California’s cannabis testing industry was stressed to the brink in 2018, with newly required testing thresholds going into effect first in July 2018 and then in January 2019.
The result at the time was long waits for test results, a temporary increase in product testing failures and various industry stakeholders arguing the state needed far more labs.
Much of that, however, has changed since final regulations were adopted in January.
Lab executives now generally report:
- Their businesses have stabilized.
- Wait times for testing results have become more predictable.
- Product failures are down.
- The 27 currently licensed labs are enough to handle the state’s testing workload.
“Things have definitely stabilized quite a bit. Right at July (2018), when testing was being enforced and mandated for the first time, there was a rush everywhere” for testing services, said Zach Eisenberg, vice president at San Francisco-based Anresco Laboratories.
Stabilization has occurred despite the fact only 27 licensed labs are serving the entire state market, while another 66 lab licenses have been canceled, surrendered, revoked or have expired, according to the Bureau of Cannabis Control’s licensing data.
However, plenty of issues still face California testing labs and the larger industry they serve.
“Everyone expected the market to be at a different point than it is right now. The trajectory that started in July last year … we’ve flatlined right now,” said Swetha Kaul, chief scientific officer at Santa Ana-based Cannalysis, referring to an apparently stagnated number of product batches that have been tested in recent months.
No labs at full capacity
Marijuana Business Daily spoke with several executives from testing labs around California, and none of them reported being anywhere close to capacity.
“By and large, everyone has scaled up in terms of their capacity,” said Daniel Witt, president of Sonoma Lab Works in Santa Rosa, adding that most labs have the capacity to do more testing.
Lab executives said that indicates two things:
- The legal market has not reached its full potential, since, if it had, it would produce far more samples for labs to test.
- The number of labs may not expand much in the near future since there isn’t a need at the moment.
Some lab consolidation, in fact, may be coming.
“You definitely need a healthy number of labs, but you don’t need a really big number,” Kaul said.
“California is still in the process of finding that healthy balance between what makes a good lab versus what’s easy for the regulators to oversee.”
Chasing clients on testing bills
Part of the problem is the illicit market is still so strong and undercutting legal retailers and growers.
Many of those companies haven’t been able to – or simply don’t want to – pay the fees labs charge for testing services, said Greg Magdoff, CEO of PharmLabs, which has testing facilities in San Diego, Monrovia and Coachella.
It’s usually either because clients are strapped for cash or because they’re unhappy with the actual lab results on their products, Magdoff said.
“One of the larger California companies, out of Northern California … they couldn’t pay their bill – a $5,000 bill,” Magdoff said.
“There’s a few companies that have no problem paying their bills upfront, but it seems like 70% of our clients need some net terms.
“It’s like not having $1 in your car to get over the toll bridge. … It leads me to believe that the entire industry is struggling.”
Other labs said they’ve had similar problems with clients skipping out on bills, but the consensus was that’s part of doing business in the current industry climate.
Misuse of lab names, results
Several labs reported that they’ve had to chase down instances with clients where a company has paid to have a small sample of a wholesale batch tested and then misrepresented to potential buyers that everything that was for sale was lab-tested.
“We have people that will give us 5 grams of oil to test one time and then they sell off that (certificate of analysis) for a year,” said Antonio Frazier, vice president of operations at CannaSafe in Los Angeles.
“We have to go after people sometimes. … If you want to certify bulk oil, there are certain ways to do it.”
One testing company – Santa Cruz-based SC Labs – has sent a flurry of cease-and-desist letter to companies.
“My brand shows up on so many products that I’ve never heard of and I’ve never tested for, that it’s a bit frustrating. So we have a steady stream of cease-and-desist letters that go out,” said Jeff Gray, SC Labs’ CEO and founder. He estimated that SC Labs has sent up to 25 such letters in the past year.
“We’ve just been really aggressive about challenging every instance that we can find,” Gray added.
Gray warned that other labs should remain concerned about the possibility of their professional credibility being usurped, especially given the recent vaping illness epidemic and the potential for labs to be roped into investigations if their names are falsely linked to vape products that may have contributed to the illnesses.
John Schroyer can be reached at johns@mjbizdaily.com
