California Appeals Order Faulting Cannabis Tracking System
State files notice of appeal after court faulted DCC's implementation of METRC.
Illuminated California State Capitol dome against a clear night sky with fluttering flags.
Appeal Filed in Sacramento Superior Court
The DCC filed its notice of appeal in Sacramento Superior Court on September 25, 2026. Court records confirm the filing. The state is challenging a lower court order issued earlier this month that identified operational and procedural deficiencies in California's track-and-trace program. The trial court didn't order the system shut down but directed the DCC to remedy specific compliance gaps within 90 days.
METRC System at Center of Dispute
California's track-and-trace system, operated by Florida-based vendor METRC, has been mandatory for all state licensees since January 2018. The platform assigns unique identification tags to every cannabis plant and product lot, creating a closed-loop inventory system designed to prevent diversion into the illicit market. METRC operates under a contract with the DCC that runs through June 2028.
The trial court's order focused on alleged failures in data accuracy, system downtime, and insufficient technical support for rural licensees with limited broadband access. Industry groups have complained for years about METRC outages during critical reporting windows. Those outages can trigger automatic compliance violations.
What the Trial Court Found
The lower court ruled that the DCC hadn't adequately enforced system-performance standards outlined in the METRC contract. Specific findings included failure to meet uptime guarantees, delayed resolution of data-sync errors, and insufficient Spanish-language support for licensees. The court stopped short of invalidating the METRC contract. It ordered corrective action instead.
The DCC has 60 days from the notice of appeal to file its opening brief. The state is expected to argue that the trial court exceeded its authority in dictating operational fixes to a regulatory agency.
Stakes for California Licensees
More than 9,000 active cannabis licensees in California depend on METRC for daily compliance reporting. Any disruption to the system would force operators to halt sales until inventory is re-tagged and re-uploaded. A court-ordered replacement would do the same. The DCC collected over $180 million in licensing and excise fees in fiscal year 2025, revenue that funds the agency's enforcement and testing programs.
Trade groups including the California Cannabis Industry Association have urged the appellate court to resolve the case quickly, warning that prolonged uncertainty could freeze new license applications.
Regulatory Background on Track-and-Trace
California's track-and-trace mandate stems from Business and Professions Code § 26067, enacted as part of the Medicinal and Adult-Use Cannabis Regulation and Safety Act in 2017. The statute requires the DCC to establish a system capable of tracking cannabis from seed to sale and interfacing with law enforcement databases. METRC was selected after a competitive procurement process in 2017.
Small cultivators have criticized the system. They say the per-tag cost adds thousands of dollars in annual overhead. Currently, plant tags cost $0.08 each and package tags run $0.20. The DCC has declined to subsidize tags for equity licensees.
Next Steps in Appellate Process
The appeal will be heard by California's Third District Court of Appeal in Sacramento. Briefing is expected to conclude by December 2026, with oral argument likely in early 2027. The appellate court has authority to affirm, reverse, or modify the trial court's remedial order. A reversal would leave the DCC's current METRC implementation intact. An affirmance could force the state to renegotiate contract terms or open a new vendor procurement.
What to Watch
The DCC's opening brief, due in late November, will clarify whether the state is challenging the factual findings or the court's authority to impose operational remedies. Industry observers are also watching for any indication that the DCC might settle the case by committing to specific system upgrades before the appeal is decided. For full background on this story, see the CannIntel topic hub on California's cannabis tracking system.
Frequently asked questions
What is California's cannabis track-and-trace system?
California's track-and-trace system, operated by METRC under contract with the DCC, assigns unique identification tags to every cannabis plant and product lot. The platform tracks inventory from cultivation through retail sale to prevent diversion into the illicit market, as required by Business and Professions Code § 26067.
What did the trial court order the DCC to fix?
The trial court found that the DCC failed to enforce system-performance standards in the METRC contract, including uptime guarantees, timely resolution of data-sync errors, and adequate Spanish-language support. The court ordered corrective action within 90 days but didn't invalidate the contract.
When will the appeal be decided?
The DCC has 60 days from September 25, 2026, to file its opening brief. Briefing is expected to conclude by December 2026, with oral argument before the Third District Court of Appeal likely in early 2027. A decision could come by mid-2027.
How many California licensees use METRC?
More than 9,000 active cannabis licensees in California use METRC for daily compliance reporting. The system has been mandatory for all state licensees since January 2018.
Could the court force California to replace METRC?
The appellate court has authority to affirm, reverse, or modify the trial court's order. An affirmance could require the DCC to renegotiate contract terms or open a new vendor procurement, though the trial court didn't order a system replacement.
Sources
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