Marijuana Business Factbook 2019

252 Marijuana Business Factbook 2019 Chapter 6 | Cannabis Testing Labs and Ancillary Firms © 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. CHART 6.01: Testing Labs Overview: Revenue, Expenses & Startup Costs Source: 2019 Marijuana Business Factbook © 2019 Marijuana Business Daily, a division of Anne Holland Ventures Inc. All rights reserved. Testing Labs Overview: Revenue, Expenses & Startup Costs Annual Revenue Annual Operating Costs Startup Costs (Businesses Launched In Past Three Years) Median Most Expensive Startup Cost Most Expensive Operating Cost Equipment 80% Staffing/Employees 20% Staffing/Wages 100% $1,700,000 $1,026,000 $1,400,000 Testing labs’ annual revenues can vary significantly ― survey respondents reported annual revenues ranging from $100,000 to $11 million. Despite the variance, most testing labs said they generate more than $1 million annually, with median annual revenue of $1.7 million. Annual operating costs for testing labs are high, with a reported median of just over $1 million. Operating costs are driven primarily by highly skilled ― and, therefore, highly paid ― workers. Analytical positions at testing labs require a strong science background, possibly a Ph.D. Every testing lab respondent to the survey indicated that staffing and wages are their most expensive operating cost. Beyond staffing and wages, maintaining highly sensitive testing equipment can also be costly. Labs must also be agile and ready to pivot to any changes in rules and regulations, which happens frequently and often requires additional equipment, testing procedures or processes to implement. DigiPath Labs, a publicly traded testing company with a facility in Nevada, spent just over $2 million to operate its lab in 2018. After accounting for administrative expenses and professional fees, the company took a $1.7 million loss, largely because it was forced to temporarily outsource pesticide testing to a third party while it repaired and upgraded lab instruments to comply with regulators’ requirements. Median startup costs for testing labs that launched in the past three years were $1.4 million. Startup costs are driven by the high price of specialized equipment, with 80% of testing labs citing this as their most expensive startup cost. Steep Hill Labs ― one of the most prominent cannabis testing labs in the nation ― has a licensing program that allows individuals or organizations to own or operate a Steep Hill-branded lab. The company requires at least $2 million in available capital to start the application process, reflecting the high investment for testing labs.