The California Department of Cannabis Control rescinded a new track and trace process announced during the year-end holidays following distributor Kiva Sales & Service’s challenge that it was an underground regulation.
Just before Thanksgiving, on Nov. 20, the CDCC and California’s track and trace contractor Metrc notified licensees there would be a new transfer approval process effective Dec. 4. Under the new rule, licensees transporting and receiving products would be required to review and approve the transfer request before a shipping manifest could be issued.
Two days later, Metrc posted a new notice pushing the effective date to Jan. 2
Kiva then filed a petition with the Office of Administrative Law (OAL) challenging the new requirement as an underground regulation because it did not go through the state’s official rulemaking process, which allows for public comment.
“This is not a minor change to software functionality, Metrc functions without the change and has been facilitating the transfer of cannabis goods for nearly five years,” Kiva said in its Dec. 6 petition. “Instead, this change introduces a new and mandatory process to occur in the state’s track and trace system before any transfer of cannabis goods may occur.”
Kiva Sales & Service is the distribution arm of Kiva Confections and delivers a variety of cannabis brands and products to more than 600 dispensaries throughout California. Caren Woodson, Kiva Brand’s senior director of compliance and licensing, said Kiva Sales & Service transports about 70,000 units per day, or 1.4 million units per month.
She said the rule would have “absolutely” impacted Kiva Confections’ shipments of cannabis material to make its products. “However, from my perspective, the disruption was definitely greater for the distribution sector, and that is why I elected to petition on behalf of Kiva Sales & Service,” she said in an email. “Regardless, the success of the petition resulted in a favorable outcome for all licensees.”
In its petition, Kiva said, “The Department provided licensees with no justification for the swift implementation of this new requirement, opportunity for comment, or discussion of other reasonable alternatives.”
“I’m not sure what the DCC is trying to get at,” Woodson said in an interview.
Under current rules, a recipient would need to log receipt of the goods into Metrc within 24 hours, she explained. This new rule, would be an added step before the transporter could create a shipping manifest, which is also required.
Woodson said that in order to receive timely shipments, customers would have to approve transfers after normal business hours or the order would be pushed back. While bigger companies might be able to make these approvals, “for mom-and-pop shops, it’s not going to work.”
In its petition, Kiva said the rule would require the company to change shipments from a 24-hour turnaround, “an important feature of our business model,” to 48 hours. And it would lead to warehousing problems.
In its Nov. 20 letter, the CDCC said the rule would:
- “Allow licensees to review, and correct, orders before they are placed on a manifest
- Add additional verification to prevent misuse of transport license numbers
- Help prevent licensed destinations from receiving unsolicited products
- Help prevent licensees from being incorrectly selected as a destination
- Streamline operations to support the transfer of compliant products in the supply chain”
Woodson also questioned why the CDCC tried to implement this rule during the busy year-end holidays, when the CDCC and Metrc offices would be closed. “Clearly, there’s a lack of understanding of what is happening on the ground during this time period,” she said.
In the petition, Kiva noted that the regulated industry should have an opportunity to comment on any new rule or procedure. “Regulation via underground rulemaking channels diminishes political accountability and frustrates an opportunity to foster broad-based social consensus on public policy.”
On Dec. 22, the CDCC said in an email to licensees that, “in light of constructive feedback it has received,” it would not implement the requirement on Jan. 2. On its website, the department said the decision was “due to an Underground Regulation Petition” filed with the OAL.
It said it plans to implement the rule at a “later date” this year. “Licensees will be provided ample time to prepare before the functionality is deployed,” the email said.
The CDCC did not respond to emailed questions by deadline.
The department notified the OAL of its decision on Feb. 5. As a result, the OAL suspended action on the petition.
