California's cannabis industry is changing, and as for many cannabis handlers, July was a time of adjustment.
Large firms, such as VIP, have become involved in the licensing efforts, while smaller companies have built their own technology stacks to respond to record and labeling requirements.
Treez, a software platform for cannabis point-of-sale and retail management, has created its own answer to the requirements. Treez, based in Fremont, tracks sales and manages stock within dispensaries.
Product was purged before the July compliance deadline that required all packaging be childproof and marked with potentcy information.
"A simple example, but incredibly hard to achieve is getting the right labeling down," said CEO John Yang of Treez. "The hard part isn't the one click print and reprint, it's more about getting the right information, the right data points. We're talking about testing results; we're talking about expiration dates, visibility of someone's licensing number, the brand name, etc. To have that data exposed correctly on top of each product, if nothing else, that is the No. 1 biggest headache for operators."
Once labels are applied to packaging and product is released, if one thing is wrong, it could all be recalled or destroyed.
"You could go through the whole exercise, miss one tiny component and still have most of your products deemed non-compliant," he said.
There has been a 15 to 20 percent increase in back-of-house labor, whether that's a full-time compliance officer, consulting firm or lawyer.
Another concern industry members could face is the variety of taxes involved in cannabis sales.
"There is a transition period between Jan. 1 and July 1, and it's a very nuanced way to tax," Yang said. "That taxation takes place at the state level and the local level. And with this nuance, if people didn't do it correctly due to some software limitation, then many of these people would have to back out the taxes correctly."
Under- or over-collecting taxes could mean reviewing all items sold from the opening date of a dispensary for a state audit.
"When Jan. 1 rolled around, very few in the industry understood what excise tax looked like in practice," the Treez blog reads. "The glut of the industry was under the impression there was a new 15 percent tax collected at the time of sale and remitted by the 15th of the following month. For many, it wasn’t until their first purchase from a distributor that they were introduced to the concept of arm’s length excise tax. This left many retailers wondering why they were being charged a tax the consumer is supposed to pay."
It continues: "In the state's effort to leverage the existing distribution layer to collect taxes, they created a binary system of tax calculation. The first and most common, arm’s length, is the pre-paid tax calculated using a predetermined average market price markup that’s constituted by a sale from a licensed distributor to an independent licensed retailer. For the purpose of tax collection, California deemed the average markup of cannabis products at 60 percent. This number is set to adjust every six months, and the market is expected to fluctuate around this number like the fed adjusting interest rates. The second and less common, non-arm’s length, is the tax charged at the register on the full sales amount at 15 percent and remitted back to the CDTFA [California Department of Tax and Fee Administration] directly."
Treez has built out its platform using Javascript, React, PHP and MySQL languages and databases to code its software.
"Our company focused a great deal of time to get that taxation down; that's specific to California," Yang said. "That is going to be a lot of what people are going to struggle with."
