The Board of Equalization last week held a stakeholder hearing in Sacramento to explore the different systems currently being used by Colorado, Washington, Oregon, New Mexico and Illinois to regulate the cannabis industry.
“As a taxing agency, we’re concerned that taxes are applied correctly, and there’s really no way for us to do that correctly if we don’t have the ability to trace,” board member George Runner said at the hearing.
Gov. Jerry Brown last year signed into a law legislation that called for the first statewide licensing and operating rules for marijuana growers and retail outlets since the state legalized medical marijuana 20 years ago. Lawmakers charged the Board of Equalization with the job, said board member Fiona Ma, who has rebuffed the notion that other state agencies should develop and oversee the new controls.
At the heart of the regulatory effort is a database system known as “track and trace” — one that can give state taxing and public health officials, and law enforcement the ability to follow a marijuana plant from a seed to the packaged product at a dispensary.
The level of detail could include how many times a single plant, which is assigned a unique serial number, was sprayed with pesticide, when it was packaged and sold, how much of the product from that plant has been sold to patients, and how much remains on dispensary store shelves.
“Track and trace is a digital representation of reality,” said Patrick Vo, CEO of BiotrackTHC, which runs systems in Washington, New Mexico and Illinois. “This allows the state agency to view in real time, every plant, every gram of cannabis in the production life cycle within the state.”
That is valuable information for public health officials who want to ensure cannabis has passed lab tests, law enforcement who want to target illicit business and taxing agencies tasked with collecting sales tax. Jeff Wells, CEO of Franwell Inc., which operates tracking systems in Colorado and Oregon, said a robust database could actually eliminate the auditing process because there would be such strong enforcement and compliance.
To do the job right in California, however, systems used in other states must take into account California’s diversity, said David McPherson, a principal at HdL, which offers local governments sales tax services. For example, a cloud-based program might not work so well for farmers asked to scan tags in a field on a hillside without an Internet connection.
The board was also cautioned a new regulatory scheme — both the process and fees — not be too burdensome on the industry, especially on the small farmers.
“If the new system prevents access or puts burdens on them, they will transition into the illicit market. They’re going to find an alternative, and it’s not the alternative they and the state want,” said John Hudak, deputy director of the Center for Effective Public Management and a senior fellow in Governance Studies at the Brookings Institution, who noted farmers had been playing by their own rules in California for the last 20 years.
His sentiment was echoed by Paul Hansberry, a cultivator from the Mendocino Valley, who traveled to Sacramento to voice his concerns.
“I fear the different agencies and people establishing regulations know very little about the farmers and only look at the media reports of a billion-dollar industry and feel they can tax and regulate and create fees with unbridled abandon because the farmers have a million dollars buried in the back yard. That’s just not so,” Hansberry said.
This story originally appeared on TechWire.
