'It's been a nightmare': New York’s Metrc rollout sparks lawsuit as cannabis operators warn of supply chain chaos

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More than a dozen companies are expected to join a lawsuit aiming to halt new track-and-trace requirements in New York’s growing regulated cannabis market, Cultivated has learned.  

Meanwhile, the rollout of Metrc’s required seed-to-sale software is causing several license holders operational headaches, from integration glitches and inventory backlogs to added payroll and widespread delays in product availability, according to first-hand accounts.

Groversville-based Veterans Holdings Inc., which filed the lawsuit last month against several New York regulatory agencies, estimates the added processes and resources dedicated to Metrc implementation and upkeep, as well as product fulfillment challenges will cost the processor upwards of $2 million this year alone.

“It isn't even so much the cost of the tags, even though it's a tremendous cost,” Veterans founder and CEO Jason Ambrosino told Cultivated. “The labor and the workflows are really where it gets nasty.”

Brooklyn-based Lucid Green, which sells QR tags and labels for cannabis products in 12 states, plans to join the lawsuit to contest Metrc’s new requirement to charge manufacturers and other suppliers 10 cents per tag on every single packaged item, a surcharge implemented solely in New York. 

“I've chosen to be more proactive in this now because I think it's worth it,” CEO Larry Levy told Cultivated. “The regulations are very clear that there is no requirement to do item level tracking the way that the OCM has mandated this retail ID.”

Beyond Metrc and the state’s Office of Cannabis Management (OCM), other defendants in the lawsuit include: 

Levy on Nov. 1 sent a letter to then acting OCM director Felicia Reid objecting to the mandatory QR code labeling that creates an “impenetrable technical barrier to entry” for other service providers.  

“This action actively shuts out technology providers, including New York-headquartered Lucid Green, who have invested years and significant resources into developing open, multi-state compliant solutions that are superior in functionality,” the letter reads.

Levy and other critics also argue that the state’s original tracking software contract which was awarded to BioTrack before Metrc acquired its government business in August on undisclosed terms, allowed licensees to use any labeling or tracking platform, as long as required data was reported through their point-of-sale (POS) system.

Metrc’s contracts with states can be lucrative but each is structured differently.

In California, for example, a four-year contract extension that took effect in July 2024 tops out at $113.6 million, with an annual ceiling of $28.4 million.   

BioTrack’s five-year contract inked with New York in November 2022 tops out at $1,199,900 for the duration of the deal. The 10 cent surcharge could potentially add millions to the agreement annually. 

“All we want the OCM to do is to take away the mandatory requirement and let the market decide what players they want to use and how much they want to pay. Plain and simple,” Levy added. 

Lucid Green has provided non-mandatory QR tags on millions of units of cannabis products, working with over 450 manufacturers and thousands of retailers. More than 300,000 consumers have downloaded its app, which links QR codes to certificates of analysis (COAs), loyalty programs and other product details, like terpenes and THC percentages.  

The company charges customers 2 cents per tag generated in its system and 30 cents per tag for brands and others to use for loyalty and discount programs.

A few trade groups and several other New York licensees are expected to join the lawsuit as early as this week, according to sources.

Track-and-trace software is overwhelmingly supported by the industry to improve safeguards for consumers, provide more detailed product information, and mitigate inversion and diversion tactics.

Inversion is the practice of introducing an unregulated or illicit product into the regulated market and diversion refers to the movement of regulated products into the underground market.

Despite hundreds of examples of cannabis product recalls across the nation, a testament to seed-to-sale tracking, the software and its implementation has significant shortcomings.

In California, regulators continue to struggle to monitor cannabis supply, with some experts estimating the illicit market is still twice the size of the state’s $4 billion regulated market.

High-profile examples of pesticide contamination in products have rocked the California market and recalls often have been issued well after products have been consumed.     

A white paper from Empire State Green Standard Alliance, a New York cannabis consumer safety group, shared exclusively with Cultivated this week highlighted the need to overhaul and strengthen New York’s cannabis recall, tracking, and testing standards. 

The report was issued just weeks after the state dropped a case against Long Island cannabis processor Omnium Health in a rare mea culpa, and cancelled a recall order issued against the company.

At Veterans Holdings, which does business as Veterans Choice Creations, Metrc issues have included frequent data entry rejections and time-consuming administrative workarounds, according to Ambrosino. In response, the company has dedicated three full-time workers to handle Metrc distribution processes.

The tag surcharges for one of the state’s largest cannabis product manufacturers and brand operators will add tens of thousands of dollars to its annual business costs.

“We figure this will cost us $2 million a year, which is roughly about 50% of what we estimated our net revenue would be,” Ambrosino said. 

At The Herb Cave dispensary in Plattsburgh, a lack of clear instructions, delayed deadlines and Metrc integration issues with its Alleaves point-of-sale system have led to inventory shortages and other operational disruptions.

Owner Will Ashabranner told Cultivated it took Metrc nearly a month to resolve a product integration issue, holding up sales on roughly $30,000 worth of products. The retailer finished Metrc integration on Dec. 16, the day before OCM’s imposed deadline. 

“It has just been a nightmare ever since,” Ashabranner said. “Our shelves were almost bare for Christmas and New Year's because we were dealing with a whole bunch of distributors and processors that weren't integrated yet.” 

The Herb Cave has also implemented a new workflow for in-take orders in response to Metrc communication delays with its POS provider. Entries that took 10 minutes and a couple of clicks on the computer before integration now take hours.

“It has completely shifted our manpower,” Ashabranner said. “The whole supply chain has been severely affected.”

Metrc issues have been particularly acute for small farmers and brands, which are key product suppliers for The Herb Cave.

“We've had to buy from brands that we don't usually buy from to fill those holes,” Ashabranner said.

For three weeks, Outcast Acres Farm had $30,000 worth of product held up awaiting Metrc tags for pre-rolls, flower and rosin.

“They were all batches that were already made. They had already all been tested,” CEO Christopher George told Cultivated. The setback led to missed payroll for workers on the Washington County farm over the holidays and unpaid invoices to vendors.

“It put a serious stress on everybody,” George said. “The tags finally showed up and we were able to start getting product out.”

Based on internal New York data, Metrc told Cultivated it’s taking an average of six minutes to initially respond to support calls and 2.5 days to reach a resolution.

“We understand that transitioning to new technology can present challenges as businesses adapt their workflows,” the Florida-based company said in an exclusive statement to Cultivated. 

“To support licensees, Metrc has conducted extensive onboarding and training, created New York–specific guidance by license type, hosted in-person support events, worked with the OCM on deadline extensions, and implemented shipping accommodations for small and micro businesses during peak onboarding.”

On a Cultivated LIVE episode earlier this week Metrc CEO Michael Johnson said tech disruptions are unavoidable when new systems are integrated and Metrc accepts the same data as any other business management software.   

Some partners, including POS provider Dutchie and distributor Nabis, have reported much smoother integrations.

Francine Wu Muhammad, Dutchie’s director of compliance, said that the company created  tools to simplify the transition to Metrc which eliminates the need for costly, time consuming off hours data entry,

“Virtually all of Dutchie's customers, with many of them completing the migration start to finish themselves, have successfully migrated,” she said in an email.

With over a $1 billion annually in product volume and distribution in California, New York and Nevada, Nabis is probably Metrc’s largest customer in the country.

The San Francisco-based company dedicated time and resources to building an Application Programming Interface, or API, to integrate with Metrc, according to Aaron Markowitz, who leads government relations and compliance at Nabis.

“It's been a huge endeavor getting Metrc up and running in New York, but a real worthy one, and we're glad that it's mostly across the finish line now,” he told Cultivated.

The lawsuit and related developments could slow momentum and regulatory compliance in New York’s cannabis market, which finally seemed to hit its stride last year after a bumpy start in late 2022 and the entirety of 2023.

The state’s 500 licensed dispensaries last year generated revenue eclipsing $1.6 billion. In 2024, sales topped $869 million through 260 licensed stores, according to the OCM’s annual report.

New York cannabis attorney Lauren Rudick said many operators are reluctant to invest in tech and operating systems when OCM rules are routinely challenged in court where they can be rendered obsolete or unlawful.

“While we advise on the legal risks of non-compliance or a ‘wait and see approach,’ this ultimately comes down to a very personal business decision,” the managing principal of Rudick Law Group told Cultivated via email. 

Story edited by Jeremy Berke.