California Targets ‘Lab Shopping’ With New Track-and-Trace Rules

The California Department of Cannabis Control is moving to tighten the state’s seed-to-sale tracking system and shut down lab shopping, and the changes would reach nearly every licensee in the supply chain. The proposed rulemaking, designated DCC-2026-02-R: Track and Trace Updates, completed its written comment period on July 20, 2026, and the Department held a virtual public hearing on July 21, 2026. Operators who rely on the California Cannabis Track-and-Trace (CCTT) system to move product should understand what is on the table before the Department moves toward adoption.

Status update: The written comment period for DCC-2026-02-R closed July 20, 2026, and the public hearing was held July 21, 2026. The rulemaking is now pending final action; licensees should prepare for adoption.

What the Department Is Proposing

At its core, DCC-2026-02-R is aimed at closing off practices the Department describes as “fraudulent transactions and other potential abuses of the system to engage in ‘lab shopping.'” According to the Department’s Notice of Proposed Rulemaking Action, the proposal contains four principal components.

First, the rule would require all parties to a transfer of cannabis goods to approve the transfer before the system generates a shipping manifest. Under current practice, a licensee initiating a transfer can generate manifest documentation without affirmative confirmation from the receiving party. Requiring mutual approval is intended to prevent one party from unilaterally recording a transaction that the counterparty never agreed to, a gap the Department views as an avenue for diversion and data manipulation.

Second, the proposal would clarify and supplement existing data entry requirements so that information recorded in CCTT more accurately reflects real-world activity. Data quality has been a persistent concern for regulators who depend on the system to reconstruct the movement of product through the supply chain.

Third, licensed retailers would be required to enter certain tax information when recording sales in the system. The Department notes that this change is designed in part to benefit the California Department of Tax and Fee Administration by improving the accuracy of reported sales data.

Fourth, retailers would be required to provide Certificates of Analysis to customers upon request. A Certificate of Analysis, or COA, documents the laboratory testing results for a given batch, including cannabinoid content and the results of contaminant screening. Making COAs available to consumers on demand is intended to give purchasers direct access to the testing data behind the products on the shelf.

Understanding Lab Shopping and Potency Inflation

The phrase “lab shopping” refers to the practice of seeking out licensed testing laboratories that will return more favorable results, most notably inflated potency numbers or passing marks on contaminant testing that a more rigorous lab might fail. Because retail pricing in California often tracks reported THC percentages, an inflated potency figure can translate directly into a higher shelf price, rewarding operators who game the testing process and disadvantaging those who report honestly.

The Department frames the proposal squarely around this problem. In its informative digest, the DCC states that the objectives include “preventing lab shopping and potency inflation, improving the accuracy and quality of data entered in the CCTT system by licensees, and giving consumers immediate and full access to cannabis test results.” The Department further argues that the changes will “greatly reduce the volume of adulterated and misbranded products that pass laboratory testing and end up on retail shelves.” For operators who have watched competitors post improbable potency figures, the rulemaking represents an attempt to level a playing field that many in the legal market consider tilted.

The Statutory Framework Behind the Rule

The proposal does not exist in a vacuum. It implements the Medicinal and Adult-Use Cannabis Regulation and Safety Act, or MAUCRSA, codified at Business and Professions Code section 26000 and following. MAUCRSA is the statutory backbone of commercial cannabis regulation in California, and the DCC’s regulations at Title 4, Division 19 of the California Code of Regulations flesh out its requirements, including the operation of the track-and-trace system.

The Department cites its general rulemaking authority under Business and Professions Code section 26013 and references a series of MAUCRSA provisions, including section 26067, which addresses the track-and-trace program, along with additional sections governing testing, distribution, and recordkeeping. Because the proposal is a regular, rather than emergency, rulemaking, it proceeds through the full Administrative Procedure Act process: a notice, a public comment period, a hearing, and potential modifications before any final adoption. Operators should not treat the current text as final, as the Department retains the ability to revise the language after considering comments, and any substantially modified text would trigger an additional public comment window.

The Cost Picture the Department Acknowledges

One of the more notable features of this rulemaking is the candor of the Department’s own economic analysis. In the Standardized Regulatory Impact Analysis summarized in the notice, the DCC estimates that a typical business, including a small business, would face one-time up-front expenses of roughly $2,130, and that typical retail businesses needing to upgrade point-of-sale systems would incur annual recurring expenses of approximately $7,800. The Department also projects that it will spend around $555,165 developing and implementing the CCTT enhancements.

More striking are the macro-level projections. The Department states that it believes the proposal will “eliminate approximately 857 existing jobs and 47 existing businesses,” while also estimating that roughly 97 percent of the approximately 5,500 licensed businesses affected are small businesses. The Department candidly acknowledges that “larger businesses, especially larger retailers, will generally be at a competitive advantage over smaller businesses when these changes take effect.” At the same time, the DCC projects consumer benefits from reduced potency inflation and improved supply-chain integrity. These figures are the Department’s own estimates and carry considerable uncertainty, as the notice itself reflects in its extended exchange with the Department of Finance over the analysis. Whatever weight one gives to the numbers, they signal that the DCC understands the compliance burden falls unevenly across the market.

What This Means for Operators

If adopted in its current form, DCC-2026-02-R would require concrete operational changes across license types. Distributors and other parties to transfers should anticipate a workflow in which both sides must affirmatively approve a transaction before a manifest can issue, which may require adjustments to logistics timing and internal sign-off procedures. Retailers should evaluate whether their point-of-sale systems can capture and transmit the additional tax data the rule contemplates, and whether they are positioned to furnish Certificates of Analysis to customers on request. Retailers weighing the DCC’s separate A and M license split should factor these system upgrades into that decision as well. Every licensee that touches CCTT should revisit its data-entry practices, because the proposal places renewed emphasis on accuracy and completeness of system records. Those records are under judicial scrutiny as well, after a court ordered the DCC to make the system automatically flag irregular transactions.

Just as important, the rulemaking is not yet law. The comment period has closed and the hearing has been held, but the Department may modify the text before adoption, and the implementation timeline the DCC has floated stretches into 2027. Operators have a window to prepare rather than react. Reviewing your current track-and-trace reconciliation procedures, testing relationships, and POS capabilities now will make any eventual transition far less disruptive. Businesses that have relied, knowingly or not, on lax data practices or favorable lab relationships should pay particularly close attention, as the entire thrust of the proposal is to make those practices harder to sustain. An annual compliance self-audit is a practical way to find those gaps before the Department does.

For cannabis operators and prospective licensees who want help understanding how proposed changes to California’s track-and-trace requirements may affect their specific operations, licensing posture, or compliance obligations, the team at Baghoomian Law is available to discuss your situation. Reach out to learn how these developments may shape your path forward.

This post is for informational purposes only and does not constitute legal advice. Consult licensed counsel for advice on your specific situation. Attorney advertising. This article is provided for general informational purposes only, does not constitute legal advice, and does not create an attorney-client relationship. For advice regarding a specific matter, please consult qualified counsel.