Testing, supply issues ‘could be death knell’ for Oregon MJ market

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By Omar Sacirbey

Strict marijuana testing standards and a dearth of labs have created a supply shortage for Oregon’s marijuana businesses, resulting in half-empty shelves, plunging revenue and possible layoffs. Many businesses are even closing.

“This could be a death knell for Oregon’s cannabis industry,” economist Beau Whitney surmised.

The supply crunch has affected retail availability of both recreational and medical marijuana, including flower and edibles. It comes on the heels of more stringent cannabis testing standards that took effect Oct. 1. Meanwhile, only a handful of labs have been accredited for testing, and many of the tested products have failed.

Whitney – founder of Whitney Economics, a cannabis-centric research and consulting firm in Portland – believes the overall situation has breathed new life into the black market, as growers who have failed tests seek new avenues to unload product and consumers who can’t find product seek new places to buy it.

Whitney, who published a survey Wednesday about the state’s cannabis supplies, pointed to the stringent state testing standards intended to weed out the use of unapproved pesticides.

“The (Oregon Health Authority) tried to address a safety issue but has created a bigger safety issue by driving consumers and product into the black market. This is a policy that has gone very, very wrong,” he said.

Oregon Health Authority (OHA) officials have acknowledged the complaints but say the changes are necessary to protect public safety.

Tough times for businesses

According to Whitney, 16 of 72 marijuana businesses that responded to his survey, or 22%, said they are failing. Those that are surviving are suffering.

Of the respondents, 81% said they were experiencing supply constraints that have forced price hikes. For example, 39% of businesses said they had to raise prices by 25%-50%, while 35% had raised prices by 10%-25%, and 26% saw price increases of less than 10%.

Lost revenue has also been a problem.

Some 43% of respondents reported losing $20,000 or more per month since Oct. 1, while 53% reported sales declines of less than $20,000 per month, according to Whitney’s survey. Another 11 out of 72 respondents plan to lay off five to 25 employees.

The problem apparently started earlier this year when state legislators passed a law requiring regulators to standardize cannabis product testing, an initiative the industry supported because it would require more accountability from the labs and boost the trade’s legitimacy.

While there are many labs that can test for some contaminants, only a smattering of the few dozen labs in operation before implementation of the new rules have received accreditation to test for pesticides. In addition, the new contamination thresholds are much stricter than before.

Because of the small number of fully accredited labs, the waiting time for results has jumped and, consequently, slowed the flow of product from growers to stores.

“What used to be a 72-hour turnaround, I have growers now waiting a month to get their results back,” said Matt Walstatter, who co-owns Portland’s Pure Green dispensary.

Whitney’s report said testing turnaround times went from about five days to 14-21 days because of the lab shortage.

More labs haven’t been certified, OHA critics said, because the agency didn’t receive the necessary funding to complete certifications.

Jonathan Modie – a spokesman for the OHA, the agency responsible for lab testing and also overseer of the medical market – countered that the existing labs have said they can handle the testing workload. But he acknowledged more facilities would help.

“I can’t speculate what a good number of labs would be … Would more labs be better? Absolutely,” Modie said.

Unreasonable testing criteria

Compounding the problem has been what many observers call unreasonable testing standards, which, Whitney said, have translated into test failures in 40%-60% of submissions.

“They’ve set standards that are almost impossible to comply with,” said Donald Morse, executive director of the Oregon Cannabis Business Council. “They’re disallowing things that they allow on everything else.”

He lauded the OHA for trying to protect public safety but noted there haven’t been any pesticide-related health problems since Oregon legalized medical cannabis in 1998.

“They’ve gone all these years and nobody has gotten sick, nobody has gone to the hospital,” Morse said.

Modie said that just because no one has reported pesticide-related illnesses doesn’t mean the cannabis people consumed was safe.

“Unfortunately, a lot of product that passed the recent tests that have failed show us it shouldn’t have passed,” he said. “I suspect there is a whole lot of product out there that had pesticides on it that shouldn’t have had pesticides on it.”

Supply and demand

The supply shortage has been exacerbated by Oregon’s decision to fully roll out its recreational market in October. The Oregon Liquor Control Commission (OLCC) oversees that market.

Under state guidelines, growers and cultivators cannot supply both recreational and medical stores. Many medical suppliers are heading to the rec market, leaving dispensaries like Walstatter’s wanting for products.

Also, only a handful of infused product makers have OLCC licenses, leaving many retailers struggling to find concentrates and infused products.

“I only have three or four edibles companies to buy from, as opposed to a couple hundred a couple months ago,” Walstatter said. He added that his store used to carry about 20 varieties of shatter but now has only five or six, and his flower selection has also declined.

Walstatter doesn’t believe these problems will sink the industry as a whole, but it will kill many companies.

“It’s an existential threat to any individual business out there unless you are incredibly well-capitalized and can ride out several months without any income. For the rest of us, it’s touch and go,” he said. “There are companies that have failed and that will fail.”

Reason for optimism?

Industry professionals don’t want the new rules thrown out; they simply would like to see them tweaked to be made more reasonable.

“We’re not advocating that there be no testing,” said Morse of the Oregon Cannabis Business Council.

There is also hope several new labs will be certified soon, which should ease the supply bottleneck.

Omar Sacirbey can be reached at omars@mjbizdaily.com