Is Track-And-Trace Bringing the Cannabis Industry Into the Daylight, or Keeping it In the Shadows?
Meet the system designed to follow your pot as it grows from seed to weed. Every plant is tracked like a FedEx package. Is it keeping growers underground?
Photo Creative Commons (photo below by My 420 Tours, Creative Commons)
When state lawmakers envisioned the legal sale of recreational cannabis, they wanted a system in place to track plants and products. The rationale was to ensure that all marijuana grown within California was done so legally, while meeting various compliance guidelines, and remaining within state lines. Passage of Proposition 64, the ballot measure that legalized the state’s recreational cannabis industry, set in motion the required use of a track-and-trace system for all businesses with provisional or annual licenses.
The commercial software product that California selected for its track-and-trace system — METRC, which is short for Marijuana Enforcement, Tracking, Reporting, and Compliance software — is an online database in which cannabis businesses must record milestones in the lives of their growing plants, and when they transfer plants or products between businesses.
California’s system went live in January of 2018, right when it became legal to buy weed in the state. But because many cannabis businesses were operating with temporary licenses during the first year of legalization, most businesses are only just now beginning to use the track-and-trace system.
Now a growing number of California businesses are enrolling in the system, which is designed to let states track legally grown weed from seed to sale. But the process has been accompanied by growing pains. Some operators complain about how complex and time-consuming it is to maintain the system. Others believe that rather than helping to flush out the illegal operators, fear of track and trace is a big reason that so many of the state’s cannabis cultivators and dealers have opted to not join the legal market.
Mapping the exact journey taken by your seeds, stems, and flowers is certainly complex. The process begins when a grower sells seeds to a cultivator. The seed vendor must use METRC to document the transfer, specifying what quantity of seeds it is selling. When the cultivator receives the seeds, it must log into the system and confirm that it received the same quantity of seeds that the grower said it sold.
The proud new seed owner then plants the seeds and, when they sprout, tags each seedling with a scannable radio-frequency identification tag bearing a barcode. The tag must be visibly attached to the main stem of the plant, often with a zip tie. Each plant gets the same ID number as all of the plants in its “lot” of up to 100 immature plants. All of this must be documented in METRC, which is also used by several other states. Once individual plants start flowering, however, they must be tagged a second time with their own unique ID number, which again is dutifully recorded in METRC. “You’re tagging them when they’re tiny little seedlings and you have to tag them again when they’re flowering,” noted Jack Nichols, general counsel and chief compliance officer of Harborside, an Oakland cannabis dispensary.
After the flowers and any leaves are harvested, they are packaged for transport and again entered into the database. The nicest buds will go to a distributor, from which a testing lab will select samples to check for contaminants such as mold or pesticide residue. Assuming the samples pass, the grower may then sell the remaining product to a manufacturer, where it will be packaged, sent back to a distributor, and transported to a dispensary for sale. Information about each of these transfers — ID numbers, business names, package weights and quantities, pick-up and delivery times — get entered into METRC every step of the way. The same thing is true of less-attractive buds and other cannabis parts, such as trimmed leaves, destined to be turned into cannabis oil and ultimately used to infuse edibles, vape cartridges, or other products.
Even crop failures must be documented. If a plant dies at any point in the growing process, it must be destroyed and the action recorded in track-and-trace. Testing companies must destroy all of what remains of their samples. Slight differences in quantity received during a transfer must be documented in METRC. If the difference is too large, the recipient of the cannabis is expected to refuse the transfer.
There is no consumer-facing aspect to the system. But this extreme focus on inventory tracking is ushering in some drastic changes for the state’s cannabis industry. Managing plants in this way has imposed a learning curve on even the most well-established of businesses.
Oakland’s Harborside, which cultivates its own plants and required multiple annual cultivation licenses, just underwent tagging and entering all 40,000 plants at its Monterey farm into the system, which took about a month. In addition to the labor costs of that effort, there are physical costs as well. Although the tags themselves are paid for through the licensing fees, the mechanism for affixing them — zip ties — is not. Brad Jones, the distribution manager for Harborside’s farm, estimates that the company will spend about $2,000 for 50,000 zip ties every two months. Despite such challenges, though, he thinks such tagging will help minimize issues such as mixing up strains.
Another hurdle for newbies to METRC is learning to integrate the system with other electronic inventory control systems they already have in place. Harborside uses software called Trellis to manage its tens of thousands of plants. But though that software allows the company to track more “granular” information about batches of plants, and is able to share data with METRC, users still must switch systems when any transfer occurs, Jones said. “If I could do everything in Trellis without going into METRC to have to initiate these transfers, that would be a big win,” he said, but the software does not permit such interactions.
Nug, a vertically integrated cannabis company with operations in Oakland, is learning how to use METRC in tandem with its own in-house tracking system, which was designed by Jessamyn Stephania, the company’s chief technology officer. During development, she worked with Nug’s supply chain at every level of the process to figure out how to create software that employees could use to record useful information for themselves. “When I first started building it, METRC wasn’t even in the picture,” she said. But now that the company is required to use the track-and-trace system, Stephania has to reconfigure Nug’s system so that it can integrate with METRC.
But for other companies, just learning how to use METRC has proven challenging in an industry already hustling to keep pace with the changing regulatory environment. Since legalization, the industry has faced new testing requirements and other regulations. “The industry is just a little worn thin right now with one hurdle after another,” said Emily Richardson, vice president of development for C.W. Analytical, an Oakland cannabis testing company.
Once California cannabis businesses trade in their temporary licenses for an annual or provisional license, they are required to participate in training that gives them the credentials to enroll in METRC, said John Halligan, head of compliance and enforcement for the Department of Food and Agriculture’s cannabis cultivation division. Since there is no “sandbox” version that companies can use to test drive METRC before using it, workshops have sprung up to acquaint users with the system. Meadow, a San Francisco software company serving the industry, started offering workshops to its own clients and anyone else in the industry who wanted more guidance.
“We’re doing all of these trainings because we realize there isn’t a lot of education happening to the industry while all this is going on,” said David Hua, the company’s CEO and one of its co-founders. It offers workshops to non-partners for $25 and is offering workshops around the state this summer to train companies in California, inside and outside the Bay Area. “We’ve taken it upon ourselves to train our existing partners, but also anyone else in the industry who wants to come and learn.”
Various scenarios challenge system users. For example, since many cultivators haven’t had the appropriate license to use the system, some distributors and manufacturers have had to be the first entity to enter information in the system for that cannabis.
Meanwhile, on the enforcement side of things, forged testing labels and licenses started to pop up in early 2019, much to the dismay of those in the industry. “We’re quite shocked right now that they’ve been able to mock our testing labels,” said Josh Drayton, the communications and outreach director for the California Cannabis Industry Association, which has members all over the state. “If they’re getting that good at mocking up our testing labels, how soon until mocking up the barcodes that would allow these products to be identified in the track-and-trace system?”
Over time, many participants appear to expect that these challenges will be resolved, thanks to all permitted businesses being required to use track-and-trace, and efforts to address counterfeiting.
“I’m cautiously optimistic that even though it’ll be kind of a slow process for the entire supply chain to be integrated into the METRC system that over time this will help us diminish the illicit market,” Drayton said.
Yet others are skeptical. Making METRC usage a condition of joining the legal cannabis market is playing a role in discouraging people from bringing their operations out of the shadows, said Marques Cameron, a purchaser for the new Downtown Oakland dispensary Have a Heart. This is a problem for businesses already going through the motions.
“Businesses who want to play ball legally don’t want to be the only ones under the microscope when black market vendors or retailers are just getting away with not using it at all,” Cameron said via email.