Saturday, December 9, 2023

How To Protect Your Cannabis Business From Counterfeits


Cannabis counterfeiting is out of control. Through counterfeit products and packaging, the unlicensed market is capitalizing on the success of the licensed market and its hard-fought brand building and product recognition. The result? Another challenge faced by already tightly-squeezed legal operators.

We asked a premier tech expert in the space, what can be done? There are existing technological solutions to the massive counterfeiting issue in the industry. One of those solutions is Genuiniti, a platform and app that already protects over 7.5 million units of cannabis products. Created in 2004, the company utilizes smart tags, its mobile app, and the cloud to protect $100s of millions in retail value across industries.

We spoke with Sajjad Mustehsan, Founder & CEO of Genuiniti by Sajware Inc., about the scale of what cannabis operators are up against, challenges faced by existing counterfeit measures, and what business owners can do to protect their assets and brand.

Thank you so much for speaking with me today. Tell me, how prevalent is cannabis brand counterfeiting and when did it begin?

Sajjad Mustehsan: Counterfeiting in the branded cannabis industry has existed since the dawn of branded cannabis and has only accelerated over time. It has now reached pandemic scale and is so widespread that no geographical market, product type,  brand size, price category, or retail channel is immune.  

In the last couple of years, we have also witnessed an exponential increase in its sophistication that has resulted in counterfeiters defeating legacy anti-counterfeit protections such as scratchable QR codes with ease. Furthermore, cannabis counterfeiting has evolved into “third-party” and “rogue insider” counterfeiting.  

In third-party counterfeiting, skilled third parties unaffiliated with a brand get its packaging printed and filled with substandard ingredients for infiltration into unlicensed and licensed markets. To counterfeit at scale, they hire professionals who help neutralize compromised anti-counterfeiting protections like scratchable QR codes using techniques such as rogue websites. 

In rogue insider counterfeiting, insiders affiliated with a brand use their knowledge and access to official packaging to have third parties fill and sell counterfeits for personal gains. It may occur at several levels. Often the printing company responsible for manufacturing the packaging for a brand also supplies identical packaging to counterfeiters. At times, official packaging in transit from the printing company to a brand’s facilities is stolen by rogue insiders and provided to third parties for filling and onward sale. Another common trend nowadays involves duplicating scratchable QR code stickers and applying them to counterfeits. As a result, counterfeits that reach markets before the originals verify as genuine. Authentic items arriving later appear fake. At other times,  packaging containing authentic products is switched with counterfeits by insiders on its way from a brand’s manufacturer’s facilities to distributors and retailers. 

We have worked with large brands that have been a victim of both insider and third-party counterfeiting. Some have had as many as four fakes for every authentic. Given this firsthand experience, we estimate that counterfeits in the cannabis industry outnumber original items by 200% to 400%. 

Are brands feeling the effects of the unlicensed market counterfeiting their products? Does this issue affect how consumers perceive brands? 

Mustehsan: As counterfeiters find creative ways to infiltrate licensed markets, counterfeiting is no longer limited to unlicensed supply chains. As a result, brands of all sizes are feeling the impacts of counterfeiting.

Like any business, a large chunk of brand sales pays for its production costs and overheads. The remaining contributes to limited profits. By fulfilling unserved demand, counterfeiters are skimming away what could have been a large chunk of profits. An estimated 200% to 300% reduction in brand profits is a direct result that heavily influences brand competitiveness. 

Since counterfeit products are often of inferior quality, they also irreversibly damage brand reputations. As a result, consumers lose their trust in the brand and doubt the integrity of the retail channel through which they obtained the counterfeit product. Brand and retailer abandonment by consumers is a direct result commonly seen today. 

Whether medical or recreational, cannabis is a pharmaceutical that requires precise quality controls to remain safe for consumers. While brands go to great lengths to ensure quality, safety, and compliance, counterfeiters do not. Unsafe, low-quality, and non-compliant products posing as a known brand expose that brand to unfathomable liabilities that could arise out of medical or legal implications from the use of counterfeits. While well-known brands already realize this risk and are looking into ways to mitigate it, newer entrants do not and risk exposure. 

Strong anti-counterfeiting measures are therefore critical to ensure brand integrity and compliance, maximize profitability and competitiveness, mitigate risks from potential liabilities, and maximize consumer trust in the brand and its retail chain. 

Tell me how Genuiniti is able to protect brands from counterfeiting? 

Mustehsan: Genuiniti offers smart tags, mobile apps, and the magic cloud that work seamlessly to defeat counterfeiting. Once smart tags are applied to packaging and activated at a brand’s authorized facility, consumers can use Genuiniti’s mobile app with these tags to verify product authenticity. 

Genuiniti addresses every weakness of legacy anti-counterfeiting systems like scratchable QR codes and offers features that counter third-party and rogue insider counterfeiting widespread in the cannabis industry. 

Unlike scratchable QR codes, which are reproducible in bulk, Genuiniti’s smart tags are highly resistant to cloning. While any attempt to clone them would be cost and expertise prohibitive, in the rare event that cloning does succeed,  Genuiniti employs advanced artificial intelligence for automatically detecting and blocking any cloned tags. Therefore, making Genuiniti’s tags impractical to copy. When legacy scratchable QR code stickers get copied in bulk, all fake copies activate along with the originals. If the fakes arrive in the market before the original, the fakes verify as authentic; and the original appears counterfeit. Genuiniti guarantees worldwide uniqueness at the time of activation. As such,  there is no possibility of automatically activating fakes along with the originals. 

Many legacy verification systems track and share the number of times a code gets successfully verified. Most consumers ignore this detail and accept any valid code as proof of authenticity. Consequently, counterfeiters successfully sell fakes in reused or cloned packaging bearing valid codes that are perceived authentic irrespective of the number of times they get verified. Genuiniti uses advances in artificial intelligence to detect and block such packaging reuse and always gives consumers a definitive “Authentic” or “Fake” response. 

Legacy anti-counterfeiting systems such as QR codes rely on websites that present verification results. With basic skills, a counterfeiter can make an identical rogue website at a similar but different URL and print QR codes that take users directly to it. For alphanumeric codes, the rogue URL gets printed on the fake packaging. Most unsuspecting consumers are deceived and never know that the website they visit and the results shown are from the counterfeiter, not the brand. Genuiniti does not rely on websites at any point in its workflow and is immune to such attacks. 

To give consumers a last line of defense against counterfeits and to specifically defend against rogue insider counterfeiting in which unscrupulous insiders mix counterfeits with originals during transit to retailers and distributors, Genuiniti lets consumers verify the authenticity of products before buying them. Our wireless process allows product authenticity verification to happen without undoing the packaging. 

In legacy anti-counterfeiting systems, QR and alphanumeric code stickers can be easily stolen or reproduced in bulk before activation. Thereupon, unscrupulous insiders activate them as no safeguards are in place to prevent this. Genuiniti’s geofenced activations ensure that inventory can only be activated when authorized personnel and the items are physically present at the brand’s designated facility. 

In scratch code-based systems, QR and alphanumeric codes require users to scratch them, which is an unpleasant inconvenience. Any damage caused during scratching or printing often renders the sticker unreadable and useless. Poor lighting, eyesight, and judgment on the user’s end pose additional challenges.  Genuiniti avoids these pitfalls by requiring users to hold their phones next to the brand’s designated area to view authentication results through wireless communication.

Packaging is a brand’s most important marketing element. Unfortunately, QR and alphanumeric code stickers required by scratch code-based systems take physical space away from your artwork and render the package less attractive.  Genuiniti’s wireless smart tags are installable underneath your artwork. As a  result, without hurting your packaging’s aesthetics, your packaging’s protection against counterfeiting is enhanced. 

Scratch code-based product authenticity verification systems do nothing to encourage consumers to verify. As a result, consumers have limited incentive to verify the authenticity of products and verify fewer items. Since verifying a small number of product units increases the possibility of counterfeits making their way to consumers, Genuiniti encourages consumers to verify product authenticity through value-added features such as augmented reality experiences, prizes,  and more. 

In summary, Genuiniti’s proven platform, which already protects over 7.5 million units of cannabis products, offers a far superior alternative to the legacy anti-counterfeiting system prevalent throughout the cannabis industry. 

Any additional tips you have for brand owners to protect their products? 

Mustehsan: The first tip from our years of experience in protecting cannabis brands from counterfeits is that brands must understand that the consequences of counterfeiting are grave and that no licensed brand – irrespective of size,  geography, popularity, or product type – is immune.  

Many brands believe that since their brand is too small, too new, operates in geographies with little competition, or only sells Cannabis Flower – they are not susceptible to counterfeiting. Our experience tells us that every licensed brand is a likely victim of counterfeiting and the difference between growth and bare survival is often the lack of proper protection. 

The second tip is that brands must never underestimate the ability of counterfeiters. Cannabis counterfeiters are often large, well-resourced operations that employ design, technical, and sales professionals. They can make near-perfect copies of all types of packaging, crack traditional anti-counterfeiting systems like QR codes, and sell counterfeit products at a scale that is often bigger than a brand’s sales network. 

Given this, brands must select the most secure anti-counterfeiting platform and incorporate it in their packaging from day one. Many brands believe trivial steps like an occasional packaging redesign are enough to thwart counterfeiters. Our firsthand experience indicates that counterfeiters are far too resourceful. We are aware of several instances where counterfeit copies of a brand’s “new” packaging arrived before the brand released it. As such, brands must perceive cannabis counterfeiting as an existential threat. Devising a strategy to address it should be as important as your product.

News of Flowers
News of Flowers
The news writers at Hall of Flowers, industry insiders and experts in the field.

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