Marijuana business owners in Washington state continue to grapple with problems in the state-selected traceability program, with some industry officials concerned the situation could trigger errors tied to tax reporting and regulatory compliance.
The state has used MJ Freeway’s Leaf Data Systems for its traceability software platform since December. The kinks plaguing the system come at a delicate time for the Denver software company.
The Leaf Data Systems contract is a five-year deal. It is up for annual renewal in mid-July, pending a review by both parties. Washington regulators have yet to decide whether to renew their contract with MJ Freeway.
But others hope regulators scrap the platform, which has been experiencing on-and-off problems since it was rolled out at the end of 2017.
One retailer, for example, said the system was recording incorrect sales data. “We don’t know of a single retailer that has correct information in Leaf,” said Bob Ramstad, owner of Seattle retail shop OZ.
But Lindsay Short, operations manager at Seattle-based producer/processor Db3, said the situation has improved and wants the state to stick with Leaf Data Systems rather than switch to a new platform.
“We’ve already put time and energy into making this one better,” she said. “Why on earth would we want to start over again?”
New issue emerges
The latest issue affecting Leaf Data Systems surfaced last week.
State regulators sent MJ business owners an industry update suggesting they reset an important security feature – application programming interface (API) keys – because of “speculation among the cannabis industry that an incident has occurred within the state traceability system.”
Each business that uses Leaf Data Systems has a unique API key, which only it can view.
Representatives from Washington’s Liquor and Cannabis Board (LCB) declined to comment beyond the state’s update.
The update also disclosed that regulators were told recently of attempts to tamper with data that originated from a third-party integrator connected to the Leaf Data Systems software platform.
“The system is currently functioning normally,” the update added.
MJ Freeway spokeswoman Jeannette Ward said in a statement emailed to Marijuana Business Daily that the company has improved Leaf Data Systems since its launch and noted that the system has processed more than $1 billion in sales in Washington.
“As we head into the contract renewal period, we are pleased with the systematic and measured approach we are taking with the WA LCB and via licensee feedback to align on system evolution and future needs,” Ward wrote.
More problems in store?
Despite the reassurances the system is operating normally, some Washington cannabis business owners remain unhappy with Leaf Data Systems.
They said the ongoing difficulties could unleash fresh problems, including inaccurate tax reporting, compliance errors and the diversion of licensed product out of state.
All this comes as the state has hired a third-party firm, Gartner Consulting, to conduct an eight-week evaluation of the software platform to help the state decide whether to renew MJ Freeway’s contract.
Gartner has sent an online survey to marijuana business owners and third-party integrators seeking feedback about the traceability system. The company also plans to hold a town hall-style meeting with software integrators to discuss Leaf Data Systems.
The transition from BioTrackTHC’s traceability platform to Leaf Data Systems has not been a smooth one for Washington’s cannabis business owners.
BioTrackTHC’s contract ended Oct. 31, 2017, and it took months for cannabis businesses to adopt the new system. Business owners claim thousands of dollars were lost during the disruption.
The LCB was forced to initiate a contingency plan through this past March. While some issues have been worked out, not everyone is happy with the system and the regulators.
‘Perfect storm’
Ramstad’s OZ retail store in Seattle has experienced wide differences in actual sales numbers and what Leaf Data Systems is reporting.
When he began using it, Ramstad believed his sales and inventory data matched up with the traceability system’s numbers.
But when he compared his inventory and sales data with what Leaf Data Systems recorded, the numbers were “grossly wrong.”
According to Ramstad, the state is working on an honor system for what data is being reported regarding seed-to-sale tracking – but the numbers regulators are receiving could be wrong.
That could suggest the possible diversion of cannabis out of state or to the illicit market.
Also, it could make it difficult for regulators to monitor and audit the tax revenue being generated by the marijuana program.
“It’s the perfect storm,” Ramstad said.
Stay the course
By contrast, Db3’s Short said using Leaf Data Systems has become easier since the beginning of the year.
“The first month was a nightmare,” she said. “There was all of this product stuck in limbo.”
While she thinks the program could be more user-friendly, Short’s company can now use Leaf Data Systems to perform all the necessary functions. That includes receiving products, converting inventory into new goods and shipping items.
Overall, Short is pleased with how the program is functioning compared to the previous system.
“The flexibility is better than being handcuffed to however the system is written,” she said. “Long term, it’s going to be better.”
Short believes other marijuana business owners will like the system better once they become comfortable with it functioning not as an inventory management system but simply as a compliance tool.
“Change is hard,” Short added. “It’s definitely workable, and I think (MJ Freeway is) putting in a lot of effort to make it better.”
More than anything, she doesn’t want the regulators to change horses in midstream.
“If somebody new comes in, there will be a whole new slew of issues to work through and we’re back to square one,” Short said.
Taking another tack
At least one industry executive has given up trying to get state regulators to change anything.
“I don’t know how long they can keep their heads in the sand,” said Jeremy Moberg, a grower and president of the Washington Sungrowers Industry Association (WSIA). “It’s a complete mess.”
Moberg resigned from the state’s traceability advisory committee because he believes the situation is a lost cause and he’s not going to waste more time or political capital on the issue.
He doesn’t think much will come out of the third-party review from Gartner because the state has already made up its mind about renewing the contract.
“This is purely political cover,” Moberg said. “Spend some money. Tell the industry you’re looking at the problem while you do nothing.”
Bart Schaneman can be reached at barts@mjbizdaily.com.
