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seed to sale cannabis california

California tracks marijuana from seed to sale

The track-and-trace system uses RFID tags to ensure compliance and public health.

  • Enterprise Software
  • State and Local

Track-and trace-technology has become so ingrained in daily life that consumers expect to be able to follow the new pair of shoes they ordered online through the package delivery system to their front porch. This kind of technology is also playing an important role in monitoring the sale of marijuana in states like California, which just made the drug available for recreational use.

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To ensure regulatory compliance and public health, California needed a system that would allow it to monitor and audit facilities, inventory, licenses, transport, sales and tax. It landed on a software called Metrc created by Franwell, which is also used in Alaska, Colorado, Maryland, Michigan, Nevada, Ohio and Oregon.

Designed for government agencies, the Metrc cloud-hosted online reporting system tracks commercial cannabis activity and movement across the distribution chain — from the time a seedling is 8 inches tall, through the packaging process and any transfers that take place, and to the final sale.

This is done with RFID tags: Mertc creates and delivers plant and package tags to licensees that include numbers and barcodes indicating the facility name, license number and plant identification number. The RFID tags can be read quickly and from 10 to 15 feet away so the monitoring doesn’t disturb the plants.

The system creates a chain of custody for the product, tracking multiple facilities, patients, plants, packages, sales and transfers.

The cloud-based solution, which is used by both industry and regulators, includes a browser interface and a mobile application. The backend features secure web services, database and an application programming interface, that officials can use to pull data on a secure validated connection. Government regulators can use the reporting engine to build ad hoc reports based on their individual needs.

Although growers and packagers are responsible for maintaining information about their cannabis and cannabis product inventories, temporary licensees are not yet required to use the Mertc system. That put new licensees in a bind, according to a Jan. 2 Associated Press report that said some businesses were relying on pen and paper because the electronic system is not yet available to them.

“The track-and-trace system has been operational as of January 2, 2018, as originally planned,” Rebecca Forée, a spokesperson for California Department of Food and Agriculture, explained via email. “Once we have completed and approved annual cannabis licenses — and the licensees have completed a state-mandated training on the California Cannabis Track-and-Trace (CCTT) system — the system will be used to record the inventory and movement of cannabis and cannabis products through the state’s commercial cannabis supply chain, from cultivation to sale.”

The system offers “significant dashboarding capabilities that are standard, as well as business rules that can be configured based on specific client requirements,” Forée said.

The information in the database can “only be viewed by the licensee and authorized employees of the state of California and any city, county, or city and county officials required to perform related duties pursuant to [Medicinal and Adult-Use Cannabis Regulation and Safety Act] or a local ordinance,” she said. Law enforcement can also access it upon request.

An important capability of the system, which the state specifically requested in its proposal process, is the interoperability between the tracking system and the state’s licensing system. Metrc connects to the state licensing system through an API and uses the information to create licensee records, Forée said.

California’s licensing system was developed by Accela, a government cloud service provider with experience automating licensing and permitting. Its marijuana web portal – also used in the city and county of Denver, Colo. – makes it easier for agencies to process applications, renewals, service requests and complaints. Customers and citizens stay informed via messages throughout the process, and automated reporting increases transparency.

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Why some licensed pot operators are turning to illegal sales in California

On an isolated farm, greenhouses stand in regimental order, sheltered by a fringe of trees. Inside are hundreds of head-high cannabis plants in precise rows, each rising from a pot nourished by coils of irrigation tubing. Lights powerful enough to turn night into day blaze overhead.

In the five years since California voters approved a broad legal marketplace for marijuana, thousands of greenhouses have sprouted across the state. But these, under their plastic canopies, conceal a secret.

The cultivator who operates the grow north of Sacramento holds a coveted state-issued license, permitting the business to produce and sell its plants. But it’s been virtually impossible for the grower to turn a profit in a struggling legal industry where wholesale prices for cannabis buds have plunged as much as 70% from a year ago, taxes approach 50% in some areas and customers find far better deals in the thriving underground marketplace.

So the company has two identities — one legal, the other illicit.

“We basically subsidize our white market with our black market,” said the cultivator, who agreed to speak with The Associated Press only on condition of anonymity to avoid possible prosecution.

Industry insiders say the practice of working simultaneously in the legal and illicit markets is all too commonplace, a financial reality brought on by the difficulties and costs of doing business with a product they call the most heavily regulated in America.

For the California grower, the furtive illegal sales happen informally, often with a friend within the tight-knit cannabis community calling to make a buy. The state requires legal businesses to report what they grow and ship, and it’s entered into a vast computerized tracking system — known as “seed to sale” monitoring — that’s far from airtight.

“It’s not too hard” to operate outside the tracking system’s guardrails, the grower said. Plants can vary widely in what each one produces, allowing for wiggle room in what gets reported, while there is little in the way of on-site inspections to verify record-keeping. The system is so loose, some legal farms move as much as 90% of their product into the illicit market, the grower added.

The passage of Proposition 64 in 2016 was seen as a watershed moment in the push to legitimize and tax California’s multibillion-dollar marijuana industry. In 2018, when retail outlets could open, California became the world’s largest legal marketplace and another steppingstone in what advocates hoped would be a path to federal legalization, after groundbreaking laws in Colorado and Washington state were enacted in 2012.

Today, most Americans live in states with at least some access to legal legal marijuana — 18 states have broad legal sales for those 21 and older, similar to alcohol laws, while more than two-thirds of states provide access through medicinal programs.

Kristi Knoblich Palmer, co-founder of top edibles brand KIVA Confections, lamented that the migration of business into the illegal market was damaging the effort to establish a stable, consumer-friendly marketplace.

“To have this system that now appears to be failing, having people go back into the old-school way of doing things … it does not help us get to our goal of professionalizing cannabis and normalizing cannabis,” she said.

In California, no one disputes the vast illegal marketplace continues to dwarf the legal one, even though the 2016 law stated boldly that it would “incapacitate the black market.” Democratic Gov. Gavin Newsom, who was lieutenant governor at the time the law was approved, called it a “game changer.”

But California’s legalization push faced challenges from the start. The state’s illegal market had flourished for decades, anchored in the storied “Emerald Triangle” in the northern end of the state. Not since the end of Prohibition in 1933 had an attempt been made to reshape such a vast illegal economy into a legal one.

In October, California law enforcement officials announced the destruction of over 1 million illegal plants statewide but said they were finding larger illicit growing operations. In the cannabis heartland of Humboldt County, many illegal growers are moving indoors to avoid detection. Investigators are making arrests and serving search warrants every week, but with so many underground grows “we may never eliminate the illegal cultivation,” Sheriff William Honsal said in an email to the AP.

California’s illegal market is estimated at $8 billion, said Tom Adams, chief executive officer of research firm Global Go Analytics. That’s roughly double the amount of legal sales, though some estimates are even larger.

In September, a cannabis company sued government regulators in state court in Orange County, alleging so-called burner distributors were using shadowy “front men” to get licenses to buy wholesale cannabis, then selling it in the illegal market to sidestep taxes.

No state is claiming to have eliminated illegal operators. U.S. Rep. Earl Blumenauer, an Oregon Democrat who co-chairs the Congressional Cannabis Caucus, said he saw little prospect for undercutting illegal markets without federal legalization, which has been stalled in Congress despite having Democrats in control of Congress and the White House.

The thriving illegal markets in California, Oregon and elsewhere are a “product of the dysfunction, the lack of resources and the fact that we don’t have a national market that is regulated,” he said.

Like the California cultivator, many businesses do some transactions in the illicit market to help make ends meet, but others have given up on the legal economy or never bothered to enter it.

While California’s legal market tightly controls how and where pot is sold, the illegal industry is easy to access and offers a doorway into a vast and profitable national market.

“Licensed players are the good guys. Yet it just never feels like we’re being treated like we’re on the right side of history,” Knoblich Palmer said.

California’s effort to establish itself as the preeminent player in the legal cannabis economy has never felt more imperiled, and talk is spreading of a Boston Tea Party-like rebellion against state policies. In a December letter to Newsom, about two dozen industry executives said the state was crippling the marijuana economy.

“The California cannabis system is a nation-wide mockery, a public policy lesson in what not to do,” the business leaders wrote. Newsom has signaled he’s open to change.

The anonymous grower said the burden of competing in the regulated economy simply doesn’t make sense to many longtime operators who came up in the pre-Proposition 64 marketplace. There is a widespread mindset — “Why bother?” — when the illegal economy is booming and there is little law enforcement to fear.

In Los Angeles, for example, opening a retail operation can cost $1 million or more with licensing fees, real estate costs, attorneys and inspections — if you can get a license at all. Promises of social equity programs that would assist businesses run by people of color who were targeted during the war on drugs have gotten off to an uneven start.

For the struggling legal market, “when you have quality, price and convenience working against you, that’s a challenge,” said Adams, the cannabis analyst. “The illicit market has all three of them.”

An irony in the legal market is that wholesale prices have plummeted, shaking the supply chain. A year ago, a cultivator could get about $1,000 a pound wholesale. Now that’s dropped as low as $300, with the market saturated.

Slap $150 in cultivation taxes on a $300 pound, and that’s a stunning 50% rate.

Part of the problem for the industry is about two-thirds of California cities do not allow legal sales or growing — local governments control when, or if, to create legal markets, and many have banned it or failed to set up rules. Even in places that do, cities have been slow to permit storefronts to sell legal products, with less than 1,000 brick-and-mortar shops in a state with nearly 40 million people.

Meanwhile, wholesale prices for buds in the underground are significantly higher. The legal market, with limited outlets to sell it, is flooded with pot from corporate-scale growers.

Few know the industry as well as dispensary owner Jerred Kiloh, who also heads the United Cannabis Business Association, a Los Angeles-based trade group.

“No one is making money anywhere in the (legal) supply chain,” he said, noting his own sales have nosedived. Kiloh sees few bright spots in the law that established California’s legal market, beyond a testing program that safeguards quality and programs to expunge old criminal records for marijuana.