The Next Frontier in Cannabis Track & Trace

On 3 November, voters in the United States sent a clear message to policy makers and legislators alike. Those in four states – Arizona, Montana, New Jersey, and South Dakota – approved statewide ballot measures to legalise marijuana for personal use. In addition, voters in Mississippi and South Dakota approved statewide ballot measures to legalise marijuana for medical use.

This brings the total to 15 states and the District of Columbia which have legalised marijuana for recreational purposes, and 35 states and the District of Columbia which have legalised medical marijuana.

While the total number is below the expected nine initiatives envisioned at the beginning of the year, the fact that all were passed shows that cannabis legalisation is here to stay and will only continue to grow in the US.

As discussed in the TSTN July 2020 article ‘When Will the Cannabis Revolution Happen?’, these trends are set to increase given fiscal pressures and budget shortfalls. Preliminary estimates project state budget shortfalls will reach almost 10% in the current fiscal year and about 25% in fiscal year 2021. State lawmakers will be looking to various excisable products to make up the difference.

While cannabis provides a tempting revenue opportunity for states, it also brings with it the threat of illicit trade as an unintended consequence. The July article detailed the need to build a tough, yet balanced and nimble regulatory framework to maximise revenue collection. This includes the implementation of a licensing scheme from grower to retailer, as well as robust tracking and tracing.

The purpose of regulation, licensing, as well as tracking and tracing programmes for cannabis, by definition, needs to be different than for other excise products. The goal is to transfer as much of the current illicit market into the legal market after legalisation and to encourage new participants into the legal market, while eliminating illegal actors.

Tracking and tracing programmes in cannabis have shown to be a great complementary tool for tax collection and enforcement in states. Robust programmes track the plants from grower to retail store with new custom-made technology designed for the new cannabis market. Effective track and trace programmes enable taxing authorities to verify excise remittance, provide instant verification for law enforcement and offer consumers a convenient way to authenticate their product, including access to potency information.

Metrc taking an early lead

The most formidable competitor in the field of cannabis track and trace is Metrc. The company designed its track and trace solution from the ground up for the cannabis market. With this narrow and specific focus Metrc has been able to sign 15 states and the District of Columbia as clients for its cannabis tracing system. The most recent addition to its roster has been West Virginia, which awarded the contract to Metrc in late October.

The Metrc track and trace system utilises RFID-enabled tags to track the product through the entire production and distribution system, from cultivation, manufacturing and distribution to packaging and retail sale. The system enables regulators and enforcement personnel to track cannabis from plant to final retail sale. The Metrc API is customised to comply with each state’s rules or regulations.

This unique focus on a singular market has resulted in rapid implementation speed, which is an attractive proposition for states attempting to avoid diversion and rapidly legalise formerly illicit cannabis markets. According to company sources, Metrc is able to deploy its solution to a particular state and have it fully operational within two to six months. West Virginia, for example, expects to be operational by early 2021.

Dozens of states are likely to legalise cannabis either for medical or recreational purposes over the next two years, each state bringing with it the need and opportunity for effective excise tax payment verification, consumer authentication and diversion suppression.

Capturing this market with purpose-built and innovative track and trace solutions will be a lucrative opportunity for the industry for years to come.