Washington State’s Marijuana Industry Is Having Technical Difficulties, Please Stand By

Last week, the Washington State Liquor and Cannabis Board (the “LCB”) notified licensees that the state’s new traceability system – Leaf Data Systems was hacked. According to the LCB, a vulnerability in the program was exploited, which allowed an intruder to download a copy of the traceabilty system’s database. The intrusion caused transfer and manifest issues for licensees.

The LCB stated that no personally identifiable information was captured by the intruder.  But, the following information was obtained during the hack:

  • Route information of manifests filed between Feb. 1 and 4, 2018.
  • Transporter vehicle information including VIN, license plate number and vehicle type. The database does not include driver or driver license information.

The LCB claims that all issues have been resolved regarding this incident.

Problems with the traceability system are not new. The rollout of the state’s new traceability program has been plagued with problems from the start. The LCB was supposed to have implemented a new traceability system in November of last year. The original vendor, however, pulled out and MJ Freeway, which his the Denver technology company that developed Leaf Data System, only had a few months to assemble the new traceability system. Leaf Data Systems was launched on February 1 and users immediately complained of problems with placing orders and receiving shipping manifests.

It is likely that this latest hacking incident as well as the ongoing issues with the traceability system has cost licensees revenue both in terms of lost sales and inventory backlogs. The industry is already grappling with overproduction of marijuana and dropping sales prices. These technical glitches are compounding the problems faced by struggling licensed marijuana businesses.

The LCB is aware of the overall struggles faced by the industry. The state is currently considering rule changes in regard to the cannabis canopy limits. Current rules allow for some reductions in individual canopy or for exceeding all canopy. The LCB seeks to address other instances where canopy adjustments may be advisable or required, including any increases. The new proposed rules will provide conditions and parameters for additional canopy adjustments.

New canopy rules could allow the LCB to more easily reduce canopy in times of overproduction and to increase canopy when insufficient supply exists; and this may help to stabilize the market. Another stabilizing factor may be the natural weeding out of distressed licensed marijuana businesses. The LCB appears to be taking a harder line in discontinuing inactive licenses and shortening timelines for commencing operations at new locations.

These are definitely challenging times for the industry. But, overall marijuana legalization is proving to be a positive for Washington State both in terms of generating substantial tax revenue and diminishing the black market. Stay tuned to this blog for more updates on rule changes and industry news.

For more information on the regulation of marijuana businesses in Washington State, please contact Heather Wolf.