By Samantha Miller, President and Chief Scientist at Pure Analytics
It’s a common theme of discussion amongst licensed operators in California these days, the controversy around flower THC potency in the legal market. The reasons are simple, potency translates into value, or when not a favorable level, it can render a batch of flower unsaleable and a loss.
The costs of operating in the California cannabis market are high. For a lot of reasons and in many ways- the lack of access to banking, our reliance on costly vehicle transport, the inefficiencies of many businesses drunk on the VC dollar and without adequate pressure to control costs… until now. It’s a great reckoning in the California cannabis market as many businesses are failing and the cash flow is broken. Retail isn’t paying Distribution. Distribution isn’t paying the Producers. No one wants to pay the Lab, so they’re often last in line to everyone, but carry the highest costs up front.
As the economy has tightened and sales volumes in the legal market have dropped, it has pushed the overall marketplace to focus on what is affecting their value and cash flow. One of these impacts to COGS is lab, with unpredictable, highly variable, or unreliable potency analysis that impacts product value, let alone the basic cost of testing itself. Some flower will just test low, and it has nothing to do with the handling of the sample during analysis. It wasn’t well grown, it has a disease, it was harvested too early, it was handled too rough, it was allowed to dry out too much at which point product can be further degraded in the handling and packaging. If a product makes it through all of this in good shape, it next must make it successfully through lab analysis and the handling by the laboratory to have a resulting market-accepted potency value.
The advent of regulation in California brought with it an explosion in the laboratory market segment with 40-50 operators in mid-2022. While attrition is high in 2022 with most legacy operators failing, there remains an enormous number of providers in a market that I have always stated has room for 5 large operators and 5 small, local operators. That’s it. I hired a salesperson earlier this year and, in their onboarding, explained to them they’re competing against 49 other labs, that means 2% market share for everyone. You need 15% lab market share to make it in California- bottom line.
Pressure is high on lab operators and the chances of success are low. Cannabis Labs are high on their investment dollars and most think they have a shot at being the BIG Winner in California testing; egos are hot and everyone underestimates the complexity (and cost) of producing a TRULY compliant CoA. Many $2M dreams have been lost in the last couple of years with closed labs that never had a single client. This brings us to now.
There can be significant variation between labs based on their handling of the sample without the intention to affect the results. Employee-to-employee variation in potency can be as high as 30% from technician-to-technician without proper quality controls in place. In other cases, as reported by former employees, labs have indeed attempted to influence, or falsify in other cases, to meet the perceived expectations, or in some cases demands, of a client. Or it may be that they can’t devise another, more legitimate sustainable competitive advantage. It’s all happening. I’ve certainly received my fair share of potency threats, “It better be 25% or else!” and real physical threats, as a lab operator.
The State of California, via the Department of Cannabis Control, has developed a methodology for all labs to utilize. They claim to have validated it for all sample types. This cannot be true that the validation work has been adequately performed because the method proposed does not include the necessary extraction steps for some specialized edibles and topicals, it will work for some, but not all.
If someone wants to falsify THC results, they will and do. This government-devised methodology doesn’t solve the issue reported to me by another former lab director in California cannabis who quit after being told to artificially construct a calibration curve to inflate THC results. In most cases what labs are battling when they are producing low potency numbers is their own lack of true control on the process of handling flower and its subsequent extraction and analysis. Instead of understanding the science and process issues, it’s just easier to falsify seems to be the conclusion of some less-than-honest operators under pressure to see a return on their investment dollars.
An approach more in-line with the actual problem would be for regulators to perform frequent statistical analysis on lab operators and their resulting THC potency. Check the products and investigate the labs and enforce where there are real issues. Like the operator in Northern CA known for producing 40%+ THC potency results on flower. Why are they still operating without enforcement intervention? It seems everyone knows who they are and what they’re doing. This inaction on the part of regulators to address real problems in lab testing is at the root of the current potency environment.
I was favorable to a proposal by Dale Gieringer of CalNORML to establish the tax for cannabis based on potency. That would at least put the economic pressure in the right place and from the correct orientation to disincentivize potency falsification at both ends of the equation. We need more smart thinking like Dale’s to navigate the morass of cannabis economics in California.
After operating a cannabis lab in California for 13 years and now having the honor of being the longest operating cannabis lab in the U.S. We know a thing or two about optimizing potency and the real variation between labs and methods. At Pure Analytics we’ve participated in more side-by-side testing than most operators, over that time. In most labs, depressed potency is an issue that is easily solved through process control. It comes down to expertise based on real experience over time and knowing what you’re looking at when trying to understand why potency values in the lab are performing lower or higher to the average competitive values in the market.
I’ve always been a great believer in the strength of the marketplace of ideas in a free economy, and we have great, innovative thinkers in our industry. We’re a community of self-starters. While potency is the topic and value-driver of the moment, one thing I’ve learned in over 30 years working with the plant is that it always has something new in store to excite our imaginations and senses. I look forward to a future market where we more fully embrace the diversity of drivers of the cannabis experience like terpenes, to establish and communicate value, but more importantly the actual experiences that consumers are seeking.
Samantha Miller is President and Chief Scientist of Pure Analytics located in Santa Rosa, CA. A licensed cannabis and hemp testing lab serving the California industry. Samantha is also known for her work as Founding Chief Science Officer of dosist™ winning TIME magazines recognition in their Best Inventions of 2016 lineup.
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