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Track-and-trace expenditures offer little return, cannabis operators say


(This story is part of the cover package in the January -February issue of MJBizMagazine.)

With 23 state contracts to provide cannabis track-and-trace software and radio frequency identification (RFID) tags under its belt, Lakeland, Florida-based Metrc has risen to dominate the space.

But more than a decade ago, the company was just an idea, according to Metrc CEO Michael Johnson.

“The original use for RFID in cannabis – and the whole reason Metrc came about – was a specific request from the state of Colorado,” Johnson said in an interview with MJBizMagazine.

The company started as a wholly owned subsidiary of Franwell, a technology company focused on supply-chain solutions and RFID integration. Franwell developed Colorado’s initial tracking software in 2011.

Metrc, originally developed by Franwell, now serves more than 300,000 users and 39,000 licensed cannabis operators.

The company said it strives to ensure that companies are complying with local cannabis regulations and to prevent diversion of regulated products to the illicit market and inversion of unregulated marijuana into the legal market.

Metrc’s closest competitor, Fort Lauderdale, Florida-based BioTrack, holds contracts with nine states.

New York selected BioTrack to be its track-and-trace provider in December 2022, but the company has lost ground to Metrc in key states such as Illinois, which decided to switch providers in May.

BioTrack’s parent company, Alleaves, is in the process of acquiring a third competitor, MJ Freeway, with the goal of developing a suite of products that go beyond compliance and create customizable software solutions for cannabis operators.

Metrc’s key differentiator is that it is focused entirely on track-and-trace and holds patents for RFID and related technologies in the marijuana space – although BioTrack’s software can integrate with RFID technology, according to its website.

In regulated cultivation facilities located in states that use Metrc, every cannabis plant has a plastic RFID tag with a unique 24-digit identifier and scannable bar code that tracks it from seed to sale.

According to Johnson, Colorado first requested the technology not because the state wanted to speed up its investigation process for marijuana grows but to prevent counterfeiting.

“It’s actually a super effective and fairly inexpensive way of providing anti-counterfeit functionality – more so than you would see in holograms; it’s actually less expensive than that,” Johnson said.

While a lot of cannabis industry folks associate Metrc with RFID, they don’t realize how much the technology is used in other sectors.

“The vast majority of commerce in terms of physical shipping and agriculture – even things that are small, like lettuce and flats of strawberries – are still traced using RFID,” Johnson said.

Walmart has steadily increased the number of product categories tracked with RFID technology since 2019 to improve inventory management.

In addition to inventory and supply-chain management, RFID is used in pet, livestock, automotive and cargo tracking.

But RFID’s ubiquity hasn’t made it any easier on marijuana industry operators who have had to adopt and pay for it, along with Metrc’s software.

As Metrc has grown – largely through state procurement processes and requests for proposals or information – so has the number of lawsuits filed against the company.

Resistance to RFID

“Not good.”

That’s how Nicholas Serrano of Oklahoma City-based cannabis nursery SouthWest Genetics described his experience using Metrc since it was implemented by the state last year.

“Just all around, it’s not good,” he repeated, laughing.

The system is onerous, he said, and expensive for operators already grappling with low marijuana wholesale prices and other challenges.

In addition to paying $40 per month to access the Metrc software, operators in Oklahoma are expected to pay for the RFID tags, too: 25 cents for each package tag and 45 cents per RFID tag. Package tags are used post-harvest to track finished cannabis products.

It’s also been a huge adjustment from a workflow perspective.

Oklahoma initially launched its medical marijuana program without track-and-trace requirements but later chose Metrc as its seed-to-sale partner.

Regulators said using Metrc would help clamp down on noncompliant operators and ensure products on the medical market are safe.

But the state’s contract with Metrc was perceived by many as a way to create new revenue streams for governments and the private sector at the cost of law-abiding operators rather than a way to rein in a vastly oversupplied marijuana market believed to have a disproportionate number of illicit and/or out-of-state operators.

In Missouri, a state court ruled in 2021 that the fees operators were expected to pay for the tags (also 45 cents per RFID tag and 25 cents for each package tag) hadn’t been adequately disclosed as costs additional to the $5 million fee the state was paying.

Perhaps emboldened by operators’ success in Missouri, Oklahoma cannabis operators filed multiple lawsuits aimed at blocking the implementation of Metrc in the state.

After nearly two years of legal back and forth, the Oklahoma Medical Marijuana Authority (OMMA) implemented the software and its requirements.

But, before long, another lawsuit emerged that alleged the OMMA was unfairly targeting compliant businesses – and hurting cannabis licensees as a result.

The agency fired back: “The narrative that OMMA is shutting down businesses for minor violations is simply untrue and is being used to unnecessarily spark fear among businesses acting within the law,” the regulator noted in a memo published last May.

“There are thousands of businesses operating within the law to provide patients access to medical marijuana. Out of 12,653 licenses, approximately half of 1% have been issued emergency orders due to non-compliance.”

RFID’s future in cannabis

Despite the complaints and lawsuits, Metrc’s Johnson said there’s much more to the software that operators could benefit from.

Marijuana operators aren’t using Metrc to its full potential, he said, while non-cannabis companies have tapped into the full functionality of RFID tracking.

“Folks that are struggling in the industry to find efficiencies in their operations really need to look toward RFID and toward partners (that integrate with it),” he said.

But in Colorado, where RFID first entered the marijuana space, the state could ditch the tags entirely.

Rules published in November replaced a reference to RFID tags with “inventory tracking system,” meaning that Metrc isn’t a shoo-in for the contract.

Metrc’s contract with Colorado expires in 2026.

Until then, cannabis operators still have to use tags from Metrc, which currently does not offer a non-RFID option.

“It’s well past time we get rid of this RFID requirement,” said Gene Watkins, senior counsel at Ripple, an edibles brand owned by Pennsylvania-based Lifestyle Foods.

“These tags are expensive, unnecessary and hurt our industry.”

Kate Robertson can be reached at kate.robertson@mjbizdaily.com.



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