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Metrc CEO Michael Johnson Wants a Reputation Redo for the Track-and-Trace Platform

As 2023 approaches, the cannabis industry as we know it is going through what is generally referred to as “tough times,” with many companies – but not all – wondering if and how they will survive. Budgets have been slashed, layoffs have become common, and companies are reevaluating their paths forward often under new leadership and decisive mandates. At the same time, the legal cannabis map continues to expand state by state, country by country, and sales continue to increase overall and in individual markets despite the many headwinds. Surviving immediate downturn and planning for inevitable growth is the trick many companies now face, even companies that have become ubiquitous features of daily cannabis commerce – like Metrc.

In the case of the track-and-trace system currently under contract with 23 states, however, the pivot includes a rebrand of sorts, a reputation redo from required bogeyman to valued asset, from expense to income, from invisible hand to visible aid. As explained by CEO Michael Johnson in a recent conversation with CBE, the moves he has overseen since taking the top job last year – and the rebrand – are essential evolutions for the company as it continues to fulfill its mandate while striving to meet the needs of an evolving industry.

In tangible ways, the job Johnson is doing now is a continuation of the work he undertook when he joined Metrc in March 20201 as CFO and President. “It’s an interesting viewpoint when you look at Metrc and my role there overall and how that’s evolved,” he explained. “I think the base element of my time at Metrc has been about that leap from startup to grown up. When you think about any kind of startup business, they hopefully grow rapidly, they’re generally bootstrapped, and they’re the kind of shop that’s small and people wear a lot of different hats.

“And that’s exactly how Metrc was,” continued Johnson. “A sort of 30-year-old startup. There wasn’t much infrastructure, and there wasn’t really much in terms of finance or accounting, or legal or HR process. So, helping Metrc transform from a founder-led company into something a little more process driven, a little bit more scalable, helps us identify the areas where we need to spend the most amount of our time to be as effective as we can.

“That was really my primary focus,” he added. “That meant bringing in tried-and -true leaders – the ‘been there, done that’ kind of folks –helping bring structure to Metrc, and helping lay a foundation such that Metrc was able to grow. That was the biggest chunk of how we started, and that evolved into the next step, because once you have the foundation in place, once you have the chessboard, now you’ve got to put the pieces in the right spot. Getting those pieces together, putting folks together that want to build this special culture that we’ve developed here at Metrc, is really the next frontier.”

Metrc’s Next Frontier: Customers

“That’s the frontier we’re really focused on,” repeated Johnson, “and it is about providing the very best experience we can to all of our customers. Customers is a little bit of a weird term for us, because mostly the states are our customers, but we’ve got hundreds of thousands of users and tangential relationships with folks that we have a sort of a customer relationship with, but they’re not our actual customer. But we want to treat everybody like that, whether you’re in a contract with Metrc, whether you’re a user of Metrc, whether you work with folks that have to use Metrc or that choose to use Metrc, we want that relationship and we want that experience for everyone to be delightful.”

Delightful is not a work often associated with Metrc or any track-and-trace system, but that is the mountain Johnson is determined to climb as he works to reconfigure Metrc while also stopping the fiscal bleeding that has plagued Metrc just like it has so many other companies in the space, including increasing revenue by 50 percent in his last roles.

“I facilitated our ability to actually deliver on demand,” he said of the improved bottom line. “Metrc was growing pretty rapidly in line with the organic growth that different states are seeing. I mean, we certainly didn’t force anyone in California to put more plants in the ground, but they did. But Metrc, as a lot of folks have seen, had some challenges associated with performance and growth and handling some of the new states that have come on. It was so quick and so rapid that our infrastructure needed to catch up or we weren’t going to be able to deliver.”

Necessity as the mother of invention. Metrc had 16 state contracts in play when Johnson took over the reins, and it has 23 today. Each contract requires 24/7-like vigilance, so how did those changes occur at the same time?

“It’s a lot like building the plane while it’s in flight,” said Johnson. “I don’t think anybody expected – and certainly not Metrc – so much growth to happen so quickly. And it’s not because Metrc or the states were caught flat-footed. It was because the pace just really set fire in terms of states that were legalizing quicker, and then even more so, states moving from medical to adult use.”

The problem, he said is that just like any software system, you build it to handle a certain level of volume. “Once you get to a certain size,” explained Johnson, “you can’t just keep adding more servers to it. You have to change, and you have to evaluate the architecture of the database and of your technology to be able to handle a significantly higher amount of amount of activity.”

Metrc is hosted in Microsoft Azure, Microsoft’s version of AWS. Luckily, Metrc had migrated away from Rackspace, which recently left thousands of customers without service after taking a server offline. Johnson called the timing of their migration “fortunate.”

“There’s a reason why AWS and Azure and Google Cloud services are growing so rapidly,” he added. “You can throw another server at it up to a point, but eventually you get to a place where your architecture just can’t handle that much. That becomes a real challenge for anybody to try and keep up, so we will be paying attention to how we’re going to build out the infrastructure, how we’re going to be able to support printing significantly more tags, and we will print and supply over 100 million tags a year. You can’t just go down to Best Buy and pick up another printer, so we have a pretty robust printing infrastructure.

“You also have to change the way you source things,” he continued. “Sourcing a million RFID tags or RFID inlays is very different than sourcing 100 million. There are a lot of other elements, too. All of a sudden you have many more users, so you need more support people who need to be trained on our telephony system and on how you call in. You can’t just use an off-the-shelf line; you have to use something that can handle 1000s of calls per day. Otherwise, you’ll dial in, and you’ll get a busy signal. The infrastructure and the sheer reach and volume that Metrc has been able to handle is just monumental and being able to get to a place where we could keep the system up and continue to perform was where I spent the vast majority of my time.”

That effort, he added, ‘working with technologists and engineers on rebuilding certain parts of the system, was not just to be able to handle scale at the today’s level, but we are also building it such that we can handle it if it’s magnitudes higher.”

It is the type of enterprise systems that comes with serious demands. “Our system is much more akin to Oracle or to SAP or to any enterprise system that is going to handle significant amounts of data and be available with the appropriate levels of security controls in place, which are not trivial,” said Johnson. “In certain states we are required to be HIPPA compliant. That’s also not trivial.”

From Reactive to Proactive

What does the continuation of that transition look like for Metrc, I asked. “It’s what I was saying about the infrastructure and putting us in a position where we have the ability to shift from a reactive viewpoint to a proactive viewpoint,” replied Johnson. “We’re anticipating the needs of our users and our customers, and we’re thinking ahead of time and paying attention to where folks have had challenges in the past, and how we can ensure their best position to be successful in the future. So much of the business for so long has been focused on simply just staying afloat and trying to get through each day. And frankly, that’s a lot of folks in the technology space, and that’s a lot of folks in the cannabis space. So, we’re focused on trying to be the best partners we can and helping provide value where we can.

“Metrc doesn’t need to just be a core utility for folks,” he added. “I mean, it certainly is that, but we also have the opportunity to actually help folks be successful because of the infrastructure and because of the regulation. Sometimes, regulation is going to come across to some folks as onerous, or maybe reaching a little bit further than then some folks would like, but the reality is that cannabis has this amazing opportunity where the regulatory infrastructure allows for folks that otherwise might not be successful, because they’re not looking at their growth yields, and they’re not looking at keeping track of their inventory at a level that would be considered best practice. They just might not be doing any of that and being in a position where they are more or less required to via state regulation actually allows these folks to be so much more successful as business operators, and it will continue to put them in the best position to be successful, and in a sustainable way.”

That road would seem to entail creative uses of data, which Metrc does not own. “A lot of the data is either the state’s data or it’s the licensee’s data, and so Metrc generally doesn’t do anything with your data,” explained Johnson. “We’re not monetizing it, we’re not selling it, and we’re not doing anything else with it. That being said, just because we’ve shied away from spending a lot of time with the data, we haven’t done a lot of things that could be very powerful and meaningful to the industry with the data.

“As we’re evaluating that,” he continued, “we get a lot of inbound requests from folks – from states and licensees and other software companies – on how they can get meaningful insights. What are the trends, what’s happening in the states, what is the movement like? Is there a way that we can report on sell rates and plants in the ground and average wholesale costs and things of that nature? There are a number of different trends and insights that can be gleaned from the data that Metrc has. We’ve just really shied away from that to try and be as protective as we can or do anything that wouldn’t be the most appropriate with folks’ data. But because there has been such a demand and desire to get more information, we’re starting to evaluate more opportunities for ways that we can help folks that protects the integrity of our relationship and also allows for us to add value to the overall community.”

Is this data not also useful for Metrc’s own purposes, to help plan its strategies; how many tags it will need next year, for instance? “For us, the number of tags and the number of plants in the ground are of course important,” he said, “but we’re talking about the law of very large numbers. It would be helpful for us to get much more specific and accurate in being able to foresee the market, but at no point did we foresee the downturn that the market is seeing now.”

Has Metrc needed more tags year-after-year? “We have, because we have grown as the markets have grown, but we can be much more efficient, much more active than we currently are,” said Johnson. “And a lot of that has to do with us growing and trying to bridge that gap from startup to grown up, and a lot is because we really are focused on not doing much with the data, because we want to be as respectful as possible with that data. But we also recognize that we can be better partners with the customers if we pay a little bit closer attention.”

Expanding Metrc

Metrc’s role in the future is by no means a given. There was talk recently of Circle-K adding cannabis products. As premature as that may have been, what is the future going to look like for Metrc if cannabis goers truly mainstream?

“I think if we continue to support Metrc the way we intend to support Metrc,” replied Johnson, “having to use Metrc and getting to use Metrc will become very different conversation, and the backbone that the entire community will have in terms to being able to facilitate a truly resilient supply chain, great visibility, and really strong profitability and strong innovation in the space, will be like no other because of what’s important to Metrc.

“And I do believe the paradigm will shift from a required to a desired-use case for Metrc,” he added. “I can’t tell you whether we get to a place where you see prerolls in a Circle-K and that the same level of regulation will exist. My hunch is that it probably will because not everybody that enjoys cannabis is doing it in the most responsible way, and you need to make sure that there are mechanisms and safeguards in place for public health. I think that the fact that you continue to see a pretty high level of recalls throughout different states where cannabis is legal shows the importance of testing and the risks associated with improper testing and not ensuring that public health is protected via really strong oversight of the product and the supply chain.

“So, I don’t know that I ever see it going away,” he concluded, “but irrespective of whether or not Metrc or track-and-trace overall is required, our goal is to do the very best we can for the customer such that, required or not, this is something that everyone feels is important for their business to be successful.”

It sounded as though the RFID tag will always be there, but the software will change so that it becomes a simpler process. “That’s true for every kind of software,” said Johnson. “You’re always trying to make it easier to use, more functional, more efficient, trying to alleviate areas of pain. The difference between Metrc of the future and Metrc of the past is Metrc of the past was really focused on facilitating exactly what the government needed and then stopped. The Metrc of the future facilitates what the government needs, but also goes even further and positions it in a way that the compliance part is minimized wherever and however possible, so that being compliant is not an impediment to success but is rather a critical steppingstone on the path to success and a resilient supply chain. That’s not instead of; that’s just beyond where we’ve been before.”

That process includes increased automation. “But we expect that to happen either way,” Johnson said. “There’s no scenario where, regardless of where cannabis is sold, that we want to be in a position where folks who are able to operate dispensaries – or whatever the retail format of the future is – that their process is disrupted via Metrc for whatever reason. The idea is that Metrc is so automated and such a seamless experience for both the dispensary and the consumer that you don’t even realize that this level of compliance is being adhered to. You know it is, but you don’t actually see it; it just seems like it happens automatically.”

That seamlessness may not be here yet, but Metrc’s current priorities are essentially a roadmap to get there. “We’re making sure that we’re doing the very best we can from a performance perspective, and that’s a full stop,” said Johnson of the company’s focus. “The product needs to perform the exact way that it’s intended to perform. It needs to do it consistently all the time, and quickly – very responsive – and we need to make sure we’re doing everything we’re supposed to be doing in a way that is nothing short of excellence. I don’t know if we’ve done that in every single location, and a lot of the reasons why we have made some changes in the business, like bringing in a new CTO, are a big Y that we are quite committed to that. And so, that’s step one.

“Step two,” he added, “is making it so that folks have the very best possible customer experience on the planet, and that means not necessarily transforming the product – although certainly usability is a critical part of the product – but when you call support, it needs to be the best support experience you’ve ever had when you’re implementing Metrc, when you’re in the field, when you’re getting trained. If you’re a part of an association, if you’re part of a new state where legalization is occurring, and if you’re part of a state that shifted to Metrc. We actually just went live with Rhode Island, which switched from their previous track-and-trace provider. So, if you are using Metrc, if you’re new to Metrc, if there are things that are changing in your regulatory landscape or your supply chain, we want to make sure that Metrc as your partner is delivering the very best service, the very best experience, and then gives you the confidence that you will be successful in this new world because it is so new.”

The industry, he added, “is really not much more than a decade old. From a legal perspective, states are kind of learning on the fly very similar to how we have been in terms of assembling the plane midflight, and it’s going to be a bit rocky for people because it’s new. To the extent that Metrc can be that constant, that trusted partner that you can rely upon to navigate this strange new world, that’s really got to be our core focus from a customer experience perspective.”

Technically, the system has some areas of relative vulnerability. “I’d say the mobile element,” said Johnson. “We’ve got a lot of folks that work on big farms, but the mobile application for Metrc isn’t as robust as I would like to see it. So, being more mobile friendly so that folks can have access on the tablet is important. I also think being able to solve problems with greater visibility into the data. We have a recording functionality that I think is pretty weak, so we’re investing in stronger reporting functionality so that folks can get a better sense of what’s going on with their data and what’s going on with their business.

“And last is hardening of our API infrastructure,” he continued. “API has been an area where people have tried to both put data in and get data out of Metrc, and I think there’s been some challenges not just with Metrc, but with a number of different systems. We’re investing heavily in a premium API option for folks that want a premium option is going to be really beneficial.”

Sustainable Tags and the RFID Revolution

Johnson is especially proud of Metrc’s RFID tag, which has seen exemplary improvement of late. “We have a number of RFID specialists and electrical engineers that pay close attention to our inlay, which is much more affordable than a typical inlay of these specifications,” he explained. “That’s because it was custom-designed in-house, it’s patented, and it’s something that we pay very close attention to. These are the folks that came up with the sustainable tag, and it took quite a long time.

“There is no other sustainable type of tag like it on the market, and there are a lot of companies that are much larger than us that specialize in growing RFID and tagging,” he added. “I don’t think most people appreciate the level of sophistication that’s required to put together a tag with a substrate encoding that can handle the elements the cannabis plants going through. You have extreme heat, a lot of very, very intense lights, very intense sun, and depending on where you’re at, you’ve got high levels of humidity, a lot of moisture and it must survive the elements. For a hemp and paper-based product to do that, it’s not trivial, and I don’t know that anyone’s going to truly appreciate and realize that, but there’s a reason why agricultural plastic is so ubiquitous.

“We also spend a lot of time and effort on tag readers,” he said. “We have a wearable reader that’s proprietary to Metrc. A lot of readers work for certain applications, but we found that sometimes there’s some nuances with specific agricultural applications, and we felt strongly that we could put together a wearable reader. This can be deployed in a number of different ways, and we’re very excited about continuing to partner with the folks that that are making really excellent products and solutions for the cannabis space that also leverage RFID tags and the magic of RFID to add efficiencies and passive data collection to the ecosystem. It really can’t be understated how valuable RFID will be to the supply chain, and how much more efficient and how much more profitable folks will be by embracing RFID.”

Were there any sourcing issues with the new tags? “Because they are so unique and no one’s doing this, we produce them in house,” he said. “We still have to source our custom RFID inlay from a third party, and I think we’ve done a really good job of building those relationships and ensuring that we have a robust supply chain to ensure that we get everything we need. But just like every industry in the last couple of years, there’s some level of concern associated with supply chain and making sure that we’re able to get exactly what we need. In many states, we provide straps so that the tags can be attached to the plant, and we’ve had a number of supply chain disruptions related to the straps. But we’re doing our very best to navigate that and try and be proactive and get ahead of it. As a supply chain business, we think about it every day.”

The brain of the tag is its chip, of course. I asked Johnson if an evolution of the type of information that can be gathered or gleaned via the chip is possible.

“It is,” he said. “When we looked at the cannabis supply chain, it is one of the ones that wasn’t particularly disrupted as a result of COVID. The reason for that is that as the leaders for track-and-trace in the cannabis space we’ve been able to put together infrastructure very successfully where that visibility and that data that exists within the system can be leveraged by the licensees as well as by their partners, and by government regulators, to ensure the most robust insight into what’s happening in supply chain at any point in time.

“When you take care of your supply chain and you have this perfectly functioning supply chain,” he added, “you get great opportunities where people are able to grow their businesses to ensure proper levels of insight and innovation into their product, which produces something even better for the consumer and a better overall experience. I couldn’t be prouder of what folks are already able to do with our data, and I couldn’t be more excited about the future potential of Metrc and our commitment to find the best opportunities to make our data as meaningful and as usable as possible.”

Did Johnson see any other parts of the cannabis supply chain as being especially vulnerable, or do they have it covered? “I don’t know if anybody has it all covered,” he said. “I think we do a good job of going from the beginning to the end, but when you get into states that require a more detailed level of data collection, you’re then going to have better data, better insights, and you’re always going to be more successful. We have seen some changes. There is one state that went to what’s called batch-harvesting, which means you’re not weighing every plant that you harvest.

“That’s probably a mistake,” he added. “Yes, it saves time and money because it takes longer to weigh every plant, that’s factually accurate, but they don’t have the same visibility into the yield on a per-plant basis. Whether it’s an indoor grow or an outdoor grow, not every plant is going to grow the same way, and you’re missing out on a wealth of knowledge and opportunity by not getting that data at the most granular level.”

Flipping the Conversation on Metrc

Our time running out, I mentioned to Johnson that it sounded as though he wanted to flip a script that had previously cast Metrc as the industry villain, an onerous arm of the law, a seeing-eye for the state that only cost businesses money and rarely if ever added value to the business other than allowing it to operate.

“I do,” exclaimed Johnson. “I believe strong regulation is a huge benefit to the legal market. You’ve got a lot of folks saying, ‘But we can’t do it…the illegal market,’ and a lot of that is because of a lack of regulation in some of those areas. If we make regulation as frictionless as possible, and we make compliance as easy as possible, these folks are going to be so much stronger as a result of it. They’re going to be well-protected in the labor market, and they’re going to build businesses that are going to thrive.”

What about the subject of synthetic cannabis and it’s proliferation in the market? Is it on the Metrc menu? “Depending on the products, and of course there are many nuances and exceptions to what I’m going to say, a lot of these elements at the core are hemp, which is not well regulated in certain states. Paying attention to hemp is something we currently do. We offer hemp solutions, and there are certain states that have inquired about these hemp solutions. You tend to see more of these synthetic-type products in a state that is medical-only or there is no medical program at all, so they don’t have a traditional cannabis platform or cannabis outlet, and we pay close attention to that and work with those states on areas where they feel like there is more of a risk.

“But hemp itself is absolutely something that I think folks are paying more attention to,” he added. “You do have the opportunity for hemp to be part of some of these products, but you also have really great opportunities for hemp to be expanded and grown as a great sustainable source of fiber for a variety of products. And as I mentioned, we’re using fiber in our sustainable tags.”

Metrc also has its eye on the international cannabis scene, where Johnson sees immense opportunity. “We are paying a lot of attention to Europe, and Germany in particular, as many people are,” he said. “Germany has accelerated the speed and interest in some level of legalization. You also see that in a number of areas of Czechoslovakia, Portugal, Macedonia, Malta. Our Chief Strategy Officer is in Brussels right now, and will be in Germany next week, so we’re paying close attention to that.

“Track-and-trace is widely expected to be part of legislation that passes across Europe,” he added, “and we think that’s absolutely the right way to go. It creates the foundation and the rails for a successful legal business to thrive, so we’re doing the very best we can to champion track-and-trace, and champion responsible cannabis legislation and protecting public health.”

Will there be any sensitivity over an American company gathering sensitive European data? “It will depend,” said Johnson. “We actually have a German operation, a German legal entity, Metrc GmbH. There are a variety of very specific data rules and data sharing rules in Europe, and so to the extent that we’re able to land a partnership in Europe – and there are specific data restrictions and data has to be maintained in Germany or in another country – then we will certainly find a way to make that work. Again, the data is not ours. We’re doing everything we can to protect the data for the folks that actually own the data, so we want to be as protective as we can; we are not out here selling lists and peddling personal information. It’s just not something Metrc does.”

Will Metrc need to raise more money to continue building out its infrastructure to meet the demands of the future? Its investors to date have included Tiger Global Management and Snoop Dogg’s investment vehicle, Casa Verde Capital, which invested a combined $50 million into Metrc in 2018.

“We’re actively looking at what opportunities are there for us to grow,” said Johnson. “For Metrc to provide the best services possible, we need to spend a lot more time and effort and money hardening our technology platform and getting some dollars behind really making the dream come to life where people have a delightful Metrc experience. We expect to evaluate into the first part of the New Year opportunities for capital raising and partnerships such that we can get the resources in place to achieve those goals.”

Were they having those conversations at the recent MJBizCon, and what was his takeaway from the show?

“We’ve never been to the show, so our purpose was to feel it out,” said Johnson. “And as you mentioned, a lot of people have evaluated Metrc as just this compliance thing, kind of a black box, and we just frankly didn’t know if people would want to connect with us live and in person. And I will tell you, it was shocking and overwhelming the level of support and the folks that did want to interact with us. There were folks that had challenges using this platform, there were folks who really appreciated our openness to try and solve their problems, there were folks who just wanted to meet people in 3D. It was a an exceptional experience – it certainly was not something that we expected to be so successful for us – and frankly, it’s something I couldn’t be more excited to have been a part of, and I can’t wait to get to the next one.”

Tom Hymes

Tom Hymes

Tom Hymes, CBE Contributing Writer, is a Connecticut-based writer and editor with over 20 years’ experience covering highly regulated industries. He was born and raised in New York City. He can be reached at [email protected].

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