Lucid Green’s QR Code Offers a Doorway To Efficiency
Article originally published on Cannabis Business Executive
Co-founded in 2018 by data veterans Larry Levy and Paul Botto, who also serve as its CEO and President, respectively, Lucid Green introduced a touchless inventory management solution for the cannabis industry via its LucidID QR code – The Intelligent UPC of Cannabis – which offers a spectrum of ways for all participants in the cannabis supply chain to increase efficiencies, save money, and drive revenue. But Lucid also offers benefits to consumers and regulators, and as Botto explained in a recent call with Cannabis Business Executive, the sheer breadth of potential that LucidID represents has been an advantage and a challenge for the company as it positions itself to meet the multifarious demands of this novel solution to timeless industry challenges.
“We were trying to solve a lot with this code,” said Botto, when I mentioned talking to a Lucid Green rep at their trade show booth years ago, when the focus was on consumer information via Lucid’s QR code. “The good and for us maybe more challenging aspect about these codes is that they affect virtually every part of the cannabis business at some level, but you can’t boil the ocean all at once. To begin showing their value and capabilities, we needed to just get them out into the market, and the initial approach was the consumer side, where we could open up a direct communication to consumers for brands that allows us to get codes on pack. The next stage is using those codes to affect the supply chain, where you have somebody at the endpoint, like a retailer, that can then use these codes to ease their operational overhead, eliminate stickering, and enable more accurate compliance, cycle counting, and inventory audits.
“We actually had a bit of a chicken-and-egg situation,” he continued. “You talk to retailers, and they say, ‘Great, we love it. As soon as you get my brands to use it, I’m in.’ Then we go to the brands, who are like, ‘Sounds great. As soon as you get my retailers to use it, I’ll put them on.’ So, the consumer focus at first allowed us to get those codes on packages and have some unit volume in market that we can then go back to the retailers and open up the supply chain, and that’s happened over the last six months or so.”
The supply chain focus comes with estimable benefits, added Botto. “The same codes that provide that consumer interaction also permit a retailer to eliminate a massive step for them to get product ready for the shelf, and that is getting the transfer ID via a sticker. For every piece of inventory that a retailer wants to put on a shelf, they need to print out a sticker and hand-apply it to each unit. With LucidID, they don’t have to do that anymore. They can eliminate the stickering step and it is massive. Some of our retailers tell us this is two to three full-time employees that they can move to more critical areas of the business, and in dollar amounts, they save between $10,000 and $20,000 per month per location by eliminating the stickering step.”
It does not bypass the METRC tag, however. “We don’t change the regulations, and we don’t change what’s required on the label,” said Botto. “But one of the idiosyncrasies in the cannabis industry, regardless of the market and the regulatory tool, is you need to add information to the units after they’re packed into cases. How do you do that? It’s very obviously a difficult thing to do unless you have some sort of magic solution, and that’s really what LucidIDs combined with what we call CaseIDs do. LucidIDs go on to the regulatory label, which is as it was before, but the LucidIDs carry the SKU information and all of the batch information, i.e., the certificate of analysis, the testing results. So, they go on to the label, and just by printing that label, they’re digitally paired to the SKU in the batch information. Then those LucidIDs get paired with a CaseID that goes onto the case during the packing of that case.
“Now we can extract information from or add information to every unit in that sealed case, and that’s the magic step here,” he added. “In any regulatory market, there are requirements that any time the product changes state or changes possession, you typically need to have an additional tracking number, a Metrc ID or a BioTrack ID. So, when you produce a batch of 500 cases, that batch has an ID, and when 10 of those [cases] go to a particular retailer, there’s another number produced for those 10 cases going to that retailer. Typically, what happens is they send that new ID along with those 10 cases to the retailer and the retailer then has to apply them to each unit, and what we’re allowing them to do is pass that information digitally into the units within the case so that the retailer doesn’t have to apply stickers at all. They scan the CaseID during intake, which sucks-in each of those LucidIDs and reverses the process, so that rather than printing-out stickers that are now attached to the inventory record in the POS, they’re scanning the CaseID and bringing in all of the LucidIDs within that case, which get attached to the inventory record, and when they scan the LucidID at checkout, it will do all of the necessary regulatory things and complete that cycle.”
It sounds confusing, but that’s why technology like this is created in the first place, to simplify and streamline complex procedures required by regulators or industry. According to Lucid Green, its tech stack is being retroactively considered for mainstream use cases. “The tech stack is really this vast supply chain database and the system behind the QR codes,” explained Botto. “People tend to look at the QR code as a solution, and that’s a mistake that is made in every industry. People just misunderstand what a QR code really is, which is a doorway into an experience or a platform. We have a platform that sits behind this door, and that platform allows for the management of all of this data and the passing of all of this data through. And by the way, we could use other types of technology as they become viable and affordable – RFID and NFC and things like that – but QR codes happen to be the most accessible and convenient right now. And those QR codes really are the glue that allows you to connect disparate data stacks that normally do not talk to each other. So instead of having two API connections, and all the things you might have to do to connect these big data stacks together, the LucidIDs and CaseIDs are able to connect them allowing each system to interact independently with these codes but gather and share information along each stop along the way. The code effectively unifies these data stacks.”
It is a challenge not unique to cannabis. “Disparate data stacks is a problem in every industry,” said Botto. “How do we get this information from here to there. In cannabis, that happens to be particularly difficult because [the industry is] in its infancy, and you don’t have ERP systems that have been around for 40 years, but ERP systems that were born relatively speaking yesterday, without all of those connections, or any in some cases, and it’s the same with every other item in the technology stack that a cannabis company might be using. So, it’s particularly useful and important, and timely.
“But what we’re doing here is a little bit unique,” he added. “We’re tracking down to the unit level, so each one of those LucidIDs is unique to the unit, and there’s no other industry that’s tracking at the unit level yet. What we’ve learned in our interaction with GS1 and other standards bodies or industries is that we are at a level of fidelity that nobody else is operating at right now, and when we have proven that this unit-level tracking is possible in cannabis, there is a lot of interest for this to enter into other markets and provide that level of fidelity that comes with much more efficient inventory handling and authentication. Illicit product, which is a huge issue in cannabis, is also a huge issue in every other industry, so the unit-level tracking allows us to do advanced product authentication and things that a barcode just cannot do.”
Botto also specifically pointed to the GS1 Digital Link as “an important component to what we’re aligning to for that digital standard.”
What’s in a Barcode?
Other industries use barcodes, of course, but progress is slow. “They’re working towards a standard with 2D barcodes, but the general standard still today is the 1D barcode, the barcode that we’ve seen for decades with the black lines,” explained Botto. “There are some who are starting to use QR codes in certain areas, and there’s a big movement that a bunch of industry folks are trying to push to get people to convert to 2D barcode. It’s called Sunrise 2027. They have a goal that in 2027 the lion’s share of the retail industry will be using 2D barcodes instead of 1D barcodes, or 2D QR codes rather than the 12-digit barcodes that everybody’s using.”
The upgrade to 2D adds significant digital capacity. “Tracking at the unit level is very special, and really affords us and our partners massive advantages, so that is certainly one,” said Botto. “The other thing that we’re doing is, if you think about 2D barcodes, the benefit over the old school 12-digit barcode is you get 12 digits, literally 12 bits of information. With a QR code, you have up to 2000 characters that you can deliver upon scan, so just out of the gate, when people refer to 2D barcodes, they get very excited because they can encode more information into that scan.
“But going one step further,” he added, “we use that 2D barcode to resolve to a URL, and that really unlocks the full potential of 2D barcodes, because now we can drop that scan into a URL, and that URL can be custom-tailored based on who is scanning, and what they’re scanning from. And then we can deliver almost unlimited functionality and information by just programming that URL to deliver whatever needs to be delivered to that person, right place, and right time. That’s why the same code for us can deliver a consumer experience in one regard, can deliver an inventory intake experience for somebody else, can deliver a POS checkout experience for somebody else, and can deliver a budtender training experience. Same code, but all these different use cases can be brought forward because that URL gives us that unlimited potential.”
One assumes that AI will play an inevitable role. “AI is another technology that can sit behind this door,” agreed Botto. “Again, a QR code is a door, so applying AI in our context could be analyzing specific buying behavior, usage behavior, because with our LucidID app, consumers can not only authenticate product and get dosage guidance, but they can record their dose. So, you’ve got a massive database now building that this consumer used these products, they liked these products the most, this was their average dose for products like this. And then we have the COA, with the chemical composition of all of those products, so AI could definitely be applied here to say, ‘You know what, we’re going to recommend the following products because the data is suggesting that you are not a fan of products that are high in this particular terpene, but products with these terpenes tend to work really well for you.’”
The idea is that one day a consumer can walk into a dispensary they have never been in before and be automatically directed to the ideal products for them if they so choose. “That’s right,” said Botto. “This is absolutely a part of our vision of the product, and it will definitely come. A lot of the work that we do is unlocking data that is locked up and inaccessible to brands, retailers, and consumers. In my past life, I was at Google, and worked on Google Analytics, and sometimes I like to think about this in the way that we’ve almost made each unit a mini-website about itself. People can now interact with a physical product, and we can gather data as if it’s a digital experience, and then you can turn that data into really valuable insights, safety guidance, and all kinds of great stuff.”
Data-Driven
Data is the lifeblood of Lucid. I asked whose data it is and how it is purposed. “All of our brands own their data,” said Botto. “We obviously own it as well, since it flows through our systems, and we have sort of a flexible structure where brands can say, ‘Don’t ever use my anonymized aggregated data in any context,’ or they can opt-in to be able to access that information later, which we’re not really delivering yet, but we plan to. We’re going to have an extraordinarily rich data set comparing your own brand to other brands in the industry and in your categories. So, we allow the brands to completely control their data, and what we’re doing is akin to something like Google Analytics, where we’re gathering this data and arranging it in accessible ways for brands to be able to act upon it. Think about it as we’re farming this data on behalf of brands, and organizing it and providing it to them in structured reports, as well as in bulk, so that they can put it into BI tools and do their own analysis on it.”
Lucid Green data differentiates itself in other ways as well. “The real key is the fidelity of our data,” explained Botto. “METRC tracks at the order level, and you have a tremendous amount of information flowing through it, but we’re tracking at the unit level. Let me give you an example of why that might be important to a brand that you’re selling to a retailer. You’ve sent them 20 cases over the last three months, and they’re on a cadence that matches that. So, you look at a report, and you’re like, ‘Alright, they’re selling at the right cadence – a few cases a week – but what you might not be able to tell unless you’re tracking at the unit level is they’re actually selling out of order. Rather than first in, first out, today they’re selling the stuff you dropped off yesterday. Meanwhile, they have three cases that are five-and-a-half-months old. So, that unit-level tracking allows for not only the brand but the retailer to be able to tell, ‘You know what, we’ve got older products here; we have to sell through that so that it doesn’t expire, and we have a shelf-life on these products.’
“That unit level tracking is just one example of the hundreds where we have a lot more data flowing through the system,” he added, “because I know the movement of this base unit, where it’s been, and who’s interacted with this unit. Another great example is how we can put this data into play for a recall situation. Product recalls are very difficult to manage, and with our system, we’re building a feature where you can press a button, and automatically send out recall notices to everybody that has the affected product, because we know where each of these units ended up.
“We’ll also be able to trigger the CaseID and the LucidID to display a message when somebody scans it,” he said. “‘This product has been recalled, please do not intake into your inventory, send it back to the brand.’ And if a consumer gets their hands on one before the recall, they can scan the LucidID and it will say a similar message. Better yet, subject to the recall, when this product flows back in, we can scan each one of these back in either at the case level or the individual unit level for an accurate count of all of the products that were claimed during that recall. It’s really valuable information for the regulators or the brands, and obviously benefits the safety of consumers. But if you’re tracking at the case or order level, it’s very difficult to understand where things are and the status of a recall, because you just have these big piles of data that aren’t exact enough to identify where the product got out to, and which ones are still out there.”
This is information that can be delivered almost immediately. “You need some interaction,” said Botto, “but as soon as somebody interacts with one of these codes, yes, it’s real-time. You press that button, and the very next scan is going to be that notice.”
As far as the cost to use Lucid Green, it’s a couple of pennies per unit. “Two-cents is the rack rate for brands to put LucidIDs on pack,” said Botto. “Brands are our primary source of revenue. We sell to brands. There are a lot of constituents that benefit from these codes, but the brands are the ones that put the codes on. You can also add functionality. So, as you’re producing product, you pay two cents, and you add loyalty as an addendum, and only pay when somebody accepts your loyalty award. When someone scans the LucidID to find out about the product, you can deliver a little message that says, ‘Congrats, you just earned 50 points scanning this product. If you get 300 points, you can redeem them for a t-shirt or anything shippable through our app interface.’ Or you can redeem them for actual THC product in retail, so if it’s a vertical company, they can go into the store to redeem them for actual THC product. That’s an example of another revenue stream where brands can add on this loyalty component.”
Efficiencies
Enabling companies to become more efficient is a LucidID centerpiece. “If you look at the efficiencies, you have margin eroding for every heavy-handed operational step that you do,” said Botto. “I we can eliminate one to five of those operational steps, or reduce the burden on a line operator somewhere, that’s real money, and every second that we save on the line is real money, especially for these big MSOs with high volume.
“There are countless ways that this product can make you more money, and the data really is at the core of that equation,” he added. “We just started releasing sell in, sell out data, which is maybe the biggest request from brands. ‘Help me understand where my inventory is, and the status of that inventory.’ That is hard to get to in any industry but this one in particular. We have a signal that happens when they scan-in product and when they sell it at checkout, so we can tell a brand when this unit arrived and when it was sold. Not just that a shipment arrived yesterday, and we sold some similar stuff as well. It says this unit arrived on this day and it was sold on that day.
“We have exacting details that we can provide to brands that help them understand, ‘Hey, we’re in a stock-out position here with this retailer. Call them up and tell them we’re going to drop off 10 more cases on Tuesday.’ Or conversely, ‘We have an overstock position here, 10 cases have been there for six months, let’s run a sale or some sort of campaign so that we can move this inventory before we have to discount it at a fire sale, because it’s going to expire.’ This is making more money and preventing the loss of money from inventory expiring. Stock-out positions are a disaster for a brand. It’s not only that people can’t find your product, but they’re going to leave with something, so you’re introducing them to a competitor, and inevitably they buy something else. But getting that inventory back on the shelf takes time as well, so these things are definitely about making money and saving money.”
I noted that experienced logistics and supply chains experts with years of experience in mainstream companies have been working in cannabis for a long time. Why had they not brought similar efficiencies to bear? “It’s such a good question,” responded Botto, “because there are countless stories of industry experts coming in, and they’re going to save the day because they’re going to bring these practices that they honed over two decades in this other industry, and it doesn’t really work like that in cannabis.
“But cannabis is so specific with the regulations and the way that the supply chain operates that you almost have to unlearn a lot of that stuff, and really reinvent it,” he continued. “Where the benefit comes is you’ve seen it work well, you understand what good looks like, but it’s not going to be the same answer that you had with Alcohol and Bev or CPG or whatever other industry you came from, and we know this firsthand. We hired the person who runs our ops team, Jake, a tremendous asset. He came from Heineken, Diageo, and Icelandic Provisions, where he managed global operations. His expertise and understanding of how to build a team is a major benefit, but he can’t solve the absence of technology in the space, and he can’t solve the fact that these connections are just not here. Without a tool like Lucid in place, there is no information that I can pull from to understand where my products are right now.
“We also hired Filip as VP of Marketing,” he added. Filip came from Anheuser Busch, Miller, Coors, Coca-Cola, and is going to bring all of these marketing ideas and standards from some of the biggest companies in Alcohol and Bev, but a lot of them just don’t work in cannabis because it’s not the way the brands think right now. They don’t have the channels for communication in the same way you can launch a global campaign like Anheuser Busch or Coca-Cola can.
“So, just because somebody has been enormously successful in another industry does not mean they’re going to come in and solve all of those problems for this brand or MSO that hired them,” he concluded. “They’re going to have a host of things that they’re going to be the ones that need to figure out. In fact, that’s why, when we had Filip apply for that position, at one point, I was like, ‘I am super excited about this, but I want to understand what attracts you to a company like ours.’ I mean, this is a guy that managed 180 SKUs at Anheuser Busch. And he said, ‘You know, I got a script at Anheuser Busch that somebody wrote 10 years ago, 20 years ago. This is how we do it. And I want to be the guy that writes the script.’ When you have somebody like that, that comes in that’s ready to write that script, it’s great. If you have somebody that their career has been successful just by following the script, it’s probably not going to work out so well.”
Preventing Diversion
I figured Botto would be the ideal person to speak with about the supply chain situation in California. “Oh, my gosh, this is probably a novel that somebody needs to write that that’s even more informed than I am,” he replied. “From my perspective, there are regulatory challenges that set it on a path. There is the way that the industry grew, which created some challenges. And all those things are interrelated, and then the nuances of Southern California versus Northern California. The state really operates like multiple different markets. You have brands exclusive to SoCal, and then when they try to expand, they don’t understand the differences in the market, and don’t have the relationships.
“Backing up, there were a lot of brands in California, and when cannabis originally got started, there was really well-made product out there,” he added. “And then you had some who just put weed in a bag and slapped a sticker on it. So early on, you had this relative ease of entry into a market like that, and there needs to be a natural turnover, where the brands that really know what they’re doing rise to the top. What I think was odd in California is the regulations and taxation, which caused many of those really good operators to not be able to make enough money and stay competitive and take their seat at the table where they should be.
“So, you had a lot of illicit products that wanted to be legal, but it was too hard, and they ended up on the illicit side of the equation. I think that really eats into the profitability of the market in general, where you have people doing it right, and they struggle to keep their companies afloat, and you have people who are doing it wrong, either legal companies diverting products to illicit channels or fully illicit products that operate below the radar, and enforcement just doesn’t catch up. So, you’re a brand that’s competing with either legal brands that might be diverting product into gray or illicit channels and you’re also competing with fully illegal product that flows out a pop-up dispensary somewhere selling for a quarter of the price that you have to sell in order to make a profit.”
Does a QR code prevent that diversion? “It absolutely does,” said Botto. “We have two things that we can solve here. One is LucidID on pack provides a level of security for consumers to know that this is in fact the authentic product from the brand, and it’s been tested properly, because here’s the COA right off of each unit. On diversion, anything that’s got a LucidID on it and is packed into a case can identify itself. So, if this product is diverted to another market, that product could be scanned by regulators to find out where it originated from.”
What about the burner license problem? “That’s kind of where that diversion comes from,” said Botto. “The burner license is the means for that typical diversion, but anything that has a code on it can be identified, so it hampers those efforts to divert that product even through a burner.”
A Lucid Future
In terms of growth, Lucid is expanding its reach in creative ways. “We are still growing quite a bit in California, but we’re also opening up new markets,” said Botto. “We’re expanding in Nevada, where we’ve got a major retailer signed, with many more on the way. We also just launched in Maryland through a partner, Curio Wellness, a vertical MSO. They’re integrating onto their products as well as at their retail locations, and they have introduced us to countless retailers and brands over the past month and a half. I had three meetings today for Maryland operators. That’s another sort of contained market, if you will, where you’re looking at something on the order of 100 dispensaries. In Michigan, where we started and have a great partner in Common Citizen and many others, including the MICIA, which I’ve been told is now the largest trade group in cannabis. There are 730 retailers in that market.
“New York has been slow to ramp up, as we all know, but I think they’re trying to be careful and build as carefully as they can,” he added. “We operate there to whatever degree we can, and we are active in conferences and meetings helping to discuss how the regulation should be brought forth and working with retailers to get into compliance. There is just this strange interim step where they’re letting operators move around regulations just to get started and compete with the powerful illicit market there without being super heavy handed. It’s a very interesting time there, and I would say that it feels like the New York market hasn’t gotten going yet. We’re there, ready to go, and in contact with operators and regulators, making sure that we’re ready when it starts to ramp up.”
Is the vision that Lucid becomes the industry’s ubiquitous QR code identifier? “Absolutely,” said Botto. “We’ve had over 100 percent quarter-over-quarter growth through 2022. In terms of us coming into our own, we raised $10 million in April, and we had all of those great hires that I talked about. A few years ago, it would have been pretty hard to pull in guys from Anheuser Busch and Heineken and Diageo, so we’re operating at a whole different level at this point. Our goal right now is to hit 10 million LucidIDs integrated per month. When you think about that, 120 million LucidIDs over the course of a year, that’s just our next goal, so that gives you a little bit of perspective as to where we are in our run rate.
“Our intention,” he added, “is to be an industry standard that people can rely on for both supply chain efficiency and consumer safety, trust, and transparency. There really is nothing else like it available, and we want to continue to innovate, we want to support partners and build an industry within the industry for the digitization of these elements of the supply chain requirements and consumer requirements. If we corner a large piece of the market but also enable other products like ours to eventually come forward, that’s great. We really just want to provide this value, and part of that was just proving that this works. That’s what we’ve been doing for the past five years, and I think we’ve gotten past that point. Now it’s making sure everybody knows we’re here, and that this is available right now.”
In terms of competition, Botto said people try to compete, but usually come up short. “We had a few crop-up here and there that have tried to do this,” he said. “We had one in California recently that came forward, and we were actually collaborating and working together to some degree with a few partners. Then we had a few of their former customers come to us and say, ‘Well, they just closed their doors, and sort of left us without any functionality. Can we jump on your platform?’ So, they do crop up here and there, but it’s a very challenging thing to do. However, I wouldn’t be surprised if more come forward as we start to become more visible.”
So, what are Lucid’s main challenges? Can it scale to demand? What if six new markets came online with prospective opportunities in them? “The biggest challenge would be people,” said Botto. “It’s not a technological challenge for us. I think that our technology scales exceedingly well. It’s just having the bodies and because we just raised $10 million in April, we actually have the capital to go ahead and do that. So, I think that we’d be able to accommodate that growth. I would see it more as needing people on the ground, because we need to have support for our brands. We’re not a company that drops off the software and waves goodbye. So, if we were going into six markets overnight, what I would be doing is scouring for the right people, the folks like Jake and Filip, that we can put into place and know that they’re better than me and Larry. Hire people that are better than us, that’s what we would have to do in those markets.”
The route to those 10 million integrations a month is through old-fashioned communication. “The mechanism, if you will, is for us to start out talking to brands directly, and you can work with a certain number of brands in that way,” explained Botto. “Cultivate the relationship, get them on board. What really helps us scale are relationships with folks like POSBL, where we can cover many brands at once.”
POSIBL is a California co-manufacturer for many of the top brands in the state. “We are super excited about that partnership,” said Botto. “We also work with Final Bell, another major co-manufacturer working with some of the biggest brands in California. We can service a number of different brands through the same instrumentation, so we instrument their line and anything that gets run through that line can have LucidIDs easily added in, and so on.
“To a similar degree,” he added, “and maybe even far more scale, is when we get a retailer really excited about this, because they’ve got 120, 140 brands on their menu, and when they decide that this is important enough to their business that they want all of their brands to do this, well, the floodgates open, and we get introduced to 100 brands in one day. Then it’s just work to get through those brands and get them on-boarded, and it becomes an operational exercise rather than a sales exercise.”
When certain technologies reach a tipping point, they become essentially ubiquitous. Is the end game for Lucid Green when Big Data comes calling and they are acquired because they have the indispensable tool? “It’s certainly possible,” said Botto. “Data is king. But we don’t have any plans to do so. We’re in it for the long haul, but one could certainly imagine somebody trying to enter the space, and having a data set that has so much information could be valuable. Is it one of these big Canadian companies that can finally move down and operate in the US? Is it an alcohol and beverage company? Who knows? I think companies like us are certainly an attractive target, but you still have to think through, how does it undermine the mode if one big company now has this data product? Is anybody not part of that company’s umbrella going to want to use it anymore?”
Conjecture aside, Botto said the increasing acceptance of Lucid Green’s solutions, not just from the industry but from regulators as well, is exciting and inspiring. “It’s really getting fun, and it’s getting this crazy pace, which is exactly the problem you want,” he said. “It’s actually happening, and we’re getting something that we expected a little bit earlier on, which is interest from regulators about how this can help make a healthier market. We’re finally getting that level of conversation going in several markets, like Michigan and New York, we had conversations in the past in California, and we had conversations at the regulatory level in Nevada. That’s something that is really welcomed by us so that we can make sure that we’re being good citizens for those markets, and making it better on the regulators as well, which is also a pretty big mover of adoption.”
If you would like to get in touch with Paul Botto, you can do it through his – Linkedin Page