Where Cannabis Compliance Meets Operations (Podcast)

Episode Transcription

Hi, everyone. Welcome to episode four of The Distru podcast. Really excited to have Jennifer who is on the compliance manager at Blackbird, and she gets really in the weeds on everything with Metrc and has jammed out with me in the past as part of the Cannabis Distribution Association. Really excited to have her talk to us about everything and anything Metrc and compliance in California.

Jennifer: Thanks for having me, Blaine. I'm excited to be on your podcast here and talk about track and trace.

Blaine: Would you like to start by just giving us a little bit of an introduction and background about you and just like how you got into the industry?

Jennifer: Sure. I am a Cannabis industry newbie. I started with Blackbird back in May of 2019, and before that I was actually doing environmental compliance for large-scale transportation infrastructure in the realm of California Environmental Quality Act and the National Equivalent NEPA, and I was doing that for over a decade and really wanted to transition from that industry into cannabis. This is a personal goal of mine. I really like the Cannabis industry. I've always been an advocate for legalization and access, and I was at a point in my career where I felt like my compliance background to be directly transferred over to this industry, so I made the leap and was lucky enough to snap my compliance decision with Blackbird.

Blaine: Since you’re fresh in the industry, I'd love to immediately get a sense of what is the big difference in your mind between the Cannabis industry and the other industries you've worked in?

Jennifer: I honestly don't see too much of a difference, especially in the state of California. No matter what resource you are working in… so for example, if I'm talking about natural resources in the state of California, you have several governing bodies that are going to be in charge of that same resource and those governing bodies are going to have different opinions, and different processes, and different approvals on how they want to dictate the preservation or regulation of that resource.

When you look at natural resources, you have things like the regional water quality control board, you have the Army Corps, you have Official Wildlife Services all trying to dictate rules and responsibilities around one resource and Cannabis is pretty much the same deal. You have several governing bodies trying to regulate one resource that be Cannabis all the way from the state agencies, the CDPH, BCC, CDFA, and then you have the local municipalities. They all have their own rules. They all have their own regulations. They all have their own processes and they're all trying to regulate one singular resource, which is cannabis.

Blaine: How often do the counties that involves in your day to day when managing compliance versus the state?

Jennifer: I think it depends on what we're talking about, so when I think of compliance, I take it into two buckets. You have your licensing and permitting processes which are very specific to your local and state. They are almost parallel processes in my opinion, so if I'm applying for one location to be up and running, I'm going to have to go through the city, the county at the local level and then I'll go through the state. Those have two different application processes, so if we're talking about getting your facility up and running from a licensing and permitting perspective, I would say you have a lot of involvement with the county.

When we're talking about track and trace and day-to-day operations, not so much because if we're talking about moving goods and having questions about… let's say you're trying to do a transfer and it's rejected for some reason or another, all of the reasons for rejection and trying to fix those problems are going to be mostly based on the procedures established by the state. If you have questions around your day-to-day operations, you're usually going to the state regulations to try and answer those questions.

Blaine: Yes. These agencies, they have a lot of information and a lot to cover. One thing I've noticed that with the state agencies is that there is the BCC and CFH and all these different organizations like you were saying. Is it difficult to know who to go to for what questions and why?

Jennifer: Yes. I think that was probably one of the biggest challenges in entering this market is figuring out who is responsible for what. It's crystal clear when you look on the website and you look at the different agencies, different portals on who permits what, so we know that CDPH is going to be permitting the manufacturers. We know BCC is going to be covering distribution and retailers, but what becomes convoluted and all mixed together is when you have things to do with packaging and labeling and testing because that's when the two agencies overlap. You have CDPH regulating their manufacturers, regulating those processes, but you have BCC regulating the distributors who have to do the sampling, testing, and making sure everything's compliant. That's where you run into a lot of confusion and a lot of mixed messages from the different agencies, I would say.

Blaine: Yes. Your company is really unique because I think if I'm right, you do delivery as well as distribution, is that correct?

Jennifer: Yes. We do some direct to consumer delivery, but those were exclusive contracts that were held by retailers. Yes, so we're mostly wholesale distribution and of course, the software side of things.

Blaine: Then you leverage the licenses of the other delivery partners?

Jennifer: Correct. We are essentially employees of them or contractors of them.

Blaine: Cool. It's a little bit ease from that sense, so you get the inventory at the distribution level, you help them send it to the retailers, and then you partner with a few select retailers that help you provide direct to consumer for those partner brands you work with.

Jennifer: Correct. We also have two warehouse hubs where we offer wholesale inventory storage, so not only do we do let’s say pickup from a manufacturer to deliver to a retailer, but we also house products in our warehouse so we can do fulfillment directly from there.

Blaine: One question that I have is bad enough because we talked about all these different things with the BCC, CDFH and there’s so many things to come up. Max Schreck and operations and all that. I listed all that, what does your day-to-day actually look like as a person that's in compliance?

Jennifer: Yes, so with Blackbird, I would say that the majority of my time is spent on establishing my standard operating procedures for our warehouse wholesale folks, and making sure that we're creating processes and procedures that can be followed by everyone so that we're compliant with all the necessary regulations. In that same light, I would say 30 to 40 percent of my time is responding to different situations usually related to Metrc where something has happened, something's not quite right with an inventory or something's not quite right with a delivery, and I assist in looking up how to resolve that problem.

Blaine: You brought the magic word Metrc. Can you explain Metrc in your own words? How you see it and what it is to you?

Jennifer: Metrc to me is the track and trace program for California. I can't get around that definition, but it's essentially a tool. It's a tool that documents the movement of cannabis within the state of California and many other states. I think for me the biggest lesson that I've learned over the last few months is that it is indeed just a tool and that there's not a lot of backstops and not a lot of assistance within the system to stop you from doing things that are non-compliant, so it is just a tool in my opinion.

Blaine: Yes, and I'd have to agree with that. Our goal is to create a lot of the validations and steps along the way because raw Metrc can be pretty complicated. What are some of the best tricks or tactic you’ve done to make sure that the day-to-day operators at your company are entering things compliantly?

Jennifer: The first step that I recommend every operator go through is to first create your staff game plan, and that's what I started with. I sat in the warehouses, I was going through the flows of everyday deliveries, figuring out who's doing what? What are the workflows? Where are the pinch points? Who can be assigned access to Metrc and who should be responsible? The first step is really to think about how many people do you want to have with hands in your inventory in the Metrc system, and it's really important to think about this in terms of in my opinion less is more. You want to have enough staff people with access so that you're never in a situation where you don't have anyone in that could be accessing the system, but you don't want to have everyone having access because then you run into a situation where there's more room for error.

More people you have in there fiddling around with packages and things like that, the more opportunity there is for a mistake to happen, and when mistakes happen, it is really hard to find them and it's really hard to correct them. The first thing was figuring out who and how we wanted to implement Metrc in the existing staff positions and then if we needed to hire an additional person. Once I put the roles and responsibilities together with everybody's input, then it became easier to establish that training for the Metrc staff people that we're going to have access and what we then did is basically trial and error. You get your account, you get your access, there's no sandbox for people to just play in.

You are essentially up and running, and so it was a lot of trial and error at first and trying to fix things. But at the same time as we figure things out, as we went through the training, we put these materials together and we put resources together that people could go back to. We have several internal training PowerPoints. I have several training SOPs. I have screenshots of the different steps of Metrc, and that really helped keep everything standardized and have resources for folks to go back to.

Blaine: I assumed that pretty universally to it. It’s all about the SOPs, so one thing you said that was interesting was have a very few people or a few select people enough to be able to always be able to enter in something in the Metrc and deal with it. But you definitely want a few people doing that. What are the roles of those people that you think should definitely be regularly using Metrc?

Jennifer: If we're thinking about it from a distribution model, and we’re going to be sending it all out to a retailer from our warehouse, you’re going to have staff people who are pulling the product from the shelves, you're going to have your QC of that product against the order to make sure it's the right items in the order. You're going to have somebody who has to tag those items for shipment with their Metrc tags. Somebody who has to generate the transfer manifest and then the compliance steps of adding the COAs to the folders and then you have dispatch staff who have to actually update the estimated departure and the actual departure from your facility. Of those touch points, we have assigned the warehouse manager, and inventory specialist, and the dispatch staffs. Those three individuals out of all the people who touch it will have access to Metrc and will touch that transfer at some point along the fulfillment process.

Blaine: We're running similar stuff to it. It uses some combination like operations or warehouse manager, inventory manager like that. Usually just the people that are most able to handle the technology aspect. I find that super important is having general computer knowledge and abilities.

Jennifer: Definitely. The other thing that we’ve implemented is physical quality control logs, so that really helps with making sure that there's a set of eyes at different checkpoints before that package or complete transfer goes out the door. We have those assessment inventory person that pulls inventory, their initial… if there's a person who generated the transfer in Metrc even though it shows you on Metrc who created that transfer, we still have somebody log with their initials who generated that transfer.

Then we have a quality control signature of somebody who reviews that transfer and all the pieces before it goes out the door. I think that's also critical right now when you have so many different people with their hands in the pot that you create some sort of process where you're going to have quality control checks of the manifest itself of what’s going in the system whether that be one individual or a number of individuals that can provide that initial in your logs.

Blaine: Yes. The double checks are really important. Now, you're talking about a lot of different levels and it shows the sophistication that your operation has. The first thing comes to mind is, a lot of the Cannabis companies right now, they're pretty big, but a lot of them are still startups and they maybe can't staff to that level where they have full dedicated people just do this. What do you think the right time is where you pretty much must hire someone like you?

Jennifer: I don't not just shoot myself in the foot, but I don't necessarily think that you need to have a dedicated compliance staff person if you are a very small business. If you're a small business, and you have the bandwidth to take on the compliance responsibilities, if you have the bandwidth to generate SOPs, and you have the bandwidth to make sure that you have quality control checks for yourself, then you don't need to have an extra person to be hired.  I think what you have to do is evaluate your availability, so if you're trying to run your entire operations and do all the compliance associated with that with just two people, you're probably going to run into a work overflow situation where you just don't have enough time and you're going to start seeing mistakes happen. The one good thing that I think Metrc has brought to the table is that it is creating a situation where mistakes are caught, whereas before it was pretty easy to not keep track of inventory as precisely as you have to now. I think if you can run your business and not have errors popping up here and there, then you are the compliant’s person. If you're seeing a bunch of errors, if you're running out of time in your day-to-day activities, then it's time to hire.

Blaine: It's just what you need to hit the problem you have prior that’s probably not unique to any specific role. Have you realistic attitude on these things and that takes me in another direction we want to go into which is areas for improvement with Metrc. It’s something that we've actually collaborated on is talking about the Metrc API with the state, where it's going, and how to improve it. Being realistic about that. I want to know where you see the state of Metrc is and how they're rolling that out to integrate with everyone else's standard software tools.

Jennifer: If we’re talking about the integration, I first want to step back and say I fully didn't understand the integration problems until we started working together on this, and that everyone has to understand that right now that the way Metrc runs is that it has limited what they call end points that connect to your inventory system, so at this time in every state that has Metrc including California, there is no way for you to complete your transfers and different functionalities that is just in Metrc with a single third-party software like Distru or Blackbird. That was the biggest why that I had when first got into this, she was like, “Why are they, they being in the system selecting random endpoints that we can’t integrate with?” Why can't I do every action in Metrc in my third-party integrated software?

Everyone has to understand that at this point, no matter what wonderful software you have, you have to understand how to operate in Metrc because there are certain transactions you will continue to have to do in parallel with your third-party integrator. In my opinion, the biggest improvement that we could see is Metrc opening up those endpoints to allow us third-party integrators to actually function and do all the things that each Cannabis business needs to do without operating in two different systems at the same time.

Blaine: Did you have the whole transfer inputs name? Just educate everyone in the audience. I know we’re talking about is basically when you're in Metrc, you're receiving inventory, you're transforming inventory or you're sending inventory out. For all intents and purposes, those are the three things you can do. It could be for a stock adjustment, or on inventory, or maybe made a sale, or maybe made a purchase order.

The thing is that they don't have all of the accounting and invoicing functionality or your… all the functionality that operators need to make the business run, so naturally you want to integrate with Metrc to be able to sync the tracking of the inventory out in Metrc with your system that has an invoice that represents that inventory going out to that customer. Their API is not complete, so if you want to send an invoice to a customer and you want to make that corresponding transfer a Metrc to represent the movement of the product, you can't directly do that.

Did you have templates which we are exploring that I think has some potential there, but it's definitely not in the perfect state? In your mind, what are the top three problems and maybe the first one is just the lack of transfers API, what are two other big problems that you see with the API?

Jennifer: With the API in particular, that’s definitely the missing endpoints, and then also just the number of failed… what we call, call attempts. Basically, the API itself has been shown to be very unstable, and when your third-party software wants to talk to Metrc, it has to send out these calls and get the information either put into the Metrc system or take it out of the Metrc system for you to see it on your screen.  

Well, if a API is fragile or API is not functioning correctly, that call is going to essentially crash and the transaction is not going to be successfully communicated to the Metrc system from your third party, and so the number of crashes that we're seeing or the number of failed call attempts that we're seeing is astronomical in terms of the percentage of calls that are made, and so that is a huge issue that we've broached with the agencies to see if they can get a handle on the magnitude of those crashes and failed called attempts and see if it's above the agreement they had with Metrc because it does turn out that there was a contract agreement with the unacceptable failed call attempts. We're really looking into that right now.

Blaine: The failed APIs thing is a really big problem and what about within actually the system Metrc itself? You're the operator, you're sending inventory out, you’re not even using another system, you’re just using Metrc directly. Are there anything in Metrc that you find is problematic?

Jennifer: Yes. Yes, I do. I think the biggest problem that I see is that there's no… I understand that it's a tool, but there’s really no stopping you from doing these crazy non-compliant activities. The biggest thing that I see would be an easy fix and should be an easy thing for Metrc to implement is suspending or not making available licenses that have recently gone through a suspension of their license, so we know in the state of California there’s been two huge suspension events related to businesses not getting on Metrc in time.

When those licenses were suspended, some of them did actually have credentials in Metrc, and it turns out that we could still do a license transfer to a suspended license, so in my opinion, if you have an agency that is regularly keeping track of license suspensions, license deactivations, activations, to me it makes sense that that agency would be able to communicate easily to Metrc and say, “Hey, can you turn off this one license aid?” That with that you're not accidentally transferring to something that has recently been suspended. That would be the biggest issue I have.

Blaine: Pretty ridiculous if you think about it. The State literally is letting you sell product in Metrc in their official system to people that they have told you, you are not allowed to sell inventory to.

Jennifer: Right. It should just be a bum. I'm sure it's not as simple on this operating side, but they have a list that they send out every week of licenses that have been activated or deactivated, so to me it just doesn't make sense that you wouldn't be able to push a button to that one Metrc user. Similarly, one of the things that you can do is you can adjust a package. If I have a package of 10 items and I want to go in and adjust account for any reason, I can adjust it into the negatives, so I can have a box that's tagged with something and adjust it so that it has negative 50 units. Why? Why do we go below zero? Those are just some of the things are just common sense to me that are available in Metrc. It just cracks me up.

Blaine: I'm going to have to throw out the sympathy card for anyone who makes software… being a software company and knowing how hard thing can be sometimes seems to be like it’s so simple, addthe button! But it’s like, it’s not that simple, trust me.

Jennifer: All right, I believe you.

Blaine: Also, I think one thing that everyone gets a little bit lost on is, they are shielded by the government. The government is their customer, not us and we had to work through the government and that layer of abstraction is really where a lot of the pain comes from. I'm sure it'd be so much different if it was just Metrc directly with operators.

Jennifer: I would agree to go off of that. If you have a Metrc question that's related just to the process of doing something in Metrc, like creating a package or running a report or something like that, the Metrc support helpline people are actually very friendly. If you have a Metrc question, I know they have a support email. I actually recommend calling. I've called several times for simple things as I was learning, and they were very responsive, very helpful. They all have very pleasant southern accents, and that's the one positive that I do give Metrc. That if you have a question on something particular of a Metrc process, like something that you'd read off the guidebook, that you want to be walked through, they’re there. They are very responsive in that way.

Blaine: I’d try and call them. Yes, email is okay. I get hit or miss, it goes all over the place. Let's take a step back because I love getting into it on the Metrc and just to emphasize for anyone that’s listening that’s like, why are they getting in so deep with Metrc. It matters that much. Other states that have had issues with Metrc rollouts and stuff like that have had entire operations shut down for a day in an entire State. Imagine just food just not moving for a day, like food is not allowed to ship in one truck to another and compliance manager, compliance data entry person like anything along those lines actually is the number one job posting in Colorado for a while.

I thought that was really compelling to see that that is the number one job, more than bartender, more than salesperson was people that can handle Metrc. Anyone that's looking into the industry, be aware of that word Metrc and track and trace. Yes, you're going to have to learn all that. As I said, you're very candid and you’re very down-to-earth. I love to know if you were the head of all this. You run California and Canada. What would you change if you could change one thing?

Jennifer: Taxation. Does that count? Can I do that?

Blaine: Yes. I like that 100% like 10,000%.

Jennifer: For answering like I am the head of the state, besides taxation, I would…

Blaine: No. Taxation’s great by the way. That’s a great answer. What would you change about taxation? How would you change to tax it?

Jennifer: I just read that… a report that came out the LOA report. Don’t ask me what that acronym stands for right now. On the tax reform that came out the end of December on how California could change its cannabis tax formats to help get the illicit market into the legal market and it was very interesting. If you could just Google the LOA report or cannabis tax reform report, you should be able to pull it up. It's very lengthy but has a good concise summary of what they investigated, and I do agree that some sort of tax reform is needed. I like the idea of getting rid of cultivation tax, and then I am not an economist, but I'm not sure I agree with taxation based on potency, but I'm excited to see that the conversation has really started, and I think that report will be a good jumping point for a lot of people.

Blaine: I don’t know if you’ve read it. I might feel like could you summarize it because I actually haven’t read that yet.

Jennifer: Basically, it just evaluated the tax situation that is right now in California where taxes are basically killing the majority of cannabis businesses, and the fact that it's very hard to get a profit right now. They looked at several other legalized states and their tax structures in comparison to California and then suggested some potential tax reforms that could come into play. One of those things was to change the current tax structure which is based on cannabis weight to be based on PTHT potency. There’re different arguments that I've seen come out after the report on why you wouldn't want to do that. But essentially it just walks through some different tax structures for people to start doing their analyses and start talking about what would be the pros and cons.

Blaine: I'm sure my brain just can't comprehend something. But why do we need anything besides the excise tax? Just to summarize basically right now, there's two forms of taxes… others form of taxes like retail sales, which are just like normal taxes and county level taxes, but the two highlight taxes are when you sell a product, flower, or edibles, or anything to a retail store, the distributor has to pay a certain amount of money based on the weight of the product. If it's flower, so like [00:28:46 inaudible] and pre-rolls and things like that, you have to pay a certain rate per pound, per ounce and then if it's a leaf or a trim, I'll pay another rate and then you also pay the 15% rate on the amount of value of the product that you're shipping out. These are the two primary taxes. They're proposing to remove cultivation tax for a potency base cultivation tax, but not get rid of it. But just like make it different.

Jennifer: I think they're proposing to get rid of the cultivation tax altogether and then generate a different tax structure that will be based on potency and the way that I read the summary at the end was that it's extremely complicated and what would happen is some immediate type of tax policy would come into place to help alleviate businesses now while they figured out how to implement this type of tax reform.

Blaine: What would that interim be? Would that be cutting a tax?

Jennifer: I cannot say out the top of my head, but the last thing I read was that there is one bill being proposed that would cut the cultivation tax altogether in the interim and then reduce something else.

Blaine: Oh my god. That would be incredible. Cultivation tax is a nightmare to manage. Can you explain to me in your words why think… can we just use the excise tax? Is that not an option? Just tax all the percentage of money going from distribution to retail. Why does that not just work?

Jennifer: I mean, I'm not an economist, so I'm not very good at this conversation that we’re having. The report is very lengthy, and it runs through several scenarios, so I do recommend going to look at that for these types of detailed… just getting in the weeds on it. Then like I said, I anticipate there to be so much more analysis from people who actually are into economics and how tax works and the revenue that the state expected when they legalized it. We have to always think about that too. The state has a revenue target that they want to meet. How do they meet it under these different tax structures while still saving the cannabis market?

Blaine: Well, shout out to the economist. Good luck with that, I hope it makes sense. Well, we're hitting the end. Thanks so much for coming on like seriously. You have a really deep insight into like Metrc compliance and everything about this. Thanks for taking the time and feel free to give a little shout out to Blackbird.

Jennifer: Yes, Blackbird, your wholesale distribution friend and software provider. If you have any questions, you can always find us at myblackbird.com.

Blaine: Before we go, what is your personal favorite way to consume cannabis?

Jennifer: My personal favorite way for the longest time actually I was taking my edible at the end of the night and that would be my sleep aid for probably about five years and then funny enough when I switched careers over to the cannabis industry, my stress levels went way down and I haven't had to take sleep aid for the longest time. It used to be edibles, but now it’s pretty much I am cannabis-free since entering the cannabis industry.

Blaine: The cannabis industry is the stress reliever. Just entering the Cannabis industry, like that, that is sending such a bad… I don’t know what your world was like before the cannabis industry. You’re one of the first people to say the cannabis industry is a stress reliever. God help whoever is in the industry you work for before.

Jennifer: Exactly. No matter how bad it gets, no matter how stressful a day I have, it still doesn't compare to where I was at.

Blaine: All right. Thank you so much, Jennifer. Have an awesome day and yes, thank you for your time.

Jennifer: Thank you.

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