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Cannabis Businesses Must be Prepared for California’s New Track-and-Trace System

Jun 19 2019, by Jessica McElfresh in Marijuana Business, Marijuana Business, Marijuana Charges

One of the main goals of California’s new cannabis regulations has been to prevent the growth of the black market. In the eyes of state officials, the black market for cannabis presents significant public safety risks, be it from violent crime or contaminated products. One of the ways the state’s regulators are keeping legally grown marijuana out of the black market is the track-and-trace system. This statewide computerized system tracks cannabis from seed to sale, and would prevent most of the state’s marijuana from leaving government oversight–if everyone used it.

The problem is that the track-and trace system is a confusing, costly, and time-consuming requirement for the state’s cannabis businesses. And only a faction of licensees are using it. For many cannabis businesses, the risk of selling product on the black market is outweighed by the difficulty in complying with California’s cannabis regulations. Fortunately, at McElfresh Law we can help you understand the state’s laws and regulations so that your business can operate both legally and successfully. If you want to put your cannabis business on the path to success, contact us today at (858) 756-7107 to schedule a consultation.

Only Businesses with Full Annual Permits Need to Use the Track-and-Trace System

California’s Cannabis Track and Trace system, which is also known as CCTT, started operating in January 2019. And for now, it’s only mandatory for businesses with full annual permits. The majority of California’s cannabis businesses are operating with temporary licenses, and only a hundred or so companies have full annual permits. Thousands of applications for annual permits are still pending.

CCTT is powered by software called METRC, which allows cannabis businesses to upload a virtual inventory of cannabis products that have been marked with unique identifiers, or UIDs. For now this system is causing confusion for the following reasons:

  • Businesses that sell small-sized cannabis products such as vape capsules do not know where or how to place IUDs on their products. Assuming the barcodes even fit, they will cover up warnings and information that must be visible under California law.
  • The few businesses that are running METRC bear a disproportionate data entry burden. When growers, labs, distributors, and transporters who are not using CCTT provide marijuana to retailers who are using the system, it’s up to them to manually fill in each step of the distribution process on METRC. Not only is this time consuming, but it is an error prone process.
  • Point of sale software representatives have told their clients to not migrate their inventory data to METRC if they still hold temporary licenses, because it could restrict the number of businesses they could transact with. The California Department of Food and Agriculture (CDFA), on the other hand, has assured all licensees that there are no such troubles and has instructed that every business should join the CCTT system as soon as possible.
  • METRC limits the number of UIDs that may be ordered per day, causing backlogs for companies with large volumes of product.
  • Some companies have begun selling counterfeit UIDs. The CFDA has claimed that it can spot the counterfeits, but there is anecdotal evidence to suggest that some of the counterfeit UIDs have passed inspection.

The California legislature is now considering an act, SB67, which would allow for the extension of temporary licenses until the end of 2019. If it passes, businesses with pending annual permit license applications may still operate on their temporary licenses. Technically, they may still be able to do business without joining CCTT, but it is unclear if other businesses will be allowed to transact with them. The coming months and weeks should bring some certainty to the situation.

Ask a Cannabis Business Lawyer for Advice

Everyone knows how complex California’s cannabis regulations are becoming. It’s becoming something of a joke in the industry. But when you end up on the wrong side of the law, it’s no laughing matter. For your business to thrive, you need prompt, dedicated, and informed legal counsel. At McElfresh Law, we work everyday to help our clients in the cannabis industry face their legal and regulatory challenges head on. If you need help understanding how the track-and-trace system will affect your business, contact us today at (858) 756-7107 to set up your consultation.