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Lawsuit filed against OK regulators over Metrc and required digital cannabis tracking
Oklahoma cannabis regulators overstepped their authority when they created a mandated program for tracking and tracing every cannabis plant and product in the state that required the use of specific electronic tags and software. State officials additionally created a monopoly by picking a single private company to exclusively implement the program with the cost to be borne by the cannabis industry.
That’s according to a lawsuit newly filed in Okmulgee County, in which the cannabis company Dr Z Leaf and its sister businesses say the state of Oklahoma has formulated a “financial windfall” for the Florida-based company Metrc. Its proprietary software and radio-frequency identification tags must be used by every business licensee in the state by a deadline of April 30. The suit only names Oklahoma and its agencies as defendants and not Metrc.
The plaintiffs also say in their suit that forcing licensees to pay for the mandatory tracking program and Metrc’s accompanying technology violates the Oklahoma Constitution. Some 10,000 cannabis businesses could be affected by the questions raised in the lawsuit.
Dr Z Leaf and its attorneys say they are seeking relief on behalf of the state’s entire cannabis industry and want the program halted ahead of the April 30 deadline for required statewide seed-to-sale implementation.
The complaint says state law never required implementation of a seed-to-sale tracking program with Metrc in the first place. Instead, they say, state laws only required that cannabis businesses complete monthly harvest, processing, and sales reports for the Oklahoma Department of Health. These reports were required to include, for example, amounts of cannabis and cannabis products made, purchased, and sold, as well as taxes collected from retail sales.
Dr Z Leaf and its attorneys contend that the Oklahoma Medical Marijuana Authority and its parent agency, the department of health, created an unlawful tax when they mandated that the cannabis industry pay for the tracking program with Metrc as the required vendor. According to the suit:
“Nothing in Oklahoma statute requires or directs any medical marijuana grower to engage in or participate in any specific seed-to-sale system. Nothing in Oklahoma statute requires or directs any medical marijuana grower to purchase or use RFID tags or any other systems to track plants and products.”
Dr Z Leaf was an early entrant in the Oklahoma cannabis industry with highly visible advertisements and locations throughout eastern and northeastern Oklahoma. The company also has cannabis business licenses for processing and cultivating cannabis, in addition to operating retail dispensaries.
State regulators have said their intent for electronically tracking plants and products from seed to sale was to monitor in real time for quality to protect patients and to prevent diversion of medical marijuana to unlicensed people.
But the mandated tracking program comes as a heavy cost to the cannabis industry in Oklahoma. Licensees are required to pay to Metrc $40 per month for a monthly service subscription fee, plus $0.45 for each cannabis plant and $0.25 for each cannabis product no matter the size of the business.
Meanwhile, some cannabis operators in other states have reported intermittent outages and disruptions with Metrc’s technology as they sought to stay compliant with their own cannabis rules and restrictions.
The Dr Z Leaf lawsuit points out that at the current number of cannabis business licensees in Oklahoma, Metrc stands to make over $5 million in the first year alone from the $40 required monthly subscription fees. That’s in addition to RFID tags required to be affixed to cannabis inventories that could range anywhere from 50 to 50,000 plants and products.
While Metrc’s software is unique to the cannabis industry, radio-frequency identification tags for tracking purposes of all kinds are commonly available. In fact, Rep. Scott Fetgatter (R-Okmulgee) has previously expressed concerns similar to those in the lawsuit about specifically mandating the use of Metrc’s RFID tags.
In an earlier version of Senate Bill 2004 — an expansive cannabis proposal still pending at the statehouse — Fetgatter had attempted to grant cannabis businesses the right to choose what tags they preferred to buy for complying with the state’s cannabis track-and-trace program.
State regulators and Metrc reportedly disliked the idea, so Fetgatter took it out of the bill. Said Fetgatter at a Feb. 25 state House committee hearing:
“It’s my understanding that OMMA and Metrc are not really happy about the language in this bill, even though neither one of them has personally come to me and discussed that. So we are going to strike this language out, so we don’t shut down negotiations on this particular issue with the RFID tags.”
Among the small number of companies offering track-and-trace technologies for cannabis regulators, Metrc has become one of the most experienced with now 16 state-and-local governments as clients. Lewis Koski, the company’s COO, was a senior cannabis-compliance official in Colorado where voters authorized cannabis for adult use in 2012.
With its exclusive Metrc contract, Oklahoma is joining other states still tackling how far they should go in regulating and controlling the manufacture and distribution of cannabis and its products. Many states like Oklahoma are mandating the use of tracking systems to make it easier for spotting diversion and removing unsafe products from supply chains.
While only Dr Z Leaf is officially named for the time being among the plaintiffs in the Okmulgee lawsuit, attorney Ron Durbin said in a Facebook video that he and his team intended to seek broader industry relief:
“This is a class-action lawsuit seeking relief for every business. … This isn’t a lawsuit seeking relief for big businesses. This isn’t a lawsuit seeking relief for small businesses. This is a lawsuit seeking relief for freakin’ everybody in the state of Oklahoma that’s a licensed, medical marijuana business owner.”
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