A Colorado manufacturer of cannabis-infused edible products is suing the Marijuana Enforcement Division (MED) of the Colorado Department of Revenue (CDOR) to challenge the validity of recent revisions to its inventory tracking regulations.

In issue is the regulatory requirement for Colorado marijuana licensees to use radio frequency identification (RFID) tags supplied, for a fee, by the vendor Metrc LLC as a condition of participation in the MED’s mandatory cannabis inventory track-and-trace system. Adopted in November 2023 and effective since January 8, the contested revisions to the Colorado Marijuana Rules replace many (but not all) prior references to RFID with “Inventory Tracking System.” According to a statement issued by MED in December 2023, the change is intended to “allow[] for broader consideration of options beyond the RFID-based technology that has been historically required” in Colorado when the state solicits bids for the successor to Metrc’s existing vendor contract, which does not expire until 2026. In the interim, however, licensees must continue to use RFID tags supplied by Metrc, which charges licensees $0.25 for each package RFID tag, and $0.45 for each plant RFID tag.

In its lawsuit against the MED, Lifestyle Foods, Inc., doing business as Ripple, contends that it spends $1,400 per month for the required RFID tags supplied by Metrc, which is not named as a defendant in the lawsuit. Ripple argues that Colorado’s track-and-trace system does not need RFID tags to operate effectively and challenges the requirement that it pay Metrc for the RFID tags as violating the Colorado Administrative Procedures Act (APA), as well as principles of due process under the Colorado and U.S. constitutions.

With respect to the APA claim, Ripple argues that the payment of state-mandated fees to Metrc violates C.R.S. § 44-10-802, which requires that “[e]xcept as otherwise provided, all fees and fines provided for by this article 10 shall be paid to [CDOR], which shall transmit the fees to the state treasurer.”

With respect to the constitutional claims, Ripple contends that two of Metrc’s three state vendor contracts impose mandatory fees on licensed Colorado cannabis businesses who were denied due process of law because the contracts were not the result of a procurement process involving those licensees and the contracts were not the subject of an APA rulemaking process.

Filed on February 7, Ripple’s lawsuit asks the Denver District Court (a state trial court) to find that the MED lacks statutory authority “to directly divert RFID fees to Metrc” and violated the due process rights of its licensees because of its Colorado APA violations. Ripple further asks the court to “[a]ffirm” that the amended Colorado Marijuana Rules eliminate the requirement for licensees to use RFID tags, “direct MED to provide for non-RFID tags at a rate approved by a MED Final Order”, and “[e]njoin MED from requiring RFID tags as part of the track and trace system until such time as the infirmities identified herein are corrected.”

MED is represented by the Colorado Attorney General’s Office, which has yet to respond to the suit.

Why It Matters

Ripple’s lawsuit is yet another illustration of the fact that while RFID inventory tracking technology brings advantages, its mandated adoption in the cannabis industry has sparked controversy.