There is a wide discrepancy between the legal status of marijuana or cannabis between federal and state laws and treatment in the U.S. On the one hand, the federal government labels cannabis as an illegal substance schedule one drug. While on the other hand, some states such as  Michigan, New York, Colorado, Alaska, California, Washington, and many others have legalized cannabis for medical, recreational, or both.

The states that have legalized the trade of cannabis in some form have all established and adopted track and trace requirements to monitor cannabis production, distribution, and sales.  

The mandatory track and trace system monitors the flow of cannabis goods from seed to sale.

Although track and trace and seed-to-sale terms seem similar, they differ in monitoring purposes. 

States have mandatory track and trace systems for mainly two reasons:

• To monitor the manufacturing, distribution, and sale of cannabis goods.
• To prevent cannabis product entry into the unregulated market.
• To protect consumer health with quality cannabis products.

Though a track and trace system seems like the perfect solution for cannabis business management, its use can be frustrating for cannabis retailers and business people.

Every state has a compulsory track and trace system that monitors cannabis products. However, these systems do not act as business management software solutions or assist in managing day-to-day operations.

Challenges with track and trace systems include time-consuming data entry processes, massive data entry requirements, and inefficient transaction tracking. Most importantly, the state-mandated track and trace system lacks interoperability with other business management systems. The track and trace systems are configured per the state’s regulations. However, since various states have different guidelines, there are variations in the design, even within the states that have selected the same technology provider. 

So cannabis retailers use third-party software to manage their day-to-day operations and attempt to reconcile and automate information sharing with the track and trace system. 

However, the problems occur if there is any malfunction, discrepancy, or shutdown of third-party app interfaces. In such cases, the cannabis business must manually enter every data and transaction in the system. 

Moreover, there is no direct line of communication between the state systems and the API vendor. Thus the vendor may l not be aware of any significant changes in the state-mandated software affecting the API interface. Therefore, it might even lead to cannabis businesses falling out of compliance.

What is Track & Trace?

Regulators use a track-and-trace system to monitor compliance data in the cannabis industry. 

The tracking aspect refers to tracking the entire cannabis production process. At the same time, the trace aspect traces crucial information about cannabis products. It can even trace all the data about the issues created during production.

For example, if the market is flooded with harmful or low-quality cannabis products, the track and trace system helps regulatory bodies by providing essential data to track dangerous products. 

Track and trace systems also assist in preventing fraud in the cannabis industry. For example, if cannabis products are stolen, track and trace systems do not let such cases go unreported. 

The importance of a track and trace system is that it aids regulatory bodies in ensuring that cannabis businesses are following state regulations. 

There are cases when cannabis businesses do not follow regulations and compile compliance data. In such instances, regulatory bodies can use their track and trace system to analyze business data to determine which state code laws may have been violated.   

The information regulatory bodies gather from the track and trace system also helps analyze the patterns and trends in the cannabis industry.

Forian Inc. (NASDAQ: FORA) provides predictive analytics, technology, and data science-driven software solutions for the healthcare and cannabis industries. The company recently announced that BioTrack was chosen as the track and trace system for the Florida Department of Health’s Office of Medical Marijuana use.

BioTrack monitors the movement of cannabis products in the medical-use cannabis market, providing a real-time inventory of cannabis products and preventing the illegal diversion of products. All licensed medical marijuana cannabis establishments in certain states, such as  Florida, must utilize a  tracking system to log the movement of cannabis. The system monitors cannabis from seed to sale. In addition, systems such as BioTrack assist in the recall of unsafe cannabis plants and products, preventing regulated materials from reaching the black market.

BioTrack’s point-of-sale software is used in  38 states and holds ten contracts with various state governments. 

What is Seed-to-Sale?

The seed-to-sale software process is different from the track-and-trace software process. State regulatory bodies use a seed-to-sale software system to trace all products on the shelf to the cannabis plant.

As the name suggests, seed-to-sale monitors the manufacturing, production, distribution, and sale of each cannabis product. The cannabis plants and products carry a code that makes it easier for the system to track the specific cannabis plant used to develop a particular product on a retail shelf for sale.

All the states that have legalized cannabis production and sale have mandated seed-to-sale tracking software.

However, medical marijuana does not generally require seed-to-sale tracking software. But again, it all depends on the rules of individual states. 

By implementing seed-to-sale software, the cannabis production cycle can be accurately verified for auditing purposes. The software monitors the inclusion of seeds and clones in cannabis products. It tracks the entire production process, from the growth of immature and mature plants to transportation and harvest by retailers. It also ensures proper testing and accurate weight and dosage of products. In addition, each batch is labeled, so tracing from seed to sale is possible.

How Cannabis Businesses Are Dependent on APIs for Track & Trace System

Manually entering all the transaction and inventory data into the track and trace system is labor-intensive. 

The process is very time-consuming and invites human error. However, accuracy is vital, as mistakes can lead to regulatory penalties and license termination.

State regulators use the track and trace system to collect crucial data related to cannabis production and sale and to monitor any discrepancies. 

Track and trace software is not business management software for managing daily operations and transactions between retailers and consumers. The limitation of track and trace system software forces cannabis vendors to employ other solutions to manage their business efficiently.

Cannabis businesses typically employ or rely on third-party software or APIs to manage their day-to-day operations. Additionally, these APIs are connected with the state track and trace systems which automatically updates the data in the system.

Instead of directly communicating, businesses use these APIs to communicate with the state-mandated track and trace software. 

However, these APIs have their challenges.

Some businesses use point of sale (POS) software to process daily retail transactions; however, some POS systems are not fully integrated into the state-mandated track and trace system. 

Like all software, there are glitches where an  API is not responding to your POS requests. If this transpires, you may have to manually enter the transaction data on the state track and trace system.

 API downtime can delay not only business operations but also increase the workload. Moreover, manually entering the data in the track and trace system has its demerits.

• Manually entering data in the state track and trace systems may lead to human error.
• One minute of human error could lead to non-adherence to state compliance rules.
• It is also possible that the data on the state track and trace system does not reconcile with your POS software. So, you may be forced to spend hours identifying small numerical data mistakes in the inventory or transactions.
• The circle of conducting sales transactions, recording and tracking them manually, and fixing errors widens, which can put your cannabis business at risk with state regulators.

The regulators rely on a chosen track-and-trace system to ensure compliance and consumer safety in the cannabis industry. However, operators use third-party software to communicate with the track-and-trace system, making an open and functioning track-and-trace system API essential. If the API malfunctions, cannabis retailer operations can be severely impacted or even halted, causing ramifications for the entire statewide industry.

While it may seem like API performance issues rarely occur, they can happen regularly. For example, a review of track-and-trace API performance in California over six months found that the API was generally up and entirely responsive 91 to 98 percent of the time, below the technology industry’s standard of 99.999% uptime for high availability. Unfortunately, this means up to 8 hours of downtime per week.

Recently, the California METRC API experienced outages for 17 consecutive days, causing severe sync issues for packages, transfers, and more for third-party software integrators. In addition, the outage forced operators to keep staff on extensive overtime for over two weeks to enter accurate information into the system. As a result, cannabis businesses suffered from interrupted operations, additional labor costs, and overall increased expenses.

Cannabis License Types

In California, the Department of Cannabis Control (DCC) issues licenses to cannabis retailers, distributors, and vendors. 

To engage in commercial cannabis activities in California, the business needs a valid license issued by the Department of Cannabis Control (DCC). The license type will depend on the specific type of cannabis activity conducted. If the business undertakes more than one activity,  more than one license may be required.

It is mandatory to obtain a valid DCC license before conducting any commercial cannabis activity, including the cultivation, distribution, manufacturing, testing, and retail sale of cannabis and organizing events where cannabis is sold.

Cultivation License Types

To obtain a cultivation license, the Department of Cannabis Control (DCC) considers the type of production and lighting used and the number of plants grown or the size of the canopy. The different cultivation license types are as follows:

1. Speciality Cottage: This includes Specialty Cottage Outdoor (up to 25 mature plants or up to 2,500 square feet of canopy), Specialty Cottage Indoor (up to 500 square feet of canopy), and Specialty Cottage Mixed-Light Tier 1 and 2 (up to 2,500 square feet of canopy).
2. Specialty: This includes Specialty Outdoor (up to 50 mature plants or up to 5,000 square feet of canopy), Specialty Indoor (501 to 5,000 square feet of canopy), and Specialty Mixed-Light Tier 1 and 2 (2,501 to 5,000 square feet of canopy).
3. Small: This includes Small Outdoor (5,001 to 10,000 square feet of canopy), Small Indoor (5,001 to 10,000 square feet of canopy), and Small Mixed-Light Tier 1 and 2 (5,001 to 10,000 square feet of canopy).
4. Medium: This includes Medium Outdoor (10,001 square feet to 1 acre of canopy), Medium Indoor (10,001 to 22,000 square feet of canopy), and Medium Mixed-Light Tier 1 and 2 (10,001 to 22,000 square feet of canopy).
5. Large: This includes Large Outdoor (more than 1 acre of total canopy), Large Indoor (more than 22,000 square feet of total canopy), and Large Mixed-Light (mixed-light site with more than 22,000 square feet of total canopy).

In addition to these categories are nursery licenses for cultivators that only grow clones, immature plants, seeds, or other types of cannabis used for propagation and processor licenses for cultivators that only trim, sift, cure, dry, grade, package, or label cannabis. It is important to note that a valid DCC license is required before performing any commercial cannabis activity, including cultivation.

Manufacturing License

Manufacturing license types are based on the following criteria:

1. Activities performed: The license type depends on the type of manufacturing activity being conducted, such as manufacturing edibles, concentrates, or topicals.
2. Chemicals used: If a manufacturer uses chemicals for extraction and post-processing, such as butane or CO2, they may need an additional license or permit to handle these substances.
3. Shared-use facility: If a manufacturer works in a shared-use facility, they may need a specific license or permit to operate in a shared space.

The manufacturing license types can vary depending on these criteria and may include specific requirements or restrictions.

Distribution License

Type 11 distributors transport and store cannabis products, while Type 13 distributors only transport cannabis and can pay reduced fees for transporting only their cultivated or manufactured goods. Both types can move finished cannabis goods to retail premises and arrange for testing.

Testing laboratory licenses

Type 8 license is for testing laboratories that must obtain ISO/IEC 17025 accreditation to test cannabis products for retail sale. In addition, an interim testing license is available for use while accreditation is in progress.

Retail License

Type 9 non-storefront retailers exclusively sell cannabis products through delivery, while Type 10 storefront retailers have a physical location for selling cannabis products and can also offer delivery services.

Microbusiness License

The Type 12 license is intended for businesses that conduct a combination of at least three cannabis-related activities at one location, including cultivation up to 10,000 square feet, manufacturing using non-volatile solvents, mechanical extraction or infusion, distribution or distribution transport-only, and/or retail through a storefront or non-storefront channels.

Conclusion

In conclusion, the performance deficiencies of track-and-trace APIs are causing significant problems for the legal cannabis industry. The burden of duplicated and corrected entries, coupled with countless hours lost, perpetuates inaccuracies in the data entered into the system, ultimately diminishing its effectiveness. As a highly regulated industry, the cannabis sector needs a track-and-trace system with a much higher success rate and minimal downtime. 

Addressing the drawbacks of the current system is essential to ensure the industry’s continued success and growth in the years to come.