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California’s approach to Med/Rec supply chains will affect cannatech software

As California plans (threatens?) to roll out the Metrc traceability system to licensees this fall, there is one big question on the minds of most cannatech insiders: will they silo the med/rec supply chains like Colorado/Washington/Oregon, or will they take Nevada’s approach in making that designation at the point of sale? This decision will have a significant impact on how the California Metrc software works and will therefore impact most cannatech products operating in that market.

At its most basic, Metrc requires every medicated inventory item (including plants, flower, infused ingredients and final products) to be associated with a barcoded Metrc “tag.” These tags are tracked in the traceability software so regulators can know how much inventory each operator has, what phase each plant is in, and other information to monitor the supply chain and prevent diversion.

The Colorado Approach

Colorado began using the Metrc traceability system in 2011 for the Medical market, and when Adult-Use sales began in 2014 the state asked Metrc to set up a system for that market too. While that all seems to make perfect sense, it has created somewhat of an odd status quo in the Colorado market (and the other markets that used this approach).

To see what’s odd about it, we have to understand some differences between the Medical and Recreational markets. A few of the major differences are:

  1. Medical patients can be approved to purchase more product (Recreational customers capped at 1 ounce per day)
  2. Medical patients pay lower taxes
  3. Medical patients can buy infused products with higher levels of THC (Recreational capped at 100mg per product)
  4. Medical patients have a “plant count” which they assign to a dispensary (a medical-only dispensary must have an assigned patient for each plant in their inventory)

As we can see, 2 of the 4 major differences occur at the point of sale – but numbers 3 and 4 deeply influence the supply chain.

In the medical “caregiver” model it made sense for Metrc to track the assigned patients for each plant, but that framework wasn’t needed in the recreational market. This led to a situation where the Metrc systems were set up entirely separately – and since plants have to be tagged from the very beginning of their lifecycle, the entire supply chain stayed separate. Only plants with Recreational tags can be used or sold as Recreational products (and vice versa for medical) so licensees have separate medical/recreational plant rooms, separate medical/recreational extraction runs, and separate medical/recreational end products. Sometimes the end products are different because of #3 above (300mg medical drink vs 100mg recreational) so this makes some sense. But other times the products can be exactly the same (Blue Dream flower) and the only difference is which tag the plant got when it was 6 inches tall! So a dispensary can be “sold out” of a recreational product while an identical product sits inches away but is “medical” and therefore unavailable to customers. Or in the reverse scenario, medical patients have to give up their higher limits and lower taxes to purchase from the Recreational selection.

Colorado is used to this system and probably won’t change any time soon, but it doesn’t make a ton of sense. If the system were designed again from scratch, there are better approaches.

The Nevada Approach

When Nevada created a Recreational market in 2017, they saw a smarter and simpler approach. They looked at those major differences above and realized there were simpler solutions to each:

  1. Medical patients can be approved to purchase more product
    1. Don’t enforce recreational limits if patient has their medical card.
  2. Medical patients pay lower taxes
    1. Charge lower taxes if patient has their medical card.
  3. Medical patients can buy infused products with higher levels of THC (Recreational capped at 100mg per product)
    1. Only sell high-THC products to Medical patients.
  4. Medical patients have a “plant count” which they assign to a dispensary (a medical-only dispensary must have an assigned patient for each plant in their inventory)
    1. This isn’t necessarily needed, as it’s a legacy idea from the early caregiver models.

Looking at the problem this way, we can see that the Med/Rec supply chains don’t have to be entirely separate – the only products that need to be specifically “medical” are high-THC products that go over the 100mg Recreational max. And even those products don’t have to keep the entire supply chain separate – does it matter if a “Recreational” plant is used to manufacture a high-THC “Medical” product?

Nevada therefore has simply given some producers a medical “certification” that allows them to manufacture the high-THC products needed by the Medical market. Patients get lower taxes and higher limits at the point of sale, but are free to purchase Recreational products as well. Plants don’t need to be tagged and grown separately, and the only inventory items that get a specific “Medical” designation are those that exceed the Recreational limit of 100mg per product.

This has greatly simplified the supply chain in Nevada and made Medical products simply an “add-on” to the Recreational market instead of an entirely separate but parallel system.

How will California handle this? Is Metrc ready?

Given the above, it seems to make the most sense for California to adopt Nevada’s approach. This is especially true since there was never an “assigned plants” legacy model in the California medical system so difference #4 isn’t needed. The first question is, will California directly mimic Nevada’s supply chain setup or will they have other ideas? Surely plants don’t need to be tagged differently, but will they want the Product supply chains to be more separated? Will they want the shopping experience to be more differentiated?

The next question is, how much is Metrc changing their software for the California market? Can they use the same system from Nevada or are they needing to split the codebase into a new product to accommodate California? Some observers have guessed that the latter is what’s causing the 9-10 month delay from the Jan 1 legalization in California to Metrc’s planned roll-out. But maybe that delay is simply due to the size of California’s market and Metrc’s preparations for scaling. Maybe the delay is not technical at all, but purely due to business/operational processes.

As Metrc California begins onboarding operators, the CannaTech industry will be paying close attention.