By Keith Mansur
Oregon Cannabis Connection
(From the current Dec/Jan issue of OCC)
Oregon’s dispensary shelves are getting bare, and the supply of products is slim as we approach the Oregon Liquor Control Commission (OLCC ) license deadline for recreational dispensaries. Until December 31, 2016, Oregon’s medical dispensaries sold to the adult use (or recreational) market, but the deadline meant after that date, in order to sell recreational cannabis a dispensary must be registered with the OLCC, not the Oregon Health Authority (OHA)—as they could before.
A number of regulatory challenges have reared their ugly heads along the way, but none seems more grotesque than the cannabis testing rules, which affect the entire cannabis market. Starting October 1, all cannabis being sold to dispensaries and entering the market had to meet new testing standards by labs that were properly certified to do the testing. Yet, only a handful of labs are yet certified to do pesticide testing, resulting in delays.
This created a shortage of cannabis products within weeks, prompting discussion and action that resulted in changes to the rules. With the release of a memo and statement, OHA announced temporary, emergency changes to the pesticide testing rules on December 2, in order to solve a shortage in the recreational cannabis market and improve the flow of cannabis through the few labs that are fully certified.
“We have listened to concerns expressed by industry, and we believe – and our goal was – that these rule changes will streamline the testing process and alleviate some of the regulatory burden without jeopardizing public health protections,” explained Jonathan Modie, Lead Communications Officer with OHA Public Health Division to Oregon Cannabis Connection. “However, the exact effect of these changes remains to be seen. Some of the slowdown is due to market forces that are not within the control of the agencies.”
We asked Modie about the shortage in the market, and whether OHA should be concerned about how these rules have affected the supply.
“OHA’s goal is to ensure marijuana consumers aren’t exposed to potentially dangerous chemicals in pesticides, solvents and other contaminants, not to ensure that there is a sufficient supply of marijuana products on the market,” he explained. “OHA is committed to working with the Governor’s Office, its sister agencies and stakeholders in developing permanent testing rules in the near future that do not overburden the industry, yet still ensure reasonable safety standards.”
So, what happened?
Beginning October 1, Oregon’s standards for testing changed dramatically. On that date only state-accredited labs were allowed to do testing, and the testing standards were more complex and required more steps and procedures, as well as more samples, in some instances.
Not enough labs were accredited in time to meet the demands of the massive market in Oregon. The first certified labs were approved just before what could possibly be the largest outdoor harvest of cannabis in 70 years.
No labs were approved for cannabis testing under the new rules until August, with the first experienced cannabis lab, Green Leaf Lab, not approved until August 26. On September 22, just nine days before the testing rules went into effect, only 11 labs had been approved for testing. Of those, only two had been approved to perform all six of the required testing regimes – Pixis Labs and OG Analytical – and only four labs had been approved for pesticide testing. As of December 1 2016, still only six labs are certified to do pesticide testing.
Any product to be sold by a dispensary had to be tested under the new guidelines, yet only a couple of labs at that time were capable of full-regime testing. Literally tons of cannabis products were in need of testing within days of October 1, including flower, extracts, food, tinctures and more. Even industrial hemp requires testing for potency and must be certified low-THC.
The economic impact to the state and the dispensaries trying to stock product is significant. A recent economic impact report focused on the testing bottleneck suggested that the loss in state tax revenue alone could be $10 million for the last quarter of 2016. They also estimate black market diversion of products that could otherwise enter the Oregon market at over $180 million.. All of these impacts are due to current and foreseeable supply shortages.
Highlights of the report, released by Whitney Economics:
– Supply constraints due to the changes in testing protocol in Oregon have significantly impacted the
Oregon cannabis industry
– On an annualized basis, black market activities have increased a projected $187.5M due to the
combination of higher prices and lower supply
– Oregon tax revenues are projected to decrease by a minimum of $10.0M in Q4
– 22% of the 72 respondents indicated that they are going out of business and a large majority of survey participants plan to lay off employees for one to three months starting in Q4
Beau Whitney was formerly the Chief Operating Officer for Golden Leaf Holdings, a now publicly-traded cannabis products company, and is now Vice President of Regulatory and Government Affairs. He also teaches economics for the University of Phoenix and has held operational management positions with Intel and other tech companies that experience rapid growth rates.
“OHA, the regulatory body here in Oregon that implemented these changes did so because they were mandated by the Oregon state legislature,” Whitney explained to the OCC. “With some of the tests, like the enhanced pesticide testing, they may have overstepped what was the intent of the legislature, in my opinion.”
The intent of the OHA is to ensure public safety and create a more uniform testing environment, with qualified labs doing the testing, Whitney explained, but they are treating cannabis like medicine and he believes it should be treated as an agricultural product.
“They implemented a policy where they are treating it like medicine—similar to what FDA standards would be,” he explained. “Many folks feel this is an agricultural product and should be regulated and tested as such. By treating it like a medicine, they have much a more expansive scope of tests and very, very low limits so the limits have created a massive amount of failures in [products] at testing labs and delays in results due to the backlog created by so few accredited lab.”
The impact has been severe on both current OHA-licensed dispensaries and the newly licensed OLCC dispensaries that are trying to serve the new fledgling recreational market.
Going Green in Albany is a medical marijuana dispensary that has operated for three years and they have experienced terrible shortages. The owner, Shawn Aman, explained to Oregon Cannabis Connection, “We haven’t had concentrates on the shelf for a month—no shatter, no oils, no pens, nothing.”
“What edibles we have we are discounting to get them sold because they have to be out of here by January 1,” he explained of the edibles that don’t meet the new standards. “We are basically on life support right now.”
“Unless you have deep pockets you’re not going to be able to survive the next year,” Aman said. “Most of the little guys have gotten the message and just given up.”
Sunnie Day Sanchez owns Honey Badger Sungrown, a medical marijuana garden in Alabny, and has experienced the testing delay firsthand.
“My test results took three weeks to get back,” explained Sanchez, who submitted her samples for testing to Green Leaf Lab on November 10 and didn’t receive her results back until the end of November.
Two other growers—one OHA- and another OLCC-registered—had similar delays of three weeks. Both were flower samples, so fewer tests were required than for concentrates and edibles. All of the labs are experiencing delays.
“Under normal conditions, testing takes about 7-10 business days to complete,” Lori Glauser, chief Operating Officer of EVIO labs explained to Oregon Cannabis Connection in an email. “Given the dual surge of samples that we received just after October 1 due to the annual harvest, pent-up demand from processors waiting for the rules to come in place, and the increase in number of tests required to validate consistency of edibles and concentrated products, turnaround times were longer.”
“We don’t anticipate such a double surge in demand will happen again,” she added. “Our advice to producers and processors is to review and understand the new testing rules, and make appointments with labs well in advance.”
But, the effect on extract companies and edibles manufacturers has been severe, and requires many tests for a small batch of products. This has created additional costs and further delays.
“I’ve got stuff still out—four weeks, five weeks later,” explained Rico of NW Kind, one of Oregon’s largest extraction companies. “We haven’t made a dime on [extracts] since October 1, and we are one of the bigger processors in Oregon, and the bottleneck and testing, coupled with the increased costs, has created an absence of oil, extracts and concentrates in the marketplace.”
What they are trying to do is get process validation for their products, which would help them save thousands on each batch they test. It allows them to show they are consistent in their practices.
“Process validation is a way to verify that your methodology is consistent across the board,” Rico explained further. “It’s not economically feasible for us to sell oil without process validation.”
Indeed, the costs for a single batch of extracted oil without process validation are expensive. Under the rules that were released on October 1, eight separate tested samples for batches of 0.5 to 1.5 lbs was required.
“For us, the cost came out to about $2500–2700 for a batch,” Rico said. “After process validation, the cost of the test is about $750–800 for the entire batch.”
But the process validation process is expensive, too. NW Kind has spent more than $20,000
to get approval, and they are not done yet.
The process validation rules also changed with the release of the December 2 OHA memo. They changed the method for validation and now allow a simpler “control study” method instead of the battery of tests and standards NW Kind was trying to pass. Regardless of the method, they believe process validation is the only way to go.
Elbe’s edibles, a small food manufacturer in Portland has been hit especially hard. The CEO, Hovering LaPlante, found the new rules more costly and burdensome than the previous ones that went into effect October 1.
In a letter to the OHA and OLCC, LaPlante explained that their costs would be increasing due to their new batch size limits.
“Previous to 12/2/16, batch sizes were not capped and a batch of 3,200 units (Elbe’s batch size) required 13 samples to be taken,” he explained in the letter. “Now, under these new rules, that same batch of 3,200 units will require 39+ samples to be taken.”
LaPlante also decried their “management-by-memo” practices stating, “Sending out rules that are effective immediately is not friendly to business of any size, and this practice needs to stop.”
Elbe’s Edibles has been struggling, and the difficulties they have had were all caused by regulations and rules that have been implemented and then changed, repeatedly. Changes have occurred in labeling, testing, and potency standards, not to mention restrictions no other company must adhere to, such as making non-medicated food in their licensed commercial kitchen.
Modie did not know whether further changes would be coming from OHA, but did indicate they are looking at the sampling size changes they made December 2 and assessing the situation.
“OHA is currently re-evaluating this number with the appropriate subject matter experts,” he explained.
So, a smart business person should expect more changes. What to do in the meantime is anyone’s guess. Visit http://www.occnewspaper.com/category/testing-1/ for updates.
***ATTENTION*** — Update was released, and the batch size was increased to 35,000 units just 11 days after their December 2nd memorandum. Other changes were also made, as well. Find the changes at the OLCC website here.
Cover photo from: Salem-news.com
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