The cannabis industry has witnessed significant growth in recent years, marked by the legalization of medical and/or recreational marijuana in 38 states, Washington D.C., and three territories. Alongside this expansion comes the need for robust regulatory frameworks to ensure compliance and safety within the industry. One such regulatory component that has stirred considerable debate over the years is the use of Radio Frequency Identification (RFID) tag technology in state track-and-trace systems. While RFID tags can offer significant benefits to both regulators and business owners when compared to traditional barcodes, the costs imposed on licensed businesses often outweigh the benefits that state regulators receive from requiring the use of the technology. In fact, in the Colorado Department of Revenue – Marijuana Enforcement Division’s (MED) latest draft rules governing the industry, the agency removed references to the requirements for RFID technology, a step that could signal the beginning of the end of state-mandated RFID tracking of cannabis products.

Understanding RFID Technology in the Cannabis Industry

When attached to physical products, RFID tags serve as a digital tracking tool. While barcodes encode information using a visual pattern, RFID tags read and capture data by a radio-wave receiver, allowing them to store as much as 100 times the amount of data compared to a typical barcode. That information can then be scanned by an RFID scanner and made available to employees and regulators at any time. RFID technology offers greater data processing capabilities and efficiency, making it a potentially valuable tool in various industries, including state-legal cannabis markets.[1]

While RFID technology can bring undeniable advantages, its mandated adoption in the cannabis industry has not been without controversy. Since the early days of legal cannabis in Colorado, as with many states, cannabis businesses have been required by state regulations to include RFID tags on every product they produce. Licensed cannabis businesses have voiced concerns regarding the substantial financial burden imposed by mandatory RFID tags. METRC, the state-contracted track-and-trace reporting software in Colorado and 22 other states and territories, charges licensees $0.25 for each package RFID tag, and $0.45 for each plant RFID tag. METRC’s RFID tags are not reusable, so licensed businesses must continue to purchase new tags for every shipping container, mature plant, product sample, and finished good they produce, leading some businesses to purportedly spend up to $100,000 per year on RFID tags. Worse yet, business owners have claimed that the investment in RFID tracking technology is ultimately unnecessary because the technology is scarcely employed by regulators, and the objectives of the tracking system can be accomplished without RFID scanning technology. METRC is currently a defendant in a lawsuit in Colorado against National Green Source LLC over METRC’s refusal to fulfil National Green’s RFID inventory tags due to National Green’s nonpayment of certain “support fees.”

In September 2023, Lifestyle Foods, Inc., a cannabis-infused products manufacturer in Colorado, proposed changes to the state’s cannabis rules that would remove the requirement that all METRC tags contain RFID chips.[2] Justin Singer, CEO of the Colorado-based edible brand Ripple, commented on the proposed change and highlighted the exorbitant costs incurred by businesses like his. Singer noted that while Ripple spends nearly $20,000 per year on RFID tags, “no regulatory agency has ever used RFID to read METRC tags in [Ripple’s] facility.”

Why It Matters – Colorado’s Proposed Regulatory Changes

Change may be on the horizon for Colorado’s cannabis inventory tracking system, as MED is considering several regulatory modifications, including around RFID tagging requirements. In the draft rule revisions to the Colorado Marijuana Rules released on October 12,[3] MED has stricken the references to “RFID” tags and replaced each reference with “Inventory Tracking System” tags. These seemingly minor proposed changes could have a profound impact on the financial landscape of the industry, potentially saving millions of dollars annually. The changes, however, would not be as simple as implementing an updated rule, as MED has indicated that METRC approval would be required.[4]

The ongoing RFID debate in the cannabis industry goes beyond technology; it strikes at the heart of regulatory efficacy and economic sustainability. While RFID technology undeniably offers benefits in maintaining compliance and efficiency, the concerns raised by licensed cannabis businesses cannot be dismissed. The proposed changes in Colorado’s cannabis rules have the potential to usher in a new era of inventory tracking. As this debate unfolds, it remains essential for stakeholders, including business owners and legal professionals, to remain engaged and informed about the evolving regulatory landscape within the cannabis industry. Stay tuned to Troutman Pepper’s Cannabis Communications Newsletter for the latest developments on the cannabis industry in Colorado and across the U.S.

[1] See generally RFID Technology In Cannabis, Korona POS (Sept. 13, 2022), available at https://koronapos.com/blog/rfid-technology-in-cannabis/; See also RFID vs Barcode: Which One is Better for Asset Tracking?, Asset Infinity (Oct. 3, 2019), available at https://www.assetinfinity.com/blog/rfid-vs-barcodes-better-asset-tracking.

[2] See Breaking: Ripple Announces Proposed Colorado Marijuana Rule Change, BusinessWire (Sept. 28, 2023), available at https://www.businesswire.com/news/home/20230928001183/en/Breaking-Ripple-Announces-Proposed-Colorado-Marijuana-Rule-Change.

[3] See Colorado Department of Revenue Marijuana Enforcement Division Draft Rule Revisions Colorado Marijuana Rules 1 CCR 212-3 (Oct. 12, 2023), available at https://sbg.colorado.gov/sites/sbg/files/documents/231012_Cultivation_Manufacturing_Testing_Draft_Rules.pdf.

[4] Mitchel, State Officials Suggest Significant Rule Changes to Retail Marijuana, Westword (Nov. 2, 2023), available at https://www.westword.com/marijuana/colorado-marijuana-officials-suggest-significant-rule-changes-18152413 (“department director Dominique Mendiola says that such a move needs an amendment to the state’s contract with METRC — and, more important, would need METRC’s approval. Neither can be accomplished during this rulemaking session, she said during the hearing.”)