New Regulation Causing Trouble for California Cannabis Supply-Chains
By: Supplybloc Technology
Tags: General Content, Cannabis, Regulation, Blockchain, California

On July 1st 2018 New Regulation Will Be Enacted Regarding Cannabis Sales and Distribution in California

The new regulation concerns laboratory testing and quality control, packaging and labeling standards, and product potency limitations. Retailers and distributors are at risk of facing supply shortages and logistical challenges, while manufacturers (particularly those that produce edibles) might need to implement some drastic shifts in their production processes. Still, the biggest concern for most industry professionals is locking down appropriate supply-chains with distributors that can provide a guarantee of compliance with these regulatory standards. Without compliant distribution channels previously established, many retailers are going to be struggling to play catch up over the next few months.

The specific requirements as laid out by the California Bureau of Cannabis Control (BCC) follow four regulatory tiers: Laboratory Testing, Packaging & Labeling, THC Limits (for both edible and non-edible products), and Ingredients & Appearance.

Laboratory Testing

Perhaps the strictest part of these regulatory requirements involves the laboratory testing standards. According to the BCC, if you are a distributor or retailer, you must destroy all cannabis goods that were manufactured or harvested before January 1st 2018 and have not passed the new rules for laboratory testing. Distributors and retailers are not allowed to send their untested products to the laboratory. So all products that don’t meet these standards and haven’t been sold before July 1st will be a sunk cost.

Alex Traverso, a spokesman for the California BCC, stated that they “gave everyone six months to use up their supply,” while also noting that they “felt like that was a sufficient amount of transition time.” While half a year might seem like ample time for businesses to get their ducks in a row, the reality is that traversing the young and volatile supply-chains of the newly legal cannabis industry has been nothing short of a bumpy road for most industry professionals. Locking down compliant methods for distribution while also managing older inventory is not as easy as it might sound.

When you consider that most cannabis businesses are small startups without a lot of cash to burn, it makes sense that the majority would have been avoiding costly laboratory fees and unmanageable distribution by stockpiling large quantities of now non-compliant inventory. There is a clear problem with supply-chain standardization and management that still hasn’t been quite solved in this industry. Now, as businesses scramble to rid themselves of their overstocked pot, we’ll likely start to see significant price drops within the next week or so and unprepared retailers/distributors will be struggling.

As Lucas Seymour, co-founder of Old Kai Logistics, states, “if you’re a brand out there and you haven’t been putting in the homework to get ready for this, July is going to be an incredibly rough month.” While Seymour is right, he’s still overlooking many of the businesses that have been attempting to prepare for this regulatory shift but have been unable to navigate the currently unstable realm of cannabis supply-chains.

Distribution volatility aside, the legal cannabis industry in California is going to be facing a seemingly absurd supply-chain bottleneck due to laboratory limitations. There are currently only 28 licensed cannabis testing labs in the state that are meant to service the more than 6,000 businesses hoping to achieve regulatory compliance. That volume is simply untenable with the present state of affairs. And this shortage of labs will likely create a scenario where only the larger cultivation and distribution organizations can corner the market, leaving smaller businesses with nowhere to turn.

Still, assuming that the lack of labs will somehow not cause any major supply-chain disruptions, there is still the issue that many smaller operations simply didn’t have the ability to properly prepare for the July 1st regulatory shift while also remaining profitable. Adrian Sedlin, CEO of Canndescent, notes that several smaller companies “didn’t have the financial luxury or capitalization to deal with” finding complaint supply-chain solutions. Unfortunately, there isn’t much time for a quick fix and so most of these unprepared organizations will have to bite the bullet in the coming weeks.

Packaging and Labeling

The new regulations for packaging and labeling will also likely cause some issues for retailers and distributors. These operations are now required to only purchase products that have been packaged and labeled by wholesalers and manufacturers according to regulatory standards. Retailers and distributors are not allowed to package or label inventory on their own, and will be forced to sell or destroy all products that do not meet these requirements by July 1st.

Retailers will not be able to send their unpackaged inventory to other organizations in a last ditch effort to make their goods complaint. So operations that have stockpiles of marijuana products that are improperly packaged will have no choice but to eat the costs. Even if those products were properly tested by licensed laboratories, they are required to have been initially delivered to retailers in the appropriate packaging or are otherwise considered non-compliant.

THC Limits and Ingredients & Appearance

The new limits for THC quantities per cannabis product will inevitably cause some headaches for edible manufacturers, particularly those with less standardized production methods. Edible cannabis products may not exceed 10 milligrams of THC per serving and 100 milligrams per package. This type of precision is easier for industrialized operations, but could pose some difficulties for smaller manufacturers.

In the same vein, all ingredients within cannabis products must now meet the requirements set by the California Department of Public Health. For extracts, edibles, and other more highly manufactured cannabis goods, this new rule will cause some delays in production as businesses seek to change their formulas and recipes. And retailers will likely see a shortage of these goods while the kinks are still being worked out.

How Blockchain Could Have Helped Smooth This Transition

Better Supply-Chains, Easier Compliance, Lower Costs, and Higher Returns

The common thread throughout all of the issues stated above is the lack of established and compliant supply-chain infrastructure within this new and somewhat volatile industry. Laboratory testing, proper packaging, standardized manufacturing, and secure methods of distribution are all pieces of the larger supply-chain puzzle that cannabis businesses have yet to fully solve. When you look at the gaps in the current state of affairs, it’s clear that an innovative technology such as blockchain could have a tremendously positive impact on this budding industry.

Blockchain technology can offer supply-chains of all types with transparency, trackability, and transactional efficiencies within a unified management system. Cannabis supply-chains are uniquely suited to the benefits of blockchain due to the constant need for trust, security, and regulatory/industry compliance. With blockchain-integrated systems, cannabis industry professionals can have full visibility into the entire life-cycle of their products, from seed-to-sale (or farmer to consumer). This would be a giant leap forward toward increased legitimacy and efficiency for the legal cannabis sector.

Register all data associated with cannabis products throughout their entire life-cycle using blockchain

So how could blockchain have helped smooth out this July 1st regulatory transition?

Well, using blockchain-integrated supply-chain management tools combined with IoT sensor technology, businesses can immutably register and track all of the data that is associated with their products within a decentralized ledger. This data is then visible to them throughout the entire life-cycle of their products, and helps minimize damage, corruption, fraud, and any other unforeseeable complications. This type of transparency also ensures that different organizations within the same supply-chain can interact and exchange with complete trust and security.

SupplyBloc offers trust and transparency throughout the entire supply-chain

So with a foundation built on transparency and trackability, cannabis businesses can create highly efficient and stable supply-chain networks and infrastructure. That enables products to be properly manufactured, tested, and packaged without the risk of incurring higher costs due to volatile distribution. It also helps organization prove their compliance because the entire chain of custody for all inventory can be laid out on a transparent and secure blockchain decentralized ledger.

With blockchain technology put in place, supply-chains could be operating more efficiently, and cannabis retailers and distributors wouldn’t have had to overstock on non-compliant inventory. The smaller businesses that are now kicking themselves for having to fire-sell or destroy their products could have entirely avoided this situation, even without the “financial luxury or capitalization” that larger organizations benefited from.

Maintain regulatory and industry compliance while lowering operational costs

Fortunately, businesses of all sizes can still equip themselves with the power of blockchain-based supply-chain management technology to prevent any future mishaps, single points of failure, and other common industrial inefficiencies. With SupplyBloc, a blockchain Platform as a Service (BaaS/PaaS), cannabis industry professionals can develop highly customizable blockchain applications that meet their specific requirements for supply-chain optimization. As a “plug and play” solution, SupplyBloc is perfect for small to mid-sized cannabis businesses hoping to reap the benefits of blockchain tech while integrating it into their existing management systems.

Use SupplyBloc to track cannabis from Seed-to-Sale

Blockchain tech offers the simplest and most efficient way to remain compliant with industry and regulatory standards without large operational costs. And with SupplyBloc, cannabis operations can grow their own supply-chain solutions that are built atop our blockchain framework. By providing a Seed-to-Sale API & SDK along with other development tools, we hope to empower businesses to take control of the life-cycle of their cannabis products on their own customizable terms.

Learn more about SupplyBloc’s implementation of seed-to-sale methodology within the cannabis industry.