Marijuana Business Factbook 2019

251 © Copyright 2020, Marijuana Business Daily , a division of Anne Holland Ventures Inc. You may NOT copy this Factbook, or make public the data and facts contained herein, in part or in whole. For more copies or editorial permissions, contact CustomerService@MJBizDaily.com or call (720) 213-5992, ext. 1. Chapter 6 Cannabis Testing Labs and Ancillary Firms Marijuana businesses that perform plant-touching functions require the support and services of other firms to maintain regulatory operations and to provide the services all companies require. This includes the testing labs that ensure marijuana products are meeting safety standards set by each state as well as ancillary services and products firms that help plant-touching businesses operate legally and efficiently. • Testing labs: Testing labs make up the smallest plant-touching sector in the marijuana industry in terms of number of businesses and annual revenue. Testing labs serve a critical function in states where testing is mandatory ― which is most of them ― by ensuring that commercially sold cannabis has met state regulations for human consumption. Testing labs provide important labeling information, such as potency and terpene profile, that communicate valuable information to patients and consumers at a time when advertising and marketing are limited. In states where testing is required, standards are becoming increasingly stringent, although no industrywide or nationwide guidelines exist. • Ancillary firms: Ancillary firms ― separated here as ancillary services firms and ancillary technology and products firms ― provide a broad array of services and products to the marijuana industry. Some of these firms provide the same business services and products to marijuana companies that businesses in all industries require, such as accounting, banking and legal support. Other firms provide marijuana industry-specific services and products, such as assistance in applying for licenses or sales of equipment used in harvest and processing. Because ancillary firms are generally not subject to the same stringent regulations as plant- touching companies, they face lower barriers to entry and are able to operate in multiple states more easily than plant-touching businesses. This chapter highlights financial and operational data for testing labs and ancillary firms, both as individual businesses and as a sector. TESTING LABS The safety of marijuana and infused products has emerged as an area of concern for lawmakers, public health officials and advocates as legalization has spread across the nation. Although no federal or industry standards for testing exist, most medical marijuana markets and all recreational markets have mandatory lab testing for products sold in those states. This has created significant demand for testing labs in legal markets. However, the lack of standardized testing has created roadblocks, and several states have modified their testing requirements over time. This has created operational and financial uncertainty within the sector as labs have had to make increased investments in expensive equipment, additional staff and employee training programs to continue to meet regulations. While a degree of uncertainty exists for testing labs, the trend toward stringent testing regulations is a positive sign for the business prospects of testing labs.