Cannabis Regulation

The Sorry Story of Cannabis Tracking in America

Tracking cannabis products is one the biggest logistical issues that has come with the legalisation of cannabis in the United States.

On one hand, governments want to provide a safe ecosystem for their constituents and stamp out criminal activity .

On the other hand, the tracking and recording of every transaction involving cannabis products, with current technology, is time-consuming and costly for businesses.

These conflicting ideas have lead to a situation where states have simultaneously made cannabis legal but also made it incredibly hard for legal cannabis businesses to compete with the parallel black markets they are trying to stamp out.

With all that being said, the problems with cannabis tracking in the United States go far beyond the time and cost businesses have had to devote to keep them up and running. The story of cannabis tracking in many states has been replete with problems, set-backs, false starts and complete shutdowns.

This is a quick history of the state of cannabis tracking in some key legal states.

Oregon

Oregon was the first state in the US to decriminalise carrying small amounts of cannabis and among the first to make it legal for medicinal purposes.

In October 2015, sales for recreational use were made legal

The state uses Franwell’s Metrc system for their seed-to-sale tracking and that is proving to be problematic in terms of the manpower required to make the system work. An article published last year claims that in one production house, 10% of their employees are employed specifically to deal with rules and compliance data entry related to Metrc.

This has put an enormous strain on the profitability of small businesses. As the Oregon Liquor Control Commission’s executive director states “I think this is a fundamentally sound system, [but] It’s not being used to its capabilities. We don’t have the workforce there”. The amount of work it takes to keep records up to the State standard is making margins smaller for legitimate business and sometime making it impossible for them to be economically viable.

This has had the unintended impact of making cannabis harder to access for medicinal purposes. Why? Well, the boom in sales and margins in recreational cannabis have made it much more profitable than medicinal cannabis and hurt medicinal sales.

As of July 2018, there were 8 dispensaries in Oregon available to medical card-holders which is down from 420 two years previously. So the system in Oregon has actually made things worse for people to source the cannabis products best suited to treating their medical conditions.

California

After a little over a year of emergency regulations to launch and maintain the legislation of cannabis, in January 2019 the Californian government launched its track and trace software which was also a version of Franwell’s Metrc system.

So far it has not gone smoothly.

The first problem is one that is a common tale for legalised states across the US, where the cumbersome regulation and compliance that businesses are burdened with are killing small business and pushing trading back into the black market.

This was already the case with the system under the emergency regulations. Now with the Metrc software in place it has made it worse, with licensing costs alone being between $2,000 and $2,500 a year. And that is just the tip of the iceberg. Expenses extend to needing to hire employees purely to enter data and training them in how to use the software. As the CEO of Cannabis HR company GroStaff , Clint Armstrong, said “If you’re expecting to open a cannabis business, expect for the capital requirements to be astronomical.”

The other key problem is that the complexity of the Metrc system means that it simply isn’t being used by most cannabis businesses. Mandated use of the system only applies to annual cannabis license holders and California has thousands of temporary license holders (which is a whole other issue with how licensing is handled in the state).

Only 9 out of 627 shops licensed to sell cannabis in California, 93 of over 1,000 licensed manufacturing companies and 254 of the 4,000 licensed growers use the Metrc system to document their activities. Quite simply, real world use has shown that if business don’t have to use the system then they won’t, suggesting that it is either far too complicated, doesn’t provide enough value to business operations or both.

Nevada

A key driver for the legalisation of cannabis across the United States is the amount of tax revenue it can bring in to the state coffers.

You can imagine then, that the state of Nevada wouldn’t have been thrilled when a state audit found that it could have been missing out on up to $500,000 in tax over a six month period, discovered by discrepancies between the data in their state tracking system (Metrc) and submitted tax returns.

Brett Scolari, general counsel for Reef Dispensary and a board member of the Nevada Dispensary Association (NDA) was quoted as saying “Metrc is effective for preventing diversion, but I don’t know that it will ever be the best tool for calculating taxable sales.”

The source of the problem stems from poor management of data entry and product tagging. This problem has also meant that high-potency products reserved for medicinal customers have been regularly sold to recreational customers – one of the key factors that seed-to-sale track and trace is meant to address.

Of course the larger issue here is if a cannabis tracking system isn’t actually effectively tracking where and to whom specific products are going, then its role in regulating cannabis as a controlled substance is compromised. In fact, if the system can run with incorrect data entry, deliberate diversion of product is not too far of a stretch either.

Maryland

A lot of the problems we’ve seen so far are about how hard the state tracking systems make it for cannabis businesses to operate.

The situation in Maryland demonstrates how a tracking system can completely break a cannabis industry and bring it to a stand still.

In June last year Franwell introduced a feature to Metrc in Maryland that was meant to allow patients to track how much product they purchased in a 30-day period and how much they had left to purchase before they hit their limit. Instead, the update completely slowed down the functionality of the system, meaning thousands of patients couldn’t access their prescriptions until two days later when Franwell shut down the feature.

This is just one example of a simple glitch bringing the entire industry to a standstill and depriving patients of what they need to treat their conditions. It also isn’t just specific problems with system updates that cause problems with patient access. Reports from dispensary workers say that the system can get slowed down by sheer volume of user traffic and patients can have to wait for hours and sometimes even walk away empty handed. .

Similar outages have occurred in Massachusetts, Colorado, Pennsylvania, Illinois as well as consistently in Maryland.

Washington State

Washington State has had a turbulent history when it comes to tracking and regulating the sale of cannabis.

In 2013, a company called BioTrackTHC won the contract to develop a real-time seed-to-sale cannabis tracking platform which was then launched the following year.

However complaints from commercial cannabis growers soon began to grow in number, claiming that the system constantly locked up, created inventory discrepancies and was costing them unreasonable amounts of time and money to maintain. In six days an online petition from growers that wanted numerous changes to be made to the software garnered 345 signatures. The petition which proposed ‘10 Point Action Plan” can be found here.

In addition to this, concerns ran high between BioTrackTHC and the regulators in regard to some of the specifics of the state’s proposal. This culminated in an open letter from BioTrackTHC and a decision not to bid for renewal of their contract in 2017.

The new contract was initially won by Franwell, but they backed out of the bid so the state finally settled on a third-choice, MJ Freeway

The next problem was that MJ Freeway’s tracking system wasn’t ready to launch when BioTrackTHC’s contract formally finished up in November 2017, meaning a contingency plan took place where cannabis businesses had to submit their tracking data via manual spreadsheets.

MJ Freeway then blew through two deadlines and finally launched their system ‘Leaf Data Systems’ in January 2018 to a standard that, according to an independent report from Gartner Consultants was “unstable” and “would have failed typical tests”.

These are just a few stories from what is now an ongoing saga with the regulation and tracking of the legal cannabis industry. A quick Google search of “cannabis tracking problems” will return page after page of results of similar stories that are by no means just restricted to the United States.

While Parsl obviously has a stake in this argument, we think it should be obvious even to the most casual observer that for the cannabis industry to build a solid foundation for the future it will need a new standard for tracking in the cannabis industry to become a reality.