How ERP Solutions Support Accountability in Cannabis Businesses

Abstract / Synopsis:

As legalization expands and regulations change, an integrated enterprise resource planning (ERP) solution developed for growers or manufacturers of cannabis products goes beyond the basics of accounting and manufacturing to provide control and visibility over data, inventory, quality, and traceability. With evolving government regulations and scrutiny from diversified consumers, this industry is driven to maintain stringent accountability for compliance to establish and remain operational. ERP software supports a detailed level of seed-to-sale traceability by providing lot and plant tracking for regulatory compliance, real-time inventory tracking, and in-depth reporting and analysis to meet the increasing pressures of this industry. Also faced with evolving quality control demands in the edibles marketplace, established manufacturers are finding an ERP’s tools essential, including for research and development, established formula and recipe management, and recall preparedness plans. Ultimately, a business management solution versed in meeting the compliance and regulatory needs of processors in highly regulated industries is becoming a sought-after asset for those who are willing to commit. This article dives into three specific areas in how ERP solutions support accountability in cannabusiness: traceability and compliance; established inventory control measures; and government reporting requirements. The article also informs the reader about what’s next with edibles regulations.

Article:

The expansion of marijuana legalization and the subsequent ever-changing environment brings forth challenges and complexities for cannabis cultivators, manufacturers, processors and dispensaries looking for effective business management solutions to meet today’s market demands. With evolving government regulations and scrutiny from savvy customers, it’s important for cannabis operations to have systems in place to handle more than just the basics of accounting and manufacturing. Proactive cannabis businesses are seeking technological solutions to provide the control and visibility required for traceability, compliance, inventory control, governmental reporting and food safety. An integrated enterprise resource planning (ERP) solution developed for this unique industry allows companies to maintain stringent accountability for compliance while streamlining processes and preserving the transparency necessary to navigate the complexities of the cannabis marketplace.

The evolving nature of marijuana laws and regulations are the hallmarks of the cannabis industry in its beginnings of legitimacy. While the cannabis industry is emerging as a recognized industry, cannabis industry lawmakers and regulators are acknowledging that the industry's business needs resemble other process manufacturing verticals that benefit from ERP system solutions such as dietary supplement, pharmaceutical, and food and beverage companies. ERP software packages are an increasingly popular choice for established cannabis companies seeking to capitalize on the processes and industry-best practices already in place for other highly regulated industries to maintain a competitive advantage.

Similar to other regulated industries, cannabis operations require a focus on traceability, inventory and process control, accountability and finances that includes dynamic reporting and documentation. ERP software supports a detailed level of seed-to-sale traceability by providing real-time lot and plant tracking through greenhouse management, inventory transaction recording and in-depth reporting and analysis. Also faced with evolving quality control demands in the edibles marketplace, manufacturers are finding ERP tools essential, including for current good manufacturing practices (CGMP), research and development, formula and recipe management and recall preparedness plans. Ultimately, a business management solution versed in meeting the compliance and regulatory needs of processors in highly regulated industries is becoming a sought-after technological asset.

With or without federal regulations, cannabis enthusiasts have an expectation that the products they purchase for consumption are consistent and safe. It is necessary for marijuana processors and distributors to embrace this fact.

Historically, the cannabis industry has received an unfavorable reputation for producing inconsistent products, which results in loss of consumer trust, and is detrimental to the success of the industry-specifically the edibles niche. There is a strong possibility for these types of companies to create consumer perception problems that cause disruptions in the market and directly impact the success of similar businesses, creating a bad reputation for cannabis products overall. With the lack of legal regulations on the federal level in the United States, the industry itself is pushing for standardized guidelines that focus on the production of consistent, high-quality products. Integrating business operations and compliance reporting provides accountability features that are effectively handled with an ERP solution.

In an effort to promote quality standards and processes, many cannabis companies have implemented CGMPs, prerequisite programs (foundation of hazard analysis critical control points [HACCP]), global food safety initiative (GFSI) certified practices and food safety guidelines that mainstream food and beverage manufacturers already abide by. Applying best practices regarding formula and recipe management, plus quality and product labeling, enables operations to manage security, revision control and meet label claims, especially in regards to cannabidiol (CBD) and tetrahydrocannabinol (THC) levels. An ERP solution supports following of proper procedures and automating documentation to efficiently address food safety concerns.

ERP Solutions Provide Accountability

With an ERP system, every transaction is fully integrated with real-time visibility across all departments of a business-a reality not possible with disparate systems or paper spreadsheets. Automation, recording and streamlining of critical business functions such as cultivation, purchasing, production, quality, inventory, costing, sales, financials and reporting provide the accountability needed in order to improve operations and meet regulatory requirements. A fully integrated ERP solution is adaptable and scalable in order to handle business growth, including addition of product lines and locations, legislative changes and market trends-providing a comprehensive set of tools with the ability to incorporate additional features as needed.

In this emerging industry, software providers with in-depth experience regarding regulatory processes and audit procedures are enabling businesses to maintain oversight and adapt to trends that will inevitably develop in the future. A vendor with an experienced background in dietary supplement and food and beverage manufacturing or other similarly regulated industries employs a breadth of knowledge and a solid foundation for cannabis ERP software without the need to reinvent the wheel. Building on this experience, cannabis ERP providers tailor the platform to meet the needs of the constantly growing cannabis industry.

The absence of readily available financial institutional resources for this industry has placed emphasis on utilizing sound accounting solutions integrated in ERP systems to provide detailed and transparent bookkeeping for an often cash-only operation. With full accounting and general ledger control, companies have a handle on every transaction with proper documentation to avoid legal and regulatory penalties. Comprehensive reporting and analytics functionality provides interactive visualization in key areas of business. With the ability to automate cost control, budgeting and forecasting, the real-time information available in the financial reporting tools gives cannabis companies the information needed to handle the complex reality of the industry and improve their bottom line.

How ERP Solutions Support Accountability in Cannabis Businesses

Traceability and Compliance

Addressing regulatory and compliance issues is a primary concern in the industry, as more U.S. states are legalizing medical and recreational marijuana while Canada’s federally legal cannabis market continues to grow. With each jurisdiction employing its own guidelines and rules, the potential for confusion and law interpretation differences is a strong possibility. Preparation and planning to ensure compliance with new and evolving regulations are a necessity to avoid fines, product recalls, product seizures and other penalties.

The emphasis on traceability is attributed to the Cole Memo which was drafted by former U.S. Deputy Attorney General James Cole, providing guidance for municipalities that have legalized medicinal and recreational marijuana. The memo directs federal legal resources away from prosecution of operations that are in compliance with the local jurisdictions for which it has been legalized. It encourages companies to implement strict inventory control and transparent tracking documentation to avoid enforcement of federal law. In early 2018, then-U.S. Attorney General Jeff Sessions rescinded the memo, and little has changed in regards to companies following its guidelines in the areas of traceability and compliance.

ERP solutions with cultivation management and other supporting functionality provide a centralized framework for forward and backward lot traceability and unique plant ID tracking of marijuana and its derivatives. No matter the stage of the marijuana plant or byproduct, best practices are utilized to provide an audit trail for all greenhouse activities, encompassing tracking, measuring, documenting and reporting from seed-to-sale. Similar to other manufacturing industries, product recall capabilities within an industry-specific ERP solution are essential to keep consumers safe from inconsistent, unsafe or contaminated products. An ERP system streamlines the maintenance of key requirements, traceability, waste disposal, tax payments, customer and product tracking, packaging, labeling and transportation to address the multiple and competing compliance demands as well as jurisdictional changes.

Established Inventory Control Measures

Cultivation management functionality within an ERP tracks and manages each individual plant through the growth stages with a unique identifier that goes beyond merely assigning a plant ID-monitoring genealogy, mother and cloning, CBD and THC content, labor costs and quality control checks throughout the cultivation cycle. Tracing products back to the strain or variety is equally important, documenting the health, weight and optimal growing conditions of plants and groups of plants, accurately recording of the entire lifecycle. Performance of strains and their reception by the marketplace are recorded, helping to determine the ideal market for selling and distributing a company’s cannabis products. User-based permissions within an ERP solution ensure the security and accountability of operations by allowing designated personnel to perform transactions and access data.

With plant growth cycles of 2-3 months, cultivation management is a necessary component of tracking growing activities, inventory and labor needs throughout greenhouse operations. Due to the extended growing period, there is a multitude of data and expenses that need to be tracked to manage costs and ensure quality control-assessing plant health, movement, growth stage and harvest information. With the highest greenhouse costs related to labor, continuous management and monitoring is essential. Manual processes lack the accuracy, transparency and security necessary to effectively manage cultivation stages.

Established inventory control measures such as stock levels, expiration dates and loss tracking are managed in the ERP solution, assisting processors in maintaining appropriate levels, reducing waste, utilizing rotation methods and avoiding overproduction to help control overhead costs. To minimize the risk of unsafe products entering the market, the real-time and integrated information available in an ERP solution facilitates the process of locating items quickly in the event of contamination or recall.

Government Reporting Requirements

Reporting capabilities to governing bodies is a must-have, and a comprehensive ERP has the strict inventory control, traceability and chain-of-custody documentation to ensure compliance. Whether reporting is required to state municipalities or at the federal level (as seen in Canadian operations), integration to approved regulatory compliance systems is essential. With differences in jurisdictional requirements, it is important to implement a system that compiles real-time company data and effectively produces timely reports to adhere to the rules, regulations and statutes of the particular jurisdiction. Failure to do so can lead to criminal penalties and loss of license, both of which are detrimental to a company’s success. An ERP solution that integrates and communicates with approved traceability systems streamlines compliance procedures and ensures accountability at all levels within the organization. 

Cannabis Edibles

Consumer expectations for product and food safety are as equally important to account for in the edibles market as they are in the mainstream food and beverage market. With the cannabis edibles and infused beverage market increasing in popularity for both medicinal and recreational use, it is necessary for manufacturers to address food safety despite the lack of federal legality and regulatory guidelines.

Forward-thinking cannabis operations have realized that following current food safety guidelines, incorporating best practices and implementing an industry-specific ERP solution to automate processes provides the accountability they need to ensure safe, consistent and high-quality consumable products.

Foodborne illness due to unsafe and unsanitary manufacturing processes is an increasing possibility, as U. S. Food and Drug Administration (FDA) guidelines for food and beverage products sold in the United States are not mandatorily enforced in the cannabis-infused marketplace. Without established federal standards in this industry, product and food safety risks to customers are not monitored, documented or reported. Cannabis-specific concerns regarding aflatoxins, plant pesticide residue, pest contamination and improper employee procedures and training heighten the opportunities for risk. Inconsistent levels of THC and CBD potency in consumables can also be added to the list of threats that can lead to recalls, monetary expenses and damaged reputations.

By focusing on quality and safety, proactive edibles producers are investing in ERP solutions with vendors experienced in food safety in order to take advantage of the benefits traditional food and beverage manufacturers have experienced for decades. Standardizing and documenting procedures for your company and implementing an ERP solution includes employing CGMPs to ensure safe and sanitary manufacturing, storage and packaging of products. In addition, establishing a food safety team to satisfy HACCP requirements is essential. Instilling these safeguards protects consumers from biological, chemical and physical dangers of cannabis edibles and infused beverages. A documented food safety plan (FSP) ensures that food safety policies and procedures are followed. In addition, ERP functionalities such as inventory control; recipe and formulation management; lot, batch and plant tracking; and accurate product labeling, further support control within the supply chain, food safety initiatives and quality control measures.

The evolving cannabis industry faces accountability challenges on a daily basis and an industry-specific ERP system can provide the business management solution to navigate the needs of this unique industry-providing traceability and compliance, inventory control, integrated governmental reporting and the handling of food safety challenges. By employing an ERP vendor that keeps up with current regulations, as well as future changes as legalization continues, companies can meet demands, maintain compliance, differentiate from the competition and allow for operations to grow profitably.

Daniel Erickson is the Product Strategy Manager for ProcessPro (St. Cloud, Minnesota). Direct correspondence to daniel.erickson@osas.com

How to Cite This Article:
Erickson D., Cannabis Science and Technology 2(3), 62-65 (2019)