State says new Metrc agreement may defy a court order

Some licensees were surprised to receive a new tag purchase agreement from Metrc – an agreement facility licensees and the state did not expect. Metrc stands by their new tag purchase agreement, though the Office of Administration contests the appropriateness of the agreement.

Metrc’s tag dispute has been in the news for almost a year, with the last updates being that Metrc has filed a notice of appeal with the Western District over a declaratory judgment issued by Cole County Judge Dan Green.

Rewinding, the state’s contracting arm, the Office of Administration, put out a request for proposal for a vendor to provide track and trace services for the state in summer 2019. Track and trace is the state’s internal process for monitoring inventory and flow – ultimately, an effort to reduce and/or eliminate the diversion of medical, legal product to the black market and to assure transparency with the state.

The RFP was structured in a way for the state to bear the costs of the contract without passing any variable fees, including tag fees, onto licensees. During the bidding process, OA specifically asked Metrc to confirm that their bid contained only fixed pricing that would be paid for by the state. Metrc confirmed.

In reliance on Metrc’s representations in its bid, OA awarded the track and trace contract to Metrc. Other bidders, BioTrackTHC and MJ Freeway, contested the bid on the grounds of tag fees. BioTrack claimed in its bid protest that Metrc was attempting to charge variable tag fees to licensees, which would conflict with the state’s RFP. In the state’s rejection of the bid protests, Karen Boeger, director of purchasing for OA, said that the contract did not allow for tag fees – or any other variable costs.

Four months after prevailing against the bid protest, Metrc filed a suit in Cole County courts, with BioTrack intervening, challenging their ability to charge licensees tag fees. The thrust of Metrc’s arguments was that they were entitled to charge licensees for tag fees, which directly contradicts the conclusions made by Boeger in rejecting BioTrack’s bid protest and affirming Metrc’s right to be the state’s track and trace provider.

The order handed down by Judge Green in Metrc LLC v. Office of Administration, et al., Cole County Circuit Court, Case No. 19AC-CC00426, analyzed the contract provisions and ordered:

‘Accordingly, it is hereby ORDERED AND ADJUDGED that judgment issued in favor of Respondents [the State defendants] on all claims in the Petition and that, under Contract No. CR191827001, Metrc is not entitled to request or receive compensation from non-state entities for the RFID tags.

Read Judge Green’s order in full at the bottom of this story.

Now, Metrc is offering licensees a contract – a “tag purchase agreement” – to licensees in order to purchase the tags directly from Metrc. In the new agreement, licensees would pay Metrc directly – $0.25 for each package tag and $0.45 for each plant tag.

“The only difference between Missouri and the other 13 U.S. jurisdictions in which we operate is that Missouri licensees will contract directly with Metrc for their tag orders,” said Metrc spokeswoman Bronwyn Flores. “Licensees should continue to expect the same high quality and low cost of our tags. Metrc tags are produced through our patented process, designed to meet the unique environmental conditions for marijuana cultivation, manufacturing, and retail.

“Since licensees aren’t responsible for printing their own tags, they can focus on their core business and avoid large costs, such as printing equipment, supplies, and labor to assemble, test, and input tracking tags,” Flores continued. “This is all handled by Metrc to keep the costs to licensees affordable and proportional to the size of their business.”

Greenway talked to Metrc, as well as OA and three license groups about the new Metrc-provided tag purchase agreement, which can be read in full at the end of this story. Licensees agreed to share their experiences anonymously.

OA told Greenway the state is aware of the tag purchase agreement. OA is the state government’s arm for contract management – anything from computer vendors to consulting. Most state departments, such as DHSS, do not manage their own bidding process and contracts.

“That Judgment is currently on appeal in the Missouri Court of Appeals, Western District, Case No. WD83565, but has not been stayed or overturned at this time,” said OA spokesman Chris Moreland. “Further, the contract at Section 3.18 provides that:

‘Except for payment as set out in this contract, the contractor and its personnel shall not accept any collateral gift, payment, commission, or other direct benefit arising from or connected to performance under this contract.’

“OA is unaware that any entity has agreed to such a tag purchase agreement with Metrc, but if Metrc has such agreements, they are in conflict with the contract language and the interpretation of the contract in the Judgment.”

Metrc believes that the company is operating within the terms of Judge Green’s order.

“Our approach complies with Judge Green’s order and supports the successful launch of Missouri’s medical marijuana market,” Flores said. “We are compliant with the ruling, which effectively prevents Metrc from collecting tag fees from licensees as part of our contract with the state. Instead, we are working directly with licensees to create individual contracts between their business and ours. These contracts with licensees are separate and distinct from our contract with the state.”

OA disagrees.

“If a breach occurs, OA will consult with its counsel and the Attorney General’s office as to available options,” OA’s Moreland said. “The contract with the State of Missouri, as interpreted by the court, requires Metrc to provide to licensees the seed to sale tags at no additional charge beyond the firm, fixed contract price with the State.”

At least one licensee has signed the agreement in order to purchase the tags and begin operating.

Metrc has expressed continued interest in operating despite the suit and pending appeal, making themselves available on March 4-5, 2020, mandatory orientation meetings held by DHSS. Yet licensees told Greenway that their outreach to Metrc has not been smooth sailing, with delays and concluding with the tag purchase agreement causing confusion.

“After weeks of sending emails to Metrc support about our inability to order plant tags with no response, Metrc proposed that we sign a contract agreeing to pay for our Plant and Package tags,” a licensee told Greenway. “If we do not sign the contract, they will not allow us to order tags until a determination on their appeal is reached.”

One license group said they were not nervous at all about the Missouri Office of Administration awarding the track and trace contract to Metrc, regarding them as a “highly utilized track and trace software across the country.”

   

However, the agreement they received from Metrc is one that was unexpected based on the January 2020 declaratory judgment from Judge Green.

“It was the applicant group’s understanding that plant tags were to be provided to licensees at no additional cost,” a licensee said.

Despite the outside contract offering, licensees aren’t counting Metrc out as the state’s tracing provider, nor do they harbor frustration towards the state.

A licensee said they expected Metrc to “be more cooperative with the State and licensees in the roll-out of Missouri’s medical marijuana program. The lack of correspondence to our inquiries was also disappointing.”

“We certainly hope things can be resolved soon so that the focus of the industry can go back to what really matters, which is making medical marijuana accessible to Missouri’s patients,” said a licensee. “While we are concerned about the current withholding of tags, we don’t believe their communications with us will cause a delay in the program.

“We have been in constant contact with DHSS regarding the issues with Metrc and they have been very responsive and receptive to our concerns. We have had the chance to speak directly with many members of DHSS, including Lyndall Fraker, regarding our issues. I can confidently say that they genuinely care about Missouri’s licensees and the success of this industry. The DHSS has been working diligently with us to keep this process moving forward.

“If the State and Metrc are able to amicably resolve their issues, we see no reason why there couldn’t be a workable relationship,” said a licensee.

Metrc spokeswoman Flores shared Metrc’s new Missouri page, which hosts information about Metrc as a company and the services it is set to provide – and also provides some insight into the conflict over tag fees.

“Metrc’s track-and-trace system relies on two main components: software and RFID tags,” reads the page. “Licensees use our tags to physically track cannabis products and use our software to enter any information related to those products.

“Metrc uses a patented process to print, test, and provision [of] our tags efficiently and at scale. This ensures the cost to licensees is affordable and proportional to the size of their business. Since licensees aren’t responsible for printing their own tags, they can focus on their core business and avoid large costs, such as printing equipment, supplies, and labor to assemble, test, and input tracking tags. As in our other jurisdictions, tags cost $0.25 per package tag and $0.45 per plant tag.”

The site clearly states the tag fees, which the state and court say isn’t allowed under the current agreement. Metrc operates in 13 other markets under the same model.

How does the new agreement change expectations for licensees, now that Metrc has established its next steps? Metrc said “business as usual.”

“Licensees should expect business as usual from the nation’s leading system for track-and-trace,” said Flores. “Once trained and credentialed, licensees will be able to begin using the system and ordering tags to track their cannabis plants and products.

The state promulgated a rule in the fall that allowed for tag fees, though those rules are not applicable due to their existence after the signing of the current tracking agreement.

Both OA and DHSS are aware of the tag purchase agreement offered and licensee struggles to make progress.

“The entire set up process in Metrc has taken longer than expected,” said a licensee. “Once we completed our New Business Registration Metrc training and requested our credentials, we were expecting to receive our Metrc credentials within 24 hours per the Missouri Metrc guide. However, we did not receive our credentials until 8 days after our official request. After such a long wait to receive our credentials, we immediately signed in to get our Plant and Package Tags ordered, only to find that system would not allow us to. This was both unexpected and very concerning. This could not only hinder our ability to pass our official commencement inspection, but as an outdoor cultivation facility, it could put our entire business in jeopardy of failing, and more importantly, delay patients’ access to their medicine. As this license is for an outdoor cultivation facility, we are dangerously close to missing our window of opportunity to plant a crop this year. Ultimately, Metrc refusing to let Missouri businesses order tags stands to impede the entire Missouri medical marijuana industry and prevent many Missouri patients’ ability to obtain their medicine.”

“We believe DHSS is simply protecting the interests of Missouri’s licensees and patients, which we appreciate,” said a licensee.

Flores shared a new page on the Metrc site that includes a question and answer section about operations, as well as training videos, scheduling training, and a list of validated software providers.

“As the state begins its commencement inspections, licensees can visit Metrc.com/Missouri to sign up for system training, credentialing, and access,” Metrc spokeswoman Flores said.

The new page sports a letter from Director Fraker briefing visitors on Metrc’s role in the state’s program.

“While the MMRP is responsible for [the] general regulation of facilities, including overseeing compliance with regulations related to the statewide track and trace system, METRC is responsible for [the] implementation of the technical and operational components of the tracking system,” says a letter from DHSS Section for Medical Marijuana Regulation Director Lyndall Fraker. “They will provide medical marijuana facilities with training sessions, webinars, and instructions in order to facilitate a thorough understanding of the track and trace system.

“We encourage our licensed and certified facilities to view METRC as a partner in their success, and we look forward to working with both METRC and our facilities to provide Missouri’s qualifying patients with safe and secure access to medical marijuana.”

Tag Purchase Agreement

Judge Green’s Cole County Circuit Order (originally uploaded January 10, 2020):