California taps utility data to flag cannabis fraud
Connecting state and local government leaders
A cloud-based platform running advanced algorithms on nontraditional data sources like utilities alerts cannabis regulators of potentially high-risk or fraudulent activities.
As many state and local governments sort out their approaches to cannabis regulation, a new partnership between Accela and NCS Analytics puts data front and center.
The partnership, announced in December enables government solutions provider Accela to enhance its cloud-based end-to-end cannabis regulatory platform with analytics that incorporate data beyond the typical licensing, track-and-trace and point-of-sale elements. Technology from data analytics firm NCS pulls in those traditional data points but also gathers banking, demographic, geolocation, taxation and utilities data.
The combination proactively identifies under-reporting and diversion of cannabis products, providing officials with a fuller picture of what’s happening at cannabis-related businesses, said Cara Martinson, executive director of the California Cannabis Authority (CCA), a Joint Powers Authority created through a contract between counties with cannabis regulatory or taxing authority.
NCS understands what utilities are associated with cannabis production, so it knows how much water and electricity businesses needs to produce 1,000 pounds of cannabis flower. If utility use is higher, that’s a red flag, said Greg Felix, Accela's vice president of strategic solutions.
When data is submitted by cannabis growers, for example, the system analyzes the dataset against its broad range of data sources. If the growers' data is not what is expected, the system flags the submission.
"It gives a better picture of what’s going on in the community, and providing more real information, not a spreadsheet of data, [but] an actionable alert,” Martinson said. “The more information we share and the more interoperability we have, I think that the better off we are as regulators.”
Accela’s system already let cannabis businesses submit licensing applications online for regulatory entities to vet, and regulators use it to make sure licensed businesses stay in compliance. Additionally, it handles tracking and tracing -- a record of the movement of cannabis and related products from cultivation to sale.
Accela had some analytics already, but they were basic, Felix said. With the addition of NCS’ technology, regulators can log in and see a list of the businesses they oversee and alerts to potential problems from the past seven days categorized by severity. For example, they might get an alert about a cultivator that may be underreporting production because the amount of water and power it used indicates that output should be higher.
“It really is the next-generation approach to cannabis regulation: integrated, intentional, insightful and automated,” Felix said.
The system also pairs the alerts with three to five questions, giving regulators a jumping off point for furthering their inquiry. For instance, the system could ask if the business is running any specials that might account for the discrepancy. If the business owner says yes, the investigation could end there. If the answer is no, regulators can dig further via the platform and perhaps discover that the business is reporting only half its cash sales, NCS CEO Adam Crabtree said.
“Depending on the state or sector we’re working in, we grab eight to 15 different data streams, run them backwards, forwards, upside-down and sideways through our patent-pending predictive analytics to help regulators and financial institutions better understand these traditionally opaque, difficult-to-regulate" businesses or interact with them on a financial level in near real time, Crabtree said. “All of our data streams are one-way, read-only, and that was designed for the protection of the chain of custody, so there is absolutely no possible way for my system to write into any system that we analyze.”
At CCA, its six county members access the integrated platform through the organization’s website. In addition to alerts, they see only the businesses in their jurisdiction and a snapshot of their activities, They also get month-end reports and alerts.
Accela is the state licensing platform, and CCA has used NCS’ platform since 2018, so now that the two companies have partnered, CCA can get state data automatically, rather than entering it manually.
“It’s a new industry,” Martinson said of cannabis regulation. “It’s still pretty volatile, so for folks at the local level who have to anticipate the programmatic means, the cost associated but also forecast what the fees and taxes will be, this is really helping to get a better, accurate picture.”