure businesses are paying their fair share.
Things were a bit rocky at first, since METRC didnt communicate with the internal tracking and point-of-sale software that many businesses were using at the time. But Burack said Colorado “solved that problem” a few years ago by having Franwell develop an interface that lets third-party systems interact with its program.
The METRC system is used by 11 of the 21 states that require seed-to-sale tracking. Officials from Franwell didnt respond to requests to discuss METRC for this story.
BioTrackTHC, a Florida company that handles cannabis tracking in seven states, also bid for Californias contract. So did MJ Freeway, a Colorado-based company that handles two state contracts. Rounding out the field were New York-based Quintel and Swiss company SICPA, which monitors California cigarette sales. SICPA also created a local seed-to-sale tracking program thats been used in parts of the state for two years in anticipation of full, statewide tracking.
The SICPA system is now tracking about 945,000 plants and 128,583 pounds of inventory at 632 sites in Humboldt, Yolo and Mendocino counties, according to Jeff Dolf, who oversees Humboldt Countys track-and-trace program.
While there was some grumbling at first, Dolf said cultivators have come around and there havent been any big problems. And he said everyone is a fan of CalOrigins coded stamps, which brand products grown in the area as being from Humboldt County — arguably the most famous region in the world when it comes to cannabis cultivation.
While CalOrigin should be able to tie into METRC, Dolf said his county will have to decide whether it makes sense to renew the SICPA contract this November, or transition entirely to the state system. Either way, he said, theyre determined to find a way to keep the valuable “proof-of-origin” stamp — something METRC doesnt offer.
Questions about rollout[hhmc]
As theyve built out Californias custom version of METRC, state regulator Parrott said his team tried to apply lessons learned in other states.
For example, CalCannabis will create a feedback forum so users can tell the state about problems or ideas. Parrott said the state also is letting companies train on the program before it goes online; more than 400 applicants so far have been offered instruction.
The state has already hired data analysts to review the flood of information expected to come in through METRC. And theyre partnering with agricultural commissioners in Humboldt, Alameda, San Mateo, Santa Barbara, Los Angeles, Trinity and Mendocino counties for help with site inspections — a pilot program that could be extended to track-and-trace inspections.
Californias METRC system also will have third-party capabilities built in. A number of independent software companies have already signed up to connect with METRC in California, Parrott said.
But some business owners said the lack of communication from the state, and no chance for input with Franwell, the company behind METRC, means theyve largely been left to guess how it will all work when seed-to-sale tracking goes live in a few weeks.
“Thats not a stable transition,” said Grower Alliance leader Carver. “Thats chaos.”
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