Oklahoma AG fires back at lawsuit over Metrc and digital cannabis tracking
Oklahoma cannabis regulators want a request for a temporary injunction denied on the basis that “vital public interests” are at stake in implementing the state’s program for digitally tracking cannabis plants and products.
In a new court filing, the Oklahoma Attorney General’s Office argues that the state’s initiative for the real-time tracking of cannabis is essential for blocking diversion to children and unauthorized people and for more rapidly removing contaminated products from the supply chain in order to protect consumers.
State officials are responding to a legal challenge first filed in April by the northeastern Oklahoma cannabis operator Dr Z Leaf and related business entities. Since the suit was filed, Green Culture Processing and several additional entities from the area have sought to join Dr Z Leaf as plaintiffs.
They’re being led by high-profile Tulsa attorney Ron Durbin who’s made a name for himself not only representing cannabis clients in Oklahoma but for being active at the statehouse on cannabis laws and regulations.
Durbin and the cannabis plaintiffs say state regulators enabled a monopoly when they picked the private Florida company Metrc last year to exclusively implement and maintain its proprietary technology for monitoring every cannabis plant and product in the state.
That technology takes the form of special Metrc software and radio-frequency tracking tags that Oklahoma’s thousands of cannabis licensees would be mandated to purchase and utilize. This, Dr Z Leaf and the plaintiffs say, would create a “financial windfall” for Metrc at the expense of Oklahoma cannabis entrepreneurs.
Licensees would be required to pay Metrc $40 per month in subscription fees, plus $0.45 for each cannabis plant and $0.25 for each cannabis product. The plaintiffs and Durbin are asking the court to determine whether the Metrc contract and the mandated use of its proprietary technology constitutes an unlawful monopoly.
They also allege that by imposing Metrc’s system and the cost of it on the cannabis industry, state regulators are violating the due-process clause of the Oklahoma Constitution.
Every cannabis business in the state was expected to be fully compliant with Metrc and the state’s seed-to-sale tracking system by April 30. The lawsuit was filed shortly before, and an agreement was struck to put off the required deadline for industry implementation until June 30 until the legal questions could be further resolved.
The next court appearance in the suit is scheduled for 10 am at the Okmulgee County courthouse just one day prior to the new June 30 implementation deadline. Click below for an anchor folder on DocumentCloud of key filings in the suit that can be viewed anywhere.
OK seeks to stop temporary injunction
In an attempt to block Durbin’s request for a temporary injunction, the Oklahoma Attorney General’s Office is arguing that the state’s medical cannabis laws as passed by voters in 2018 envisioned that “all marijuana being grown is accounted for.”
Officials say later updates to those laws from the legislature clearly state that the Oklahoma Medical Marijuana Authority “shall implement an inventory tracking system” for all cannabis sold and disposed of in the state.
According to Section 427, they argue, each cannabis business must “use a seed-to-sale tracking system or integrate its own seed-to-sale tracking system with the seed-to-sale tracking system established by [OMMA].”
Even without core legal questions in the suit yet settled, attorneys for the state argue that a temporary injunction is unnecessary since over 7,000 Oklahoma cannabis licensees have already begun using the Metrc system or integrated it into their operations in anticipation of the previous April 30 deadline. Even then, the state says:
“Regardless of which tracking system they choose, businesses licensed to grow, process, or dispense medical marijuana must ‘keep records of every transaction with another medical marijuana business, patient, or caregiver’ and track, update, and report their inventory to OMMA ‘after each individual sale’ to allow for real-time tracking in the inventory tracking system.”
Oklahoma cannabis businesses, the state argues, may choose not to integrate with Metrc and use it to streamline their own business operations. As an alternative, they are free to still meet their legal obligations for tracking and tracing cannabis by manually logging transaction information into the Metrc system while the lawsuit is still being adjudicated.
But the list of business activities that must be tracked and reported to the state is by no means short and would surely be made more laborious by manual entry. Required information includes:
Notice of when you plant seeds.
Notice of when you harvested or destroyed plants.
Notice of when your plants or products were transported, stolen, or lost.
A complete inventory of all seeds, plant tissue, clones, plants, usable marijuana or trim, leaves and other plant matter, batches of extract, and concentrates.
All samples sent for testing, any unused and returned sample portions from testing, any samples used for negotiating a sale.
The type of product received, the batch number, date of the transaction, total dollars spent, and the collected excise taxes.
Top OK cannabis regulator weighs in
Attorney’s for the state say that focusing on which company was chosen by regulators for seed-to-sale implementation misses the point. Cannabis businesses, they argue, are still not relieved under state law from reporting to Oklahoma regulators in real time through the system the state has chosen to receive this information, whether Metrc’s tags are used or not.
In a sworn affidavit, OMMA Director Kelly Williams added that “It is only once a commercial licensee’s data makes it into Metrc that the OMMA can view and track that inventory. In other words, the contract with Metrc provides the OMMA a cloud-based system that gives it visibility in real time to perform its auditing and regulatory function.”
Williams argued in her affidavit that Metrc served the state’s mission in several ways:
No cannabis recorded in the Metrc system can be transferred without being tested first for safety and quality.
Radio-frequency tags are difficult for cheaters to counterfeit and are globally unique. They also more efficiently match testing results to the plant or product.
Lab results are uploaded directly to the system by the lab itself thereby reducing the potential for the manipulation of test outcomes.
She said that seed-to-sale tracking systems in general:
Ensure every step in the supply chain is historically tracked for traceability in the event of a needed recall for consumer protection.
Ensure cannabis is only transferred between active licensees and that operators not in compliance can be more readily spotted.
Provide data analytics that can alert regulators to potential instances of diversion and noncompliance.
Then in a separate recent filing, the state of Oklahoma is also seeking to have four of the allegations from Durbin and the cannabis businesses dismissed on numerous grounds. Many of these arguments are similar to the attempt to halt the temporary injunction.
But the second filing contains a noteworthy addition:
“The [seed-to-sale] tracking system hinges on the use of proprietary ‘[RFID] tags supplied by Metrc.’ … These tags look like stickers with chips and antennae. They are common across many industries on account of their ability to instantly and accurately track and record volumes of information. … After nearly a year of planning and implementing the statutorily required system, once it was in place, OMMA gave marijuana businesses until April 30, 2021, to have their inventory tracked into the Metrc system.”
Metrc wants in on the party, too
The initial lawsuit over seed-to-sale tracking in Oklahoma didn’t name Metrc as a defendant. It instead targeted state regulators responsible for hiring Metrc and implementing seed-to-sale cannabis tracking. Metrc is nonetheless seeking to intervene in the lawsuit. A Metrc director of external affairs denied the company was a monopoly and told Oklahoma City’s KFOR in May:
“We intervened to defend ourselves. … Metrc is actually named in the lawsuit, but interestingly, we’re not actually party to the lawsuit, and this obviously affects our company and our employees and most importantly our work with Oklahoma. … The whole idea behind Metrc is actually to make things more efficient.”
Metrc COO Lewis Koski additionally wrote a recent letter to the industry explaining why the company was intervening in the suit:
“While the litigation clearly involves our work with OMMA and licensees, we were not a named party in a legal action that directly affects our company, employees, and services to Oklahomans. … Despite the recent confusion, cost, and delay, we are confident that seed-to-sale — and the creation of a safe, transparent, and efficient legal-marijuana market — remains a top priority for Oklahoma.”
Metrc also points out that state regulators specifically said they were looking for a “single provider of a complete solution” when they sought a system for tracking cannabis seed-to-sale in Oklahoma.
Dr Z Leaf and Durbin respond to Metrc
Dr Z Leaf and Durbin, as you can imagine, filed a response to Metrc’s attempt to intervene. In addition to not naming Metrc as a defendant, they also do not challenge the underlying contract with Metrc or the right of state bureaucrats to enter into contracts for various public services with private companies.
But the plaintiffs do want to know whether state officials have overseen and managed certain Oklahoma cannabis revenues well enough that they could have been used to pay for the Metrc contract rather than the industry.
After all, since Oklahoma’s cannabis program began in 2018, the state has generated roughly $248 million in excise taxes and state and local sales taxes through May.
According to Durbin in a Facebook video June 9, Metrc was nonetheless allowed by the court to intervene in the suit. He told KFOR: “We don’t believe Metrc has any interest in this case. Our position is about the fact that the state agency -- the Oklahoma Department of Health and OMMA -- has failed to do its job in adopting regulations.”
He added that using Metrc won’t entirely stem bad actors in the industry. State regulators, Durbin argued, must conduct more inspections, and recent legislative changes will aid in that effort. From his filing that contests Metrc’s attempt to intervene:
“The underlying transaction at issue is whether an Oklahoma agency behaved in a procedurally and legally proper way when it implemented a vendor contract and whether that agency has properly managed monies which plaintiffs allege could, and probably should, have been used to fund the [Metrc] contract. … [Metrc’s] permissive intervention would burden this suit with extraneous issues. [Metrc] has requested the court grant its intervention ‘in order to protect itself’ and ‘its contract rights.’ … The sole issue here is whether a government agency implemented that contract in a manner inconsistent with law.”
The lawsuit further argues that due to the extraordinarily high number of cannabis licensees in Oklahoma, Metrc could make more than $5 million every year from the software subscription fees of $40 per month. The plaintiffs also give what they call is a “conservative” estimate of $7.5 million more flowing to Metrc each year from the cost of the radio-frequency tags.
Neighboring Missouri also hired Metrc for the same services in its medical cannabis program. But unlike in Oklahoma, Missouri regulators awarded a $5 million contract for tracking and tracing cannabis with the intention of the Metrc tags and software falling within the scope of the contract amount.
Metrc objected after winning the contract and went to court in Missouri with their own lawsuit. They argued that Metrc had the right to charge cannabis operators for the radio-frequency tags in addition to the $5 million contract.
The case eventually made its way to a Missouri court of appeals this past January where Metrc lost and was barred from charging for the tags as part of the state’s mandated tracking program. Metrc is now selling its tags more directly to Missouri cannabis businesses, but critics wonder whether even this is allowable under contract terms and the recent Missouri court rulings.
Listening to: From Ashes Rise “Reaction” Reply with an email or sign up to receive alerts. Follow Green Country Monitor on Twitter, Facebook, LinkedIn, and Instagram. If you appreciate this work, consider leaving a tip.