WHY THIS MATTERS IN BRIEF
Barcode and tracking technologies are changing, it’s becoming organic and smart, and they can be used to track everything everywhere …
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High end leather. Premium cotton. Fine wines. These are some of the products that use Applied DNA’s new DNA based so called “Molecular Tags” – inert unique strands of synthetic DNA that more and more companies are using to ensure their products aren’t tampered with throughout their journey from the producer to end consumer.
And cannabis is now on that list, too – and Applied DNA’s cannabis lead John Shearman told reporters recently that interest from cultivators and potential government and law enforcement clients is heating up as the now $17.5 billion legal cannabis industry matures in the US.
The Future of Supply Chains, by keynote Matthew Griffin
Last September, the company signed its newest cannabis partner, Flora Growth, an all-outdoor, publicly traded, Colombia-based grower that expects to earn $9 million to $11 million in the second half of 2023. Shearman declined to tell reporters how many active cannabis clients it has, and it hasn’t publicly disclosed any other than Flora.
“The platform is being used across many, many industries – cannabis is new, but there is a great deal of interest into it,” Shearman said, because it can help with things like the “regulatory side, the raw materials traceability, product authentication, counterfeit diversion, consumer safety in general.”
Between September 30, 2020, and June 30, 2023, Applied DNA booked nearly $6 million in revenue – up 270% from ~$1.6 million the prior year, per corporate filings. The vast majority of its sales come from its Covid-19 related products, like diagnostic PCR tests and a virus surveillance service that helps schools, universities, governments, businesses, and more perform population-level analysis of virus outbreaks. The company’s authentication business – which its genetic-tagging platform, called CertainT, is a critical part of – brought in about $345,000 in the first half of this year.
CertainT’s commercial life began with a 2013 Department of Defense contract, Shearman told reporters. The DOD had a leaky supply chain at the time, Shearman said, causing unvetted microchips to make their way into weapons systems and sparking dangerous malfunctions. After a year of red-teaming Applied DNA’s tracking tech, the DOD was impressed enough to give them a $149,998 contract to work with chip manufactures to apply unique molecular tags to their semiconductors. It still works with the DOD today, having received another $41,000 contract this past May, per Federal Procurement Data System filings.
CertainT works like so: A client, like Flora Growth, applies its unique DNA solution to the thing it wants to track – like cannabis plants, post-harvest. From there, Flora and its supply chain partners will use Applied DNA’s PCR tests – yes, the very same that we all are acquainted with because of Covid-19 – to evaluate a tiny sample of the cannabis product and verify that it comes from a Flora farm.
“Think of a PCR as a molecular copy machine – one to two, two to four,” Shearman said. “It amplifies the [DNA] signature to a point where it can read it, and that takes around 20 minutes to do. And then all that information that we’re capturing from testing goes into a third part, which is tracking, which is a cloud-based repository of all the information.”
Per Applied DNA’s SEC filings, its unique biological identifiers now “exist on hundreds of millions of commodity goods ranging from consumer product packaging to microcircuits to cotton and synthetic fibers.” Shearman said it’s been used in 300 million pounds of US cotton alone.
The product has a “Generally Recognized As Safe” (GRAS) distinction from a third-party consultant called Ramboll, and is inserted at the parts-per-billion level, meaning very little is added to the end product. The DNA strands are so short that they are not considered organisms, and they are not derived from animal genes, so they’re not considered Genetically Modified Organisms (GMO). Shearman likes to say you “probably ate more DNA in your bagel you had this morning” than you’d ingest from something tagged with Applied DNA’s molecular barcode. It’s not FDA approved, but Shearman said that because the “molecular tag is considered an excipient and not an active ingredient…it does not need specific FDA approval.”
This inertness was key for Flora, according to the company’s Chief Revenue Officer Jason Warnock, because it’s an organic grower that needs to ensure any additive is both safe for consumption, including smoking, and not jeopardizing its organic status.
“We’re not actually changing the DNA, that DNA has no impact,” Warnock says. “It’s not a GMO, it’s not actually changing the plant or the oil or anything. All that we’re doing is putting on this parts-per-billion barcode – they’re just doing it at a molecular level instead of a tag level.”
Even still, molecular tagging like CertainT has previously received pushback, both for its potential application by law enforcement agencies, who can use it to test if weed is grown legally or not, and because it’s an additive.
“The thought of it alone – whether it’s safe or not – just the thought of an additive when we are trying to reduce additives is a turn-off to me,” Larisa Bolivar, executive director of the Colorado-based Cannabis Consumers Coalition told CannabisNow in 2022, in reference to molecular-tagging products. “It is unnecessary. I personally will not consume cannabis that has additives on it.”
In 2022, a Colorado state senator introduced a bill that would have required the use of molecular tagging like Applied DNA’s CertainT product. The bill failed, and rather than adopt tracking tools like this, Bolivar argued at the time that legalizing cannabis more broadly is a better way to clamp down on black-market grows. Currently, recreational cannabis is legal in 18 states and Washington, D.C., and medical use is legal in some form in 37 states. It remains illegal federally.
Flora uses the molecular barcodes in products ranging from cannabis flower to derivatives like oil, allowing them to deal with a client conducting a spot check of their goods many countries away, even after the goods have changed hands several times over. It chose the solution over traditional QR codes or physical trackers because it’s more tamper-proof.
“There’s so much mistrust and learning in the industry, and if you’d like to operate in a global sense as a CPG company, we felt we had to reach a higher standard across the board,” Warnock said. “There’s nothing wrong with being an amazing cultivator of premium cannabis for a recreational market in Northern California, and you make the best bud in the world and you have a farm-to-table-style approach…but Flora is operating as a global company…which is being distributed through so many modalities.”
Warnock says higher-profile CPG companies demand this level of certainty – if a company like Sephora is sourcing cannabis for a hemp-based makeup, for example, he said it requires that suppliers submit multiple lab products proving the provenance of their plant. And in the event something goes wrong, and you need to recall your product, you can trace back the “chain of custody to see if someone has tampered along the way,” Warnock said.
“The consumer is the benefactor of this. They see this transparent chain of custody all the way from Stony Brook all the way to Colombia and then, let’s say, the United States or Europe, and they’ll be able to track that all the way through,” Shearman said. “And then companies like Flora get the benefit of understanding exactly where their product went, at any given time, and any node that they wanted to check, they can have these systems put in place at testing facilities.”