If there is an all-encompassing company in cannabis, it has to be Metrc. With more than 20 state governments (and one American Territory) under seed-to-sale contract, the Lakeland, Florida-based technology…
The post An Essential Metrc Adjusts for the Future appeared first on Cannabis Business Executive – Cannabis and Marijuana industry news.
If there is an all-encompassing company in cannabis, it has to be Metrc. With more than 20 state governments (and one American Territory) under seed-to-sale contract, the Lakeland, Florida-based technology company is the dominant provider of cannabis track-and-trace solutions in the country, bar none, putting it literally into everybody’s business. Two numbers provide a baseline context: as of Sept. 19, 2022, over five and a half billion events had been logged into Metrc for a total value in sales of over $31 billion. But those numbers only scratch the surface of the amount and type of data that flows through the Metrc network like a river that’s only getting larger. Used by state clients for enforcement and other purposes, Metrc data has and will continue to provide additional value for cannabis licensees, according to Chief Strategy Officer Lewis Koski, who spoke recently with CBE about how the essential Metrc of today is preparing for tomorrow.
Koski came to his current position after a recent repositioning of executives at Metrc, where he has served as COO since 2019. But the industry veteran has had a lengthy career that includes hefty stints in law enforcement and regulatory enforcement, all of which led him ultimately to Metrc and a job he feels both well-qualified and destined to do.
“I have had a lot of fun during my career, and a lot of different roles,” he said as we began our call. “In addition to cannabis, I spent a significant amount of time as a regulator in other heavily regulated industries – casino gambling and alcohol, dog track and horse track racing, and I even did some work regulating the auto industry – but cannabis is probably where I spent most of my time. I’ve also done work in academia. I have a PhD in public policy and teach public policy at the University of Colorado, and I’ve had quite a bit experience now in the private sector. In the throes of all of that, I’ve developed a strong passion for governance and public policy processes, and in particular organizations that are really mission-focused. And so, I think, looking back to my early years with the Department of Revenue in Colorado, when we were first forming the Marijuana Enforcement Division, that’s where a lot of those passions were really accentuated, in that we were always involved in public policy, and working with a lot of people in the industry that were very mission-driven. It’s where we were trained to have a real focus on being able to protect public health and safety while also creating regulations that allowed the private sector to be successful, and in some ways be able to thrive.
“So, Metrc was a really good balance between a lot of the work that I had done in governance and the work we had witnessed other people within the cannabis industry do to formulate really effective public policy,” he added. “And I think Metrc, interestingly enough, is very involved in helping strike that balance in practice between regulatory reporting and good business practices, in that our system collects data that regulators need at the same time that businesses are collecting the data that they need to make balanced business decisions.”
Regarding the job-shifting at Metrc, the company reported in May, “Jeff Wells, co-founder and chair of the board of directors, has transitioned from CEO to chief visionary officer, and in his stead, Michael Johnson, a Metrc veteran who has been serving as president and chief financial officer, has been appointed as CEO, effective immediately. The company also announced that Lewis Koski, who has served as chief operating officer since 2019, has been promoted to chief strategy officer. Additionally, Steve Asma, an operations and customer experience leader, joins the Metrc team as senior vice president of customer experience.”
I asked Koski about the purpose behind the changes, which appear as a restructuring to prepare Metrc for expansion. “I wouldn’t characterize it as restructuring as much as I would adjusting for the growth that the company has been experiencing over a number of years,” he said. “It’s no secret that we continue to expand our regulatory footprint here in the U.S. We’re currently at 23 government contracts, most of which are here in the US., and then there’s one contract we have in Guam, in the South Pacific. So, as the company continues to grow, we have seen more and more opportunities that we’re hoping to be able to manage really well going into the future, to not only support the growth that we’ve experienced, but also support growth of the entire industry.”
The Metrc website listed 22 markets including Guam, not 23, but that was because its latest contract with Alabama was so recent that it had not been added yet, an indication of the rapidity with new markets that need a regulatory infrastructure are coming online.
“The cannabis industry is very dynamic,” said Koski. “We continue to see more jurisdictions, more states domestically, entertain the thought of more permissive policy [toward cannabis], and we certainly haven’t seen any states backtrack from that. The numbers continue to rise in terms of medical programs and or adult use programs getting adopted around the U.S., and I think even this year, we’re expecting to see more. Missouri’s got some potential for something on the ballot this year, Oklahoma is looking to expand its medical program into adult use similar to Missouri, so we expect to see that expand. In addition to that, there are all these challenges that are continuing to reveal themselves, from the pandemic [to] technologies continuing to grow, and we think it’s important for us as a company to keep our eyes downfield in order to grow alongside and evolve with all of these things that are happening with cannabis legalization around the U.S.
“That’s largely a strategic exercise,” he added, “so given my background formulating a lot of policy, first in Colorado, and then later as a consultant, we thought it was important for me to be focused on long-term planning and prioritization of all these various opportunities that we think are presenting in the industry that we can be a part of. So, we brought in additional resources to double-down on some of the work we’d already done with customer experience and in feedback loops to continue to improve our offerings and transition me into a role that’s more focused on facilitating the formulation and socialization and execution of our strategic plan for the entire company. So rather than being focused almost exclusively on operations, I’m also focused on how our corporate strategy is going to be formulated for our technology product and our operational groups.
“As I mentioned, there are a lot of opportunities for Metrc to support the entire ecosystem that exists around cannabis legalization,” he concluded, “and we wanted to have someone – myself in particular – prioritize those opportunities that can help make the case for a well-regulated, legalized market, support small- and medium-sized businesses, and do so using the most elegant solutions that marry both the compliance reporting piece of our system with good business practices. It’s not just about us supporting government agencies going forward but helping to support and inform stakeholders interested in the cannabis industry, and the entire ecosystem that exists within the regulated market. My job is to make sense of these various opportunities, get them prioritized, and work with both external and internal teams to get them implemented.”
Are the highest priorities for regulators also the highest priorities for Metrc, which expressly seems to want to serve everybody’s interests. “The one thing I want to make clear is that it’s still very important for Metrc to serve our regulatory customers going forward,” said Koski. “And so, as legalization continues to expand domestically and internationally, we intend on working very closely with government agencies that are tasked with regulating the industry. That’s a very important aspect of our business and on our priority list, so that’s not changing.
“What we’ve learned though,” he added, “and what I think is really interesting is that the more we focus on ensuring that the regulated community has the tools it needs to be effective, the more it’s helping and has the potential to help other stakeholders that exist in the ecosystem. So, I think probably priority number one, outside of our regulator clients, is the industry itself. They’re the ones that are inside the system on a daily basis inputting data, utilizing the data that’s in the system, and I think it’s really incumbent on us to continue to build relationships with industry counterparts, to ensure that the use of our system is as streamlined as it can possibly be, it’s a sustainable alternative, and that it works well with some of their existing business systems and continues to work better and better with those existing business systems.”
As far as areas where Metrc is aligned with government priorities, “Regulators tend to care about three things: public health, public safety, and collecting taxes,” said Koski. “Those are the things they’re most concerned about and focused on, and our data is a tool they use to accomplish a lot of their public policy goals. The more uniform the data is, and the more consistently it’s added into the data-sets the government uses, the more accurate, informed, and efficient their decisions can be, especially when it comes to affecting public health and safety and having a secondary set of data to confirm that the proper amount of taxes were collected. That’s typically the regulatory agency priorities, and we help support and inform all of those decisions about compliance or noncompliance, but also product safety, and then that secondary data set for the collection of taxes. Our tool provides different datasets for regulators to use to either inform their oversight bodies or be able to identify risks within the ranks of the regulated community so that they can help them find a path towards compliance.
“And that’s really important,” he continued, “because I think what we don’t talk about enough are the benefits that the industry gets from utilizing Metrc. As I mentioned, the system is designed to collect compliance data at the same time you collect data to conduct normal business, so the data that’s important for compliance often is used for making informed business decisions. In fact, we know that a lot of small and medium-sized businesses operating in the regulated community rely on Metrc as one of their primary business systems. I think this is probably truer in cultivation and with manufacturers, and you have to ask yourself, why is it that they use Metrc, and we think it’s because, one, it’s affordable, the data in the system is actionable from a business standpoint, it lowers their enforcement risk because they know if they’re using Metrc and inputting the data that it’s going to create a transparent dataset for regulators to use, and it makes that reporting to government more efficient and transparent. So, when we’re talking about our priorities for the future, they still to align with what we think is in the best interest of demonstrating a credible regulated framework, and that’s going to take us continuing to partner with regulators, but also ramping up our game when it comes to communicating and working more closely with and better understanding the needs of the customers that are in the regulated industry.”
As time goes on, does it get easier for Metrc to work with regulators to develop best practices, to implement track and trace, to do all the things that Metrc has done so many times before?
“A couple of things on that,” said Koski. “Now that we’re coming up on 23 repetitions of implementing our systems into standalone marketplaces, we’ve certainly been able to evolve it to meet the unique needs of each of those jurisdictions. Starting with Colorado, and Oregon, and Alaska, and now 20 different jurisdictions later, certainly each jurisdiction has their own unique or nuanced regulatory framework that have required us to build either new functionality in the system or adapt the system to be able to meet those unique needs. As a result of that, in the last several implementations of our systems, the amount of actual development work that we’ve had to do on our system has been pretty minimal, because we’ve got a library of best practices that are available for the regulators to turn on or off.
“A really good example of that is home delivery,” he added. “If a jurisdiction allows for home delivery, we have that functionality built into the system; if they don’t, we can simply turn it off. There are many examples of that, and we’ve been able to catalog them over time and make it a little easier for the rollout. I would also say we’ve been very focused on continuing to improve our training, continuing to improve the interactions that we have with licensees as they’re on-ramping into a regulated environment, and then also, we do talk on a day-to-day basis with members of the regulated community in all of our states through the support and training services that we offer as part of our contract with governments.” The company provides state-specific pages on its website with information and links unique to that state, as well an array of more general teaching videos and other resources for new and existing licensees from any state.
Clearly, the amount of data that flows through Metrc is immense and accumulating all the time. How is it saved, how personal does it get, and are there restrictions to how it can be used?
“You’re correct, the dataset that we have in each individual state is pretty impressive,” said Koski. “In fact, it’s unprecedented, and it’s always kind of fun to talk about how the cannabis industry is actually leading the way in demonstrating the potential for creating resilient supply chains, but that’s an important and somewhat unintended outcome of having a really strong track-and-trace system in cannabis.
“The data set is super impressive and somewhat unprecedented,” he added. “Uses of the data are pretty varied, and the dataset for each state is the state’s data. The data that’s collected is largely inventory related. Anytime there is data specific to purchases, it’s all identified before it’s entered into our system, so we don’t have any personal or individual information on customers or patients in our system. That said, the agencies can use the data for a number of different purposes. Probably one of the easiest ways to bucket this is as aggregated data that executives and the leadership of regulatory agencies use to report the state of the industry and big trends that they see, and usually they’re reporting that to oversight bodies, like legislatures or governor’s offices, and they also can use that information when speaking to members of the media like yourself to give everyone a much better and more transparent feel to the size of the industry.
“Colorado uses a dashboard that they recently launched that shares some of that information, and they’ve also done an annual report on the state of the industry, so that’s one use,” he added. “The other use would probably be more towards the monitoring and enforcement side of things. You’ll have data analysts, mid-level managers, and agencies use the data to be able to assess risky behavior that they see writ large in the industry, whether or not it’s fully reporting on transport manifests or testing result, and if there are several risk indicators, then the regulator can work with the licensee to better identify whether or not those are real concerns and if they are real concerns, what’s the best path for getting them into compliance.
“I think one thing that is often overlooked with respect to our data is that the system itself does a really good job helping the regulator sort out which businesses are acting in good faith but may have a few compliance challenges that are worth working through, and other businesses that have no intent of being part of the regulated community,” he continued. “And whether the data is in Metrc or not in Metrc, regulators can use it to determine whether or not more enforcement action is necessary versus an action trying to get businesses back into compliance. Our system is really good at doing that, and when it comes to the law enforcement community, we give a visual line of sight on who’s regulated and who’s not regulated, so as law enforcement is trying to do the difficult task of taking on illicit market growth, it certainly is helpful for them to be able to identify regulated actors versus potential targets for criminal investigation.”
I noted a recent notice from a California law firm warning licensees about upcoming DCC inspections. Would inspectors use Metrc data in those instances?
“Let me talk a little bit more broadly about that because it’s not unique to a particular state,” said Koski. “Picture me in my old role as an investigator with the state of Colorado and I’m assigned 15-20 different companies in the regulated community that I’m building relationships with. What I might do is continue to monitor activity in the system as a regulator or an investigator, and I might see a change in data patterns that suggest that there are a handful of deliveries that weren’t made that are maybe a week or two old. So, what I will do is call the business up and say, ‘Hey, I’m looking at these specific data points that you were collecting along the line; can you help me better understand what happened to these deliveries?’
“More often than not, the business comes back and says, ‘Yeah, we had a problem with our driver,’ or, ‘Those weren’t properly put in by the receiving licensee,’” he added. “Whatever the case, I can use that data to have phone calls and conversations with the businesses to arrive at compliance so there’s very little disruption to the business. Then I might find something that’s a little bit more concerning, like they’re over their plant allotment, so then I might want to go and look onsite and do a read using our RFID tags, to take an inventory to determine whether or not there is a reasonable explanation or not for that, and then take whatever action is necessary.
“The easiest way to think about this,” he added, ‘is that the use of the data – in particular when it comes to the actual inspections – often starts with the agency reviewing the data to identify risk factors that are unique to whatever their regulations are, and if those risk factors are high enough, they tend to dedicate resources to figuring out and resolving those risk factors in some way, shape, or form. So, when you hear about agencies talking about going out and doing those kinds of inspections, what’s likely happening is they’re reviewing data ahead of time and then going to have conversations with licensees about any anomalies that they see in the data.”
As useful as Metrc data may be to licensees, most prefer to complain about the time and costs that come with staying in complete compliance rather than sing the praises of the software. In most states, the potential downside to making track-and-trace input mistakes are dire enough to make that job priority number one no matter the size of the company. This is what I have heard consistently over the years in the context of compliance as a burden and cost that never ends.
“First of all, you’re speaking to things that we have also heard,” he said. “As far as what we are doing to address those things that can create efficiencies, the short answer is that just this year, I’ve made three weeklong trips where we spent the entirety of the time meeting with cultivators and manufacturers utilizing our system, and we’re starting to learn a lot more about how they interact with it. A lot of businesses use third-party software that has additional functionalities that help serve some of their business purposes; others use Metrc directly, and we’re starting to get a much better idea of how we can create some efficiencies for businesses that are operating to get some of the data input.
“I also think that our reimagination of our training system – in particular, a training platform that people can log into right now – can help them better and more efficiently do things, like applying tags, but also like making better use out of the data that is in their system, so that they can leverage that for business decisions they have to make along with the reporting requirements they have” he added. “And so, while I agree that there is a cost to using business systems, it’s not real clear to us [what it is], and I think that’s why it’s incumbent on us to figure out what that delta is between what are good business practices for your collection of data that you’re going to use down the line, and what’s needed for regulatory purposes. And first and foremost, to make that as efficient as possible while at the same time being really aware of the business needs that the companies have, so that we can address some of those as well.
Plant tags are also frequently mentioned as onerous and unnecessary requirements by growers of all sizes, I mentioned to Koski, who has heard it all and immediately corrected my confusion as to the price tag for tags, which I thought was in the $1 range.
“The plant tags, which are designed to survive in a cultivation for up to nine months or a little longer, are 45 cents a tag, and then the package tags that have an adhesive on the back of them that attach to packages of products that are created during the harvesting process, or testing, or manufacturing, are 25 cents apiece,” he clarified. “I also think it’s important to note that even through a lot of challenges with supply chains to get all the raw materials necessary to construct those tags, we haven’t raised our prices since the initial pricing was laid out there, and we think the pricing on the tags is affordable for the amount of product that is produced from those tags.
“That said,” he added, “if you’re talking about things like the amount of labor that goes into them, the sustainability, I’ll address sustainability first. Sustainability is something that we take very seriously, and we actually have a tag for which the environmental testing is being finalized soon, and the new tag is much more sustainable than the current tag. It uses less material, and the material that will be used is part hemp, part consumer waste, and then the virgin paper that will be used for its production will be from a sustainable forest, and then the only new plastic is the film that adheres the RFID chip to the tag, so instead of being two layers and the RFID inlay, it’s going to be one layer with a chip in here too. It’ll be considerably less plastic than what cannabis cultivations use for tagging their products, which gets me to the to the point around the labor that goes into adhering our tags.
“One thing we’ve learned,” he continued, “and I would say this is pretty anecdotal, but it’s pretty compelling anecdotal evidence – it’s on the rare occasion that we go to a cultivation site where they’re not tagging every plant with something, whether it’s a stake in the ground or a plastic tag that gets affixed around the base, or it’s one of our tags or both, almost everyone is tagging every plant to begin with. So again, it’s trying to figure out the delta in labor between adhering our tags to plants and packages versus what the businesses are doing already. And as a company, we’re committed to understanding what that customer experiences with our system are so that we can identify ways to make it more efficient for licensees. Is it tagging sooner in the production process when you’re handling the plants already? Is it a different type of tag design? Is it taking RFID technologies and the efficiencies that regulators gained from that and facing that towards the industry so that they can make more use out of it?
“For example, we know Walmart is doubling down on RFID because they recognize that they’re going to get a lot of efficiencies from their inventory management,” he added. “Also, there are companies that have developed RFID technology facing towards the industry, and the feedback we get from licensees that use that is that they’re worrying less about the cost of affixing the tag to the plant, and more excited about the types of efficiencies and cost savings that they’re getting from using that technology to actually run their business, versus thinking about it as just a requirement to report to regulators. And so, we’re actually really excited about the opportunities that are out there to continue to build value for the lives of businesses that are operating in the cannabis sector and utilize that technology to improve cost savings and improve the amount of resources that they have to put into managing their business.”
A Chip with a Future
I noted that it sounded like the chip is the centerpiece of their RFID technology. Is it a chip with a future? “It’s absolutely a chip with a future.,” said Koski. “The way it’s designed right now, it’s basically the unique identifier for each plant or package that’s assigned to that chip and that tag. What really sets our system apart from others is that the tags we produce are really an extension of the business’s license, and [the tag] authenticates that product as being regulated, versus other systems where you print your own tags, they may or may not survive the time in the cultivation, they may not be readable, and you have to get very close to them to use the machine-readable component of it. With ours you can read and do inventories from a distance. And then, to talk a little bit more about adding data to the chip, that unique identifier (UID) is globally unique to that plant or package and cannot be replicated, so data can be added that is associated with the UID in the software. So, if there were other things that businesses or regulators want in terms of data collection on those inventory items, we would be able to collect all of that within the software system and associate it efficiently with the unique identifier that’s assigned to the tag.”
“It absolutely could be,” replied Koski. “When you start talking about Appellations of Origin, I think that’s another prospective benefit that licensees could get from the system, and what I like most about that is the partnership that they could have with regulators to achieve that kind of branding for a particular region. I also think there’s potentially some work that can be utilized from the wine industry, which already is utilizing Appellations of Origin to identify particular regions where varietals are produced. You might be able to do something similar to that, but I agree that that’s a potential avenue down the road, in the not-so-distant future, for businesses and government to partner on Appellations of Origin to be able to brand products in particular regions. And that may become more and more important as the concept of cannabis legalization continues to expand outside of the U.S., where importing and exporting of cannabis between countries is already occurring in medical programs, for example, in Europe, but it’s also going to be important at some point in the future with federal legalization, the possibility of there being interstate transfers between regulated entities, and we’re already starting to see states interested in that. There’s a bill in the California legislature that, if successful, would allow the governor to enter into MOUs with other states for the purpose of interstate transfer of cannabis products.”
Is Metrc standing by ready to enable that? “Absolutely,” said Koski. “My job is to look at opportunities like this that might be presenting themselves 24-36-48 months down the road, and get the company prepared for the likelihood of being helpful in rolling out that kind of policy.”
Now we were on the interlacing subjects of how Metrc will integrate what it does with foreign governments and what will happen to the company when the U.S. ends its federal prohibition of cannabis.
“I’ll first talk a little bit about what happens to Metrc in a federally legalized landscape,” said Koski. “First of all, we’re paying very close attention to the conversation at the federal level. I personally spend time in D.C. working on some of the issues around federal legalization, and it’s not easy to prognosticate this. But what we see happening is incremental change occurring at the federal level, so maybe something with banking or research will be the most likely path forward with legalization as more and more states legalize. We could end up in a situation where most states have legalized adult use or medical cannabis – with most focused on adult use – before the federal government can act with more sweeping comprehensive change. And so, I think we’re likely to see some incremental change for the foreseeable future, but not a sea change on the federal side. And even when we do see something more substantive and comprehensive from the federal level, I think states are going to be very interested in preserving the investments that they made in their regulatory frameworks. And I think you could see the federal government take into consideration all the hard work and success that the states have already had and incorporating that into federal legalization that doesn’t really upend that.
“The other thing I would say is that as we start to look towards a federally legalized landscape, I don’t see data becoming less important,” he added. “I see it becoming more important for reasons that we talked about, like Appellations of Origin, but also to better understand how much care went into cultivating and producing the products that come from cannabis to ensure that it is done in a safe and compliant manner. As that continues to happen, I see opportunities for the industry, not just Metrc, but the industry to recommit itself to the things that made it successful at the state level, and institute that at the federal level. Having a really strong data set that helps make informed decisions will continue to be a very important factor that we think government and industry will consider, and as such, we see a place for Metrc to not only support government but also support the businesses with the right level and efficiency of data entry and services that they’re going to need to be successful in that kind of market.”
As the industry matures, will the focus on compliance mitigate a little bit, resulting in fewer regulations and a lighter touch. And if so, will Metrc’s future clients continue to be government, but increasingly industry?
“I don’t know exactly what that looks like, but I agree with you,” said Koski. “We think it’s very important for us to be in tune with the ecosystem that operates around regulated cannabis, and we recognize that as public policies continue to be very dynamic, the needs of the industry are going to continue to evolve, and I think the way government looks at its public policy goals is going to continue to evolve too. And it’s going to be very important for us to be in tune with the stakeholders that participate in legalized cannabis such that as a company we can continue to offer value to those various stakeholders that are operating in that space. And that’s something that we’re absolutely committed to. What that’s going to look like going forward is something similar to what you said, which is we’ll continue to have government contracts, we’ll continue to be serve that community, but recognize the fact that the businesses that are reporting into those systems can get value from it outside of just being a compliance software system, which by the way is not immaterial, that’s a very important system in and of itself, but we can continue to help those companies derive more and more business value in addition to the reporting value that they already get.”
Beyond the U.S
As cannabis legalization sweeps the world, more or less, Metrc is paying close attention to the developments in individual countries as well as the continent as a whole. “We started taking a real interest in Europe probably the middle of 2021, because we are starting to get a sense that the narrative there on the continent was shifting towards at least expanding some of the medical markets that existed there, and even some talk about larger jurisdictions on the continent going towards more of an adult use,” said Koski. “And sure enough, towards the end of last year, after the elections in Germany we saw the government form the traffic light coalition – which is the Greens, the Liberal Democrats, and the Social Democrats. Part of their agenda that was finalized towards the end of last year was to legalize cannabis for adult use. So, we’ve seen a continued interest in Germany over the past 10 months, so much so that I’ve been over to Europe a handful of times this year and am getting ready to go back over again in the next couple of weeks. We anticipate there being either a draft bill or position statement by the government towards the end of this year which would take it into their legislative session next year, where they would potentially take up a draft bill for legalization of adult use. And we’ve seen a lot of interest from both the medical businesses that already exist in Germany and MSOs that are operating here in the U.S. and Canada and expressing an interest in participating in that market and watching that public policy develop with a lot of interest.”
“I think there are some interesting aspects to Germany legalizing,” he added. “There is similar but not identical dynamic where there is EU law that would likely call into question Germany’s ability to legalize, at least in some people’s opinion, while others are coming up with ideas on how they might be able to navigate those challenges. But it’s not clear how Germany would go about doing that, and that’s why we’re all looking with interest to see what they come out with later on this year. We’re excited about the continent. If you think about Europe as a market, it’s a very large market that from a regulatory standpoint has an underserved cannabis market. They’re entirely medical with a few exceptions, like Malta and Luxembourg that are working through adult-use programs based more on home cultivation versus commercial cultivation. We expect to see some of that change and the opportunity in Europe could be quite large if it were to start rapidly expanding, and by rapidly I mean over the next five to 10 years.
“What we’re watching with a lot of interest is to see whether government adopts models that are more tolerance models that are focused on, yes, you can use it, but there’s really not a legal way to get it into your hands as a consumer,” he continued. “Like more of a Dutch model versus regulatory frameworks that are modeled after the pharmaceutical industry that have extensive manufacturing requirements. It’s going to be interesting to see how that spectrum of tolerance is adopted by various countries in Europe. We do think Germany may be the country that legalizes first for adult-use, and if it does, there is a strong likelihood that other countries will follow suit. And of course, if that happens it might compel the institutions that make up the EU to take up the topic.”
Is the hope for a company like Metrc to help them stand up a comprehensive seed-to-sale system? “I think we would be looking for a model similar to what we’ve seen here in the US, just more federal,” said Koski. “We also recognize the fact that there are a lot of companies already operating in the medical business, and even though that segment is pretty small, we have thought about how we can be helpful to them more immediately, because it’s often the existing medical community that ends up being first-movers into whatever happens with adult-use. I think there is certainly potential for them to have an interest in developing the datasets that they could use to help inform government and regulators about what’s possible, to create regulated marketplaces that can be regulated efficiently and elegantly.”
The Business of Track-and-Trace
I asked Koski what the main differentiators are among the various seed-to-sale systems. “I think the business models differ,” he said. “We’ve been focused on providing a service that can equip regulators with a tool that can make them successful protecting public health and safety, and also working more closely with businesses to achieve those goals together. I would consider us much more of a public-private partnership with government and industry than our competitors. I think that’s certainly the way we go about the physical component of tagging products. Every system uses a physical tag to tag product that then integrates or coincides with data in the software system, so that particular part is not unique. What makes ours unique is that we’ve created a system that makes it very, very difficult to counterfeit those tags, but it also creates a lot of efficiencies for the regulator to be able to check for compliance when they’re onsite.
“And then our speed to market or ability to implement is second to none,” he added. “We’ve been able to implement our system in markets in that 60-to-90-day mark, and no one else has been remotely close to that. I attribute our ability to do that to some of what we were talking about earlier, where we were able to configure our system to meet 95-plus percent of the needs of most new jurisdictions coming online with permissive cannabis policies and were able to get to the market much quicker.
“I also think that the dataset we’ve been collecting is so credible and so usable and so actionable that regulators and businesses have been able to make really good use of that data, and I think there’s a lot more potential for us to continue to build on the tools that businesses and regulators need to get more and more use out of that data down the line,” he concluded. “Those are things that differentiate us from our competitors, as well as our track record. We’ve renewed every contract we’ve ever had with government, and we continue to add new states. We’re definitely seen as a very knowledgeable company, and we’ve been very well received in other countries with respect to the achievements we’ve had working alongside government and industry here in the U.S., which is seen as a prospective benefit to new countries that are contemplating their path forward with legalization.”
As our time was winding down, I wanted to ask Koski about the phenomenon of so-called burner distribution licenses, and whether a solution to them was in the Metrc wheelhouse. “First of all,” he replied, “I meant to mention this to you earlier that I won’t speak specifically to anything particular in any of the states that we operate in. I usually let our states respond to that. But let me talk more broadly about Metrc as a tool. Metrc is something that regulators have been using since 2013 to monitor businesses for compliance, and they’ve used data that is in the system or sometimes not in the system, to make the case for businesses being in or out of compliance. And then, depending upon the regulatory or the enforcement stature of those various agencies around the country, and how they handle those inconsistencies or those non-compliant issues, some are more enforcement oriented and take an action against licensees, while others are more focused on helping businesses come into compliance.
“And then there are others that are more like the hybrid model,” he continued, “where they’re trying to distinguish good actors acting in good faith versus ones that are not. So, absolutely, our system can be used, and one of the reasons why it’s used that way is that it quickly distinguishes honest brokers and genuine actors within the cannabis industry from those that are not. So, think of it in the simplest terms; you’re a law enforcement officer asked to check out a cultivation site on Main Street in Anytown, USA, and you go into the cultivation with the owners, and it’s tagged. As a law enforcement officer, you know that’s a licensed business in that jurisdiction, and you can confirm that by line-of-sight, and regulators who have more visibility into the data can take a deeper dive into that data to be able to distinguish whether or not it is consistent with other things that they’re seeing in trends around the industry. So, when it comes to things that tend to get a lot of attention in various jurisdictions, the data that’s in our system has and will continue to help regulators deal with those types of issues when they come up.”
I was still curious if that meant Metrc is in a position to help mitigate the problem of burner distro licenses, but Koski noted that the burner license subject is specific to California. “Let me come at it from a little different angle, which I think is similar to what I was talking about before,” he added. “Track-and-trace, and in particular our system, is the most effective tool for both regulators and law enforcement to distinguish between honest actors that are intending on being compliant, those that are in the industry that are not intending to be compliant, and illicit growers. It is the most effective tool, and in fact, it’s really the only tool that exists that makes those three distinctions clear. In the absence of that, law enforcement and regulators wouldn’t have the tools they need to efficiently be able to distinguish between those three groups.”
As a penultimate question, I asked Koski if Metrc, which raised 50 million in 2018, will need another round to fund its current and future expansion. “What I can say is we haven’t brought on any new investors since that funding round you just mentioned,” he replied. “The company continues to reinvest back into our products and services and people and will continue to do that. That said, I remember how excited I was to be able to be a part of the regulatory sausage-making in Colorado when we first got started. I’m equally excited about the opportunities that exist for the cannabis industry, recognizing that there are some real challenges that the industry is facing right now with the economic downturn and other things, but I’m still really excited about what some of those opportunities might be.
“We discussed a lot of those already,” he added, “between things that everybody thinks about, like Appellations of Origin, but also how do we make better use of the data and how do we provide more efficient ways for industry to utilize the system, but also to get more out of the system. Those are all things that we’re contemplating along with the likelihood that legalization is going to continue to expand around the globe. As that continues, and we continue to prioritize all the things that we’re going to focus on, we will continue to analyze what our financial needs are going to be going into the future. Some of that is still TBD. As I’m getting into my new role, and several of us are somewhat new into our roles, we’re continuing to assess all of those things.”
But are you interested in developing new revenue streams for the company? “As I mentioned before,” said Koski, “we certainly are interested in continuing to expand our work with government., and we’re also interested in being able to help industry be successful as well as other stakeholder groups that exists within the regulatory framework. Those are all things that we’re contemplating; whether or not that equates to new revenue streams is something that we’re certainly thinking about, but our top priority is to continue to be the best provider of track-and-trace services for government, and we’re going to continue to invest into resources that will get us there.
Was there any ask or message he wanted to impart before we ended the call? “Well, first of all, the one thing I would love to get across is that the people that participate in cannabis in a lot of ways have positioned themselves to lead on a lot of different fronts, whether it’s public policy, resilient supply chains, or innovation around technology, and there has been strong leadership across the boards demonstrated by stakeholders operating in the regulatory ecosystem,” he said. “And we recognize that, and we really are humbled by the fact that we’re positioned to be part of that going. That’s really important to us, and it’s really exciting to think about how public policy around legalization is going to continue to evolve, and the opportunities that it presents for the various actors within the legalized framework to continue to evolve and grow and unveil profitability.
“We’re excited to be part of that because we think that the cannabis use case is a very powerful use case that could be applicable to other verticals outside of cannabis, and we’ve done a really good job in making that case,” he added. “One thing we certainly learned from the pandemic is that our supply chains writ large are not very resilient, and there is a lot of work that can be done. We believe very strongly that the leadership that exists in cannabis legalization has done a really good job making a credible regulated framework, and that it’s possible to utilize that same use case to do really good work in other supply chains.”
I noted that at the policy level Metrc seems more like an umpire – only calling balls and strikes – but at the operational level, where a lot of improvement is and will continue to be needed, the company’s role as a hands-on innovator will only provide new opportunities for it as the industry expands and Metrc steps up to meet its evolving needs.
“That’s why we get so excited about the opportunity and humbled by where we’re at in the ecosystem,” replied Koski.
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