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California Has a Serious Compliance Problem

The introduction of METRC software has put cannabis entrepreneurs on their heels.

Opinions expressed by Entrepreneur contributors are their own.

Compliance is the keynote of the legal cannabis industry. Whether for medical or adult use, the development of systems to track, test, and re-track cannabis products has emerged as a requisite for every cannabis business interested in long-term success.

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In most legal U.S. states, the laws of the land dictate that Franwell’s Marijuana Enforcement Tracking Reporting Compliance (METRC) software be used as the inventory tracking system of record. The program has been active in Colorado since 2014 and was later adopted in Oregon, Nevada, Alaska, Maryland, Massachusetts, Montana, Ohio, and Michigan. METRC has so much influence that a simple glitch in the system can take an entire state’s cannabis market offline --  indefinitely.

Now, METRC is coming to California, but the implementation of the software is having a much more dramatic effect than it has in any other state. Some might even say it’s tearing the community apart, as companies are forced to scramble to meet new testing, packaging, and labeling deadlines -- while ceasing to do business with vendors or retailers who aren’t compliant.

Related: With Higher Prices and Less Product, California Dispensaries Face Angry Customers

From Simple to Complex

States want to track cannabis product from seed to sale (that is, from the planting of the first seed, through processing and distribution, to its final point of sale). This ensures proper tax collection and enables the state to easily issue recalls of unsafe product batches, such as when a state laboratory discovers that product on the shelf actually contains traces of pesticide.

However practical, seed-to-sale tracking is the antithesis of old-school cannabis culture. Traditionally, cultivators and dispensary operators have concealed the details of their transactions for safety reasons. This is exactly why it’s so difficult for California to come to terms with the switch to METRC.

The state-operated its medical marijuana program without any specific regulations for about 20 years. Millions of buds, edibles, and vaporizer cartridges changed hands without any tracking system whatsoever. Now, the government expects everything to change.

Business Owners Fight Back

To say that there is some resistance to the new regulations is an understatement. Non-permitted storefronts, cultivators, manufacturers, and even cannabis events have operated all year long, with little interference from California’s enforcement agency, the Bureau of Cannabis Control (BCC).

METRC was supposed to be live by the July 1 regulatory deadline, but there are now even further delays with the online track-and-trace framework. This may have operators thinking they have more time, but manufacturers, distributors, and retailers are all still expected to be compliant and keep detailed records, even without an online verification system.

Related: Beware the 'Weed Apocalypse'

Procrastinating and deflecting the duties of compliance is not in anyone’s best interest. While the plan for enforcement isn’t clear, stores can expect to be audited by the BCC at any moment, with each product on the shelf facing scrutiny.

Cannabis business owners should be doing their due diligence, and asking the right questions when looking at software and POS providers. This single piece of technology will determine how simple your communication with state agencies will be.

The Auditing Nightmare

One of the most unnerving aspects of operating in a METRC state is the potential to be audited for missing data. In 2017, a Colorado recreational licensed retailer was suspended 90 days and fined $75,000 for “failing to maintain accurate tracking records that accounted for, reconciled, and evidenced all inventory activity.”

Having inventory packages with quantities that do not match physical inventory, missing days of sales, or improper adjustments are just a few ways you can be flagged for an audit by government agencies.

In such cases, METRC’s technology actually benefits cannabis business owners. They can set up systems to automatically upload these activity logs from their operations at the end of every business day. This real-time updating helps reduce risky discrepancies that could become evident in an audit.

Another common mistake is overselling customers above the legal amount. Each state has different restrictions on how much cannabis a customer can buy during a given time, and complicated equivalencies can increase the likelihood of accidentally overselling.

For example, under Colorado law, a single gram of concentrate is equal to 3.5 grams of flower. That’s why it’s vital that cannabis businesses use software specific to the industry, instead of a mainstream POS system. Retailers need the functionality to limit purchases automatically and ensure compliance based on the local rules.

What the Solution?

Our advice? Lose the pen and paper, and the generic systems used in other industries. Cannabis operators who want to take the risk out of compliance should look instead for solutions that have been custom-built for this space.

Best of luck to the California cannabis industry. We hope these lessons learned from Colorado will help you navigate the uncharted waters of cannabis compliance.

Related: His Software Solution Aims to Ease the Pain of Running a Dispensary