Week in Review: California marijuana recalls, MA diversity issues & Detroit limits MMJ facilities

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Two voluntary marijuana product recalls occur in California, financial hurdles stymie diversity in Massachusetts’ recreational MJ industry, and Detroit caps the number of medical cannabis licenses at 75.

Here’s a closer look at some notable developments in the cannabis industry over the past week.

Failing grades

It’s been a month since mandated lab testing for all cannabis products began in California. And it’s been rough sailing for many companies.

Not only have there been two voluntary product recalls tied to testing issues, but roughly one in five samples are failing at labs across the state for various reasons, according to data from the state Bureau of Cannabis Control.

What does this mean for California operators in the near term?

More recalls are likely, observed Donald Land, a professor of chemistry at the University of California, Davis, and chief scientific consultant for Berkeley-based Steep Hill Labs.

“There will be more, I’m sure,” he said. “One, because humans are imperfect. And two, because the regulations are also imperfect in a big way.”

Land noted a big change that kicked in July 1: Companies must test for far more pesticides in all cannabis products.

That means companies that didn’t do the legwork to prepare for the changeover may now – and in coming months – be paying the price by enduring testing failures and subsequent product remediation before they can get those products to market.

Another is that the laboratory regulations themselves are “vague and unclear” in many places, Land said, forcing different labs to figure out how to comply while also establishing their own internal testing methods.

Furthermore, he said, manufacturing practices can lead to differing test results depending on the cannabis product.

Concentrates, in particular, can lend themselves to differing test results because many extraction companies haven’t perfected homogeneity – meaning that literally one concentrate sample can yield different test results.

Land said that perhaps the biggest issue is California has put labs in the position of being the industry’s cops.

“The state has declared that the labs are responsible for checking all label claims and deciding whether a product passes or fails,” he said. “In almost every other regulatory system, the labs send the results to the state, and the state is the one that decides if it passes or fails.

“We’ve been charged now, so somehow we’ve been made a policeman. And that’s not our role. That’s not our expertise.”

A state-run cannabis testing lab also is in the works as another industry watchdog, Land reported.

That lab will conduct random testing of product on retail shelves and will follow up on complaints from the public.

Barriers to entry

A state-sponsored survey in Massachusetts found that despite government-mandated diversity requirements, minorities are finding it tough to enter the marijuana industry.

Potential licensees and applicants cited problems raising capital as the primary reason for failing to start a legal marijuana business in the Bay State.

The second-biggest reason: an underdeveloped business plan. And the third: failure to secure local approval.

The best way for would-be MJ business owners to overcome the financial hurdle is to go after a retail license, said Boston-based cannabis consultant Jon Napoli.

Compared to trying to start a cultivation business, with retail “there’s a low barrier to entry financially,” he said.

While a grow could cost millions of dollars to start, a retail operation could get up and running with a few hundred thousand dollars, Napoli added.

“The retail store is the golden ticket,” he said.

According to Napoli, the state has worked hard to encourage diversity in the marijuana program, but one of the big obstacles has been the towns and cities that don’t want cannabis businesses.

“Getting the localities on board has been part of the problem,” he said.

Napoli advises his cannabis clients they need three things to succeed in starting a business:

  • Enough capital to get started and ride out any delay in the program’s rollout.
  • Business and cannabis expertise.
  • Local allies to help overcome any opposition to marijuana.

Double-edged sword

The Detroit City Council’s decision to cap medical marijuana licenses at 75 under a new regulatory structure will make winners happy. But those who lost out could end up suing the city, a Michigan attorney warned.

“The 75 that are approved are going to be ecstatic … but you also will have an entire population that will be furious that wanted to get into the market – and are now locked out,” said Michael Stein, an attorney in Bloomfield Hills.

He predicted the city will spend a lot of money defending challenges by businesses claiming they were treated unfairly.

Stein noted the cap came in a bit higher than expected, but he still lambasted the city for not listening to what the public wants.

Medical marijuana demand in Detroit at one time supported more than 200 dispensaries, Stein noted, so now “you’re trying to cram down the business to 75.”

Stein said he has clients on both sides of the issue.

Some already have conditional local approval while waiting to get their new, permanent licenses from the state.

Others are “outside looking in, but now – because of all the roadblocks being put up – simply can’t do it.”

Stein also warned that the license cap risks barring new businesses that want to come in later with potentially innovative ideas, products and services.

John Schroyer can be reached at johns@mjbizdaily.com

Bart Schaneman can be reached at barts@mjbizdaily.com

Jeff Smith can be reached at jeffs@mjbizdaily.com