What a Trade War Means for the Booming Marijuana Industry

This article originally appeared in the June 2018 issue of Cannabis Dispensary. To subscribe, click here.

Burdensome regulations surrounding cannabis production, sale and use in various states have caused serious headaches for many cannabis entrepreneurs. The high levels of regulatory attention (from both state regulators and U.S. Drug Enforcement Administration officials) attached to the mandatory “seed-to-sale” tracking programs in states that legalized cannabis have not helped matters.

While crucial to compliance efforts, these mandatory systems significantly amplify the burden on cannabis businesses. Government regulators are watching the burgeoning commercial cannabis industry with eagle eyes. They want to know where every plant is grown, exactly when it is transported, where it is processed into extracts and edibles, and who purchases it from medical or recreational dispensaries.

Since cannabis remains a Schedule I narcotic, states continue to regulate it heavily in an effort to ensure that the federal government does not come crashing down on their programs, that products are not diverted into the black market and are kept away from children, and that prohibitionists have no window of opportunity to argue against the merits of legalized cannabis. In trying to achieve those goals, regulators sometimes miss the mark and create rules that make little sense. Look at California, where regulated retail cannabis is subject to track-and-trace laws, yet consumers can grow six plants at home without oversight and people who purchase retail cannabis can share it with others—once they exit the dispensary. It’s a conundrum: On one track, cannabis is treated like a dangerous controlled substance, with mandatory track and trace. On the other, people can grow it at home with relative freedom.

What’s Out There

Track-and-trace regulations are usually excessive and complicated to follow, in part due to the lack of well-functioning tracking systems. The state-regulated adult-use cannabis industry is barely five years old, and companies providing track-and-trace software for the industry are struggling to keep up with demand. A few companies are taking the lead at the retail level, providing increasingly productive point-of-sale (POS) systems for dispensaries. But each system comes with positives and negatives, as these systems are like toddlers still learning to walk in an industry that is already sprinting.

Treez, for example, partnered with a well-known California dispensary, Garden of Eden, to design software to suit the needs of its retail clients while meeting California’s track-and-trace program requirements. (Full disclosure: the two California dispensaries I operate, Magnolia Wellness and Hi Fidelity, both use Treez.)

Another example is Meadow’s POS system, which is built on the strengths of its CEO, David Hua. Hua was instrumental in bringing famed Silicon Valley incubator/seed accelerator Y Combinator into cannabis—Meadow was Y Combinator’s first cannabis-based startup.

Neither Meadow nor Treez are equipped to track the entire supply chain, though. Frankly, seed-to-sale tracking for cultivation, manufacturing and distribution is still in its infant stages. Some early systems seeing success include Trellis, funded by Snoop Dogg’s Casa Verde Capital, and Kudu Exchange, a new system taking a chunk of the California market. Several of the POS systems do incorporate some form of additional tracking, but the cannabis industry still has to patch together compliance, using separate tracking systems to meet the regulatory needs.

To read the full article in Cannabis Dispensary’s June 2018 issue, click here.

Top photo by Shawn Hempel | Adobe Stock