Can You Reconstruct Your Cannabis Inventory Without the State System?

For years, California’s licensed cannabis operators have tagged plants, scanned packages, reconciled inventory, and paid for the privilege, on the understanding that Sacramento was using the data to identify diversion. On August 4, an Orange County Superior Court judgment confirmed what many operators complained about for years: the system was not flagging irregularities as the law requires. That same month, New Mexico showed the rest of the country how quickly a state can replace the system that holds an operator’s compliance history.

Put those two stories together, and you get one of the most important operating facts in this industry: the state’s seed-to-sale system is not your internal control system. It never was. And the period when irregularities were not being objectively flagged may be ending.

Start in California.

On August 4, an Orange County Superior Court judge entered final judgment in HNHPC v. Department of Cannabis Control, a case brought by the parent company of the retailer Catalyst that had been grinding through the courts for close to five years. California law requires the state’s track-and-trace database to flag irregularities for investigation. The court found that DCC’s system, run on Metrc, doesn’t do that. It generates enormous volumes of reports and raw transaction data, and then state analysts review it by hand, without any written definition of what an “irregular transaction” is. The judge gave DCC six months to establish objective criteria, so the system can flag suspicious activity on its own.

That made operators angry, and it’s understandable. The other end of all that compliance labor was manual analyst review without objective criteria.

But here is the part that should make operators act. The judgment gives DCC six months to establish objective criteria for flagging irregularities. That does not guarantee that automated flags go live on day 181, and an appeal could affect the timing. Operators should plan for more scrutiny and changes that may shape how current and historical records are interpreted. Do not assume that old data is beyond review simply because it was not automatically flagged when it was entered.

Now go to New Mexico.

New Mexico’s BioTrack agreement was set to expire September 15, and the Cannabis Control Division says it could not secure an extension. The state awarded a replacement contract on January 28 to Albuquerque-based Real Time Solutions. The first operator-facing dates arrived August 10, with a fuller schedule on August 14. BioTrack shut down transfer functionality for non-retailers on August 25, and retail access ended September 4. That was fifteen days from the first dates to the first shutdown. Existing BioTrack user accounts did not transfer automatically, and only data reflected in BioTrack at migration would move. Operators sought emergency relief; the court allowed the rollout to proceed while the matter continued, and the state says transition planning began in 2024.

The obvious question is whether other states should copy New Mexico. The new system is free to licensees, with no per-tag fees and no monthly subscriptions, and the state selected the vendor partly for that reason. My answer is yes on the money and no on the method. Per-tag fees are a tax on compliance, and every state that charges them should be embarrassed by New Mexico’s price. But changing a system of record on roughly two weeks’ notice is not a model other states should copy. It is a stress test. Operators who can produce their own inventory record without logging into the state portal are keeping proper accounting records.

Here is the common thread. California’s system has not been doing what the law requires and now faces a court-ordered deadline to establish objective criteria. New Mexico changed systems on a compressed schedule. In both cases, the operator’s exposure comes down to one question: can you reconstruct your own records without relying exclusively on the state’s software?

I spend a good share of my time doing exactly that, usually after something has already gone wrong, and it has taught me three things.

One. The state system is a reporting obligation. It should not be your only bookkeeping system. What came in, what went out, what was destroyed, who signed, what the scale said, and why an adjustment was made should exist in a form you control and can hand to an auditor, buyer, insurer, or judge when it is needed.

Two. Reconcile on a cadence, and write the explanation at the time. Weekly is a practical baseline for many operations, while higher-risk workflows may need daily review: physical count versus your internal system versus the state system, with every variance explained and initialed. When I rebuild a company’s records after the fact, the problem is almost never the number. It is the missing note that would have explained the number. A 3% harvest variance may have an ordinary operational explanation if it was documented the day it happened. The same 3% looks like an unexplained irregularity if the first explanation appears in a deposition.

Three. Someone else is about to define “irregular.” Get ahead of them. You already know what objective criteria are likely to examine because they are what a good auditor examines: inventory adjustments, waste and destruction events, rejected or returned transfers, package-count changes, and yields outside the norm for a cultivar or room. Document the reason for each of those the day it happens, with a name attached. When the state’s criteria arrive, you should be reading them against a paper trail that already exists instead of building one backward.

A word about automation, because everyone asks, and because it can make this better or a great deal worse.

Where it helps: pulling nightly exports from the state system, running the three-way reconciliation, flagging your own outliers before the regulator’s system does, and preparing a first draft of a variance note from data already in the system for a manager to verify and sign. Used that way, automation can produce a cleaner audit trail while reducing routine labor.

Where it hurts: automating a process nobody can explain. If your team can’t articulate why a package gets adjusted or when waste gets logged, a tool that does it faster doesn’t fix the process. It produces a larger pile of unexplained adjustments, each with a timestamp and a user ID that will look very intentional to whoever reads it later. Automation is a photocopier. It makes more of whatever you feed it.

Track-and-trace vendors come and go, agencies get sued, courts set deadlines, and the operator is always the one left holding the records – or not holding them. I spend most of my time fixing operations and some of it testifying about failures that were not fixed in time. The line between those two groups is rarely the business model or the state. It is whether the company maintained a complete internal record and reconciled it to the state system.

State systems change. Scrutiny tightens. Make sure your own record can tell the story before someone else tells it for you.

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