Washington state ends marijuana seed-to-sale contract, will launch own system

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Washington state is scrapping its contract with a third-party, marijuana seed-to-sale traceability provider in favor of a more simplified system developed in-house, a first for any state cannabis program.

The state’s regulatory agency sent out a bulletin last week to notify business owners it will transition away by the end of the year from Akerna’s Leaf Data Systems platform in favor of one developed and maintained by regulators.

This is the first time a state has taken on the job of developing and operating such an important regulatory platform for overseeing the cannabis supply chain, from seed to sale.

It raises the question of whether other states will follow suit, which could deal a setback to private providers.

Cannabis traceability has been a thorn in the industry’s side for years.

Some seed-to-sale programs require workers to undergo training just to work with the software.

The systems can go down and cause business to stall because companies can’t log or make transactions.

Other business owners complain that the programs aren’t accurate.

“In general, this move is a positive one because we have these heavyweight traceability systems in the cannabis space from an overabundance of caution and a lingering stigma of cannabis as the ‘devil’s lettuce,'” said Gregory Foster, who sits on the traceability advisory committee organized by the state regulatory agency, the Liquor and Cannabis Board.

Washington state cannabis business owners have long complained about working with Leaf Data Systems and, before that, BioTrackTHC’s software platform, because it costs them time and money to comply with the track-and-track requirements.

“Four years ago, in partnership with Washington State Liquor and Cannabis Board, we built a unique cannabis tracking system that answered the state’s complex regulatory needs and business requirements,” Georgia Jablon, communications manager for Akerna, wrote to MJBizDaily in an emailed statement.

“Since then, Washington’s enforcement and regulatory requirements have evolved into a simplified model that they can support in-house, which we consulted with them to create.”

Cost of traceability

The in-house reporting system, which the state is calling the Cannabis Central Reporting System, is intended to reduce the complexity of traceability reporting, therefore cutting down on errors.

It also could lead to a “reduction in business and compliance costs,” according to the state.

Jeremy Moberg, a Washington state cannabis grower, said he hopes the changes lead to cost savings.

“We’re excited for a simpler system that saves us money,” he added. “We’re wasting so much money on this broken system.”

The new system in Washington state is derived from a workaround that regulators developed in 2017, when BioTrackTHC, which had the traceability contract with the state for three years, failed to reach an agreement with the LCB.

But instead, regulators went with Denver-based Akerna, known as MJ Freeway at the time.

It took Akerna a few months to get Leaf Data Systems up and running in Washington state. In the meantime, the state set up a file-transfer site where businesses were asked to upload traceability information, including via CSV files.

Once it was established, Leaf Data Systems occasionally experienced outages, including during a software update that prevented hundreds of cannabis producers, processors and retailers from conducting business-to-business transactions, costing them thousands of dollars.

Known unknowns

The state has been paying Akerna $50,000 a month in subscription services for the traceability contract.

LCB spokesman Brian Smith said that fee will end when the state completes the transition from Leaf Data Systems.

Foster expects the new system to be less onerous and require less detail from the businesses, though they might still need an employee dedicated to traceability compliance.

“If nothing else, fewer people will have to understand the ins and outs of the traceability puzzle,” Foster said.

Moberg said the state increased licensing fees to pay for the traceability system and would like to see that money returned.

At least one ancillary cannabis business owner, Jim MacRae, who runs a data-analytics firm, isn’t happy about the change.

He had built a business around analyzing the data provided by the business owners through the traceability system.

“Folks all over the state have been using the data to understand this multibillion-dollar market,” MacRae said.

He expects the many CSV and spreadsheet files that are submitted by cannabis companies to “get sucked up into the vacuum hole of the LCB.”

“Now they’re setting up a multibillion-dollar honor system.”

But exactly how this new system is going to work is still vague in the mind of cannabis business owners.

“There are a lot of unknowns,” Moberg said. “It’s quite unclear how we’re going to allow transfers to occur, and we don’t know what the reporting requirements are going to look like.

“If we all have is a reporting system and the state leaves it up to the industry to communicate with each other, that’s potentially problematic.”

To help clear up confusion, the state cannabis board offered a page on its website with relevant information.

The agency also is hosting a webinar on Sept. 8, from 10 a.m. to noon PT, with technical details, information for business owners to prepare for the new system and contact information for technical support.

The LCB is asking that questions be emailed ahead of time, by Sept. 7, to ccrs@lcb.wa.gov.

Bart Schaneman can be reached at bart.schaneman@mjbizdaily.com.