One of the key functions of distributors is providing storage. Type 11 distributors and Type 12 microbusinesses (who choose to operate as distributors), are allowed to store goods on their premises as long as they remain compliant. Distributors can store products they own, or have title to, and/or store products belonging to others, in which case they only take custody of the products. Regardless, they are responsible for the inventory while it is in their possession and must report any discrepancy to the bureau and authorities should significant loss or theft occur. An update to the regulations also now allows distributors to transfer products to other distributors' facilities for storage post-compliance testing. This is great for many looking to store their products in different geographies of the state without the transferee having to re-test the cannabis goods for compliance.
Type 11 distributors who carry out compliance testing on all products made or manufactured after January 1, 2018, must video record the process of a lab rep coming and procuring a batch sample for testing. The entirety of the batch must be stored in a quarantined section and await testing results. During this process the batch(es) being tested may not be transferred or sold to another operator. If you are looking to provide storage services along with testing, be sure to figure out what happens and who is responsible for what in the event a batch fails testing. We cover the nuances of testing more in our cannabis testing guide.
Type 13 transportation-only distributors, on the other hand, cannot transport any cannabis goods to retailers except for transporting immature plants and seeds from a nursery licensee, and these kinds of distributors cannot take title to any product unless they hold some other type of commercial cannabis license. They also may not carry out testing nor store the products, meaning that they must transport cannabis goods from one point to another, where the goods can be legally stored, within a day.
Distributors should be mindful of inventory tracking. Account for any discrepancies in inventory in the contract as they come up in your inventory audits. As the regulations state, distributors are obligated to audit their inventory every 14 days. Be especially mindful of regulations such as 5303.1 that state that the net weight on any package of dried flower shall not be considered inaccurate if the actual weight is within plus or minus 2.5% of the labeled weight. This means that the weight can change if you either didn't weigh it properly initially (or something tampered with the weight such as a blowing fan) or if there is moisture loss over time.
This standard of accounting should be listed in any distribution service contract, especially if you’re looking at storage or transportation-only services, to to clearly note who is responsible for maintaining track and trace standards while the cannabis goods are in storage (once track and trace is implemented) or while they await transportation or testing.
The following is a list of regulations (not an exhaustive list) and points to keep in mind as you provide storage services or work with storage service providers:
Storage is one of the primary functions and requires distributors to be on top of their game, whether it's doing audits or getting sufficient insurance, as significant product losses or improper storage could lead to compliance nightmares.