Oregon: Cannabis Testing as Envisioned by the Keystone Kops

Authored By: William Stewart

Half Baked Labs Portland OR



Cannabis Testing as envisioned by the Keystone Kops

The state of Oregon, an epicenter of craft food, beer, wine, and distilling, is doing its best to resist market leadership in the arena of cannabis.

The Oregonian infatuation with rules and general state of legislative inertia (plus a few home-grown bomb throwers) are combining to potentially destroy a new, diligently run, and highly profitable industry.

Where Measure 91, which legalized recreational use, production, and sale in the state promised to keep its hands off the medical cannabis program, its immediate successor, HB 3400, not only created a morass of legislation (which, like the horrifying children of Terra, continue to breed, multiply, and slouch ravenous and beslimed onto Oregon’s public policy stage), it has also turned the medical program and industry on its head.

In my last column I discussed the potential fallout of our absurdly low edibles dosage rules (already in progress).  This time around, I thought we should take a look at what I can most kindly refer to as “The Lab Fiasco”.

As of October 1st, all products for sale on dispensary shelves must navigate a labyrinth of testing requirements, as delineated by the three headed monster of OHA, ODA, and the OLCC.

Now, to be fair, the individuals working for this trio are doing their best, and have been incredibly supportive, hard working, and cooperative towards the industry, but the combination of an ever shifting landscape of rules and the state’s refusal to hire additional people to handle the workload (despite receiving approximately $5 million from the industry each month), creates a recipe for disaster.

It doesn’t help that these agencies cannot even agree on consistent regulations for, say, pesticides.

The place where we hit a bottleneck – one that is severe enough to take down the entire industry – is the number of labs now available to test products.  As of October 1st, the state of Oregon went from having nearly 200 laboratories for testing cannabis products to . . . well, as of this morning . . . nineteen.  And bear in mind that I am finishing this up late for a very patient editor.  Of those, 15 can test for THC.  Three can do THC, solvents, pesticides, water activity, and moisture – the full “suite” of tests.

So, how did we end up with so few labs?  The license application process began April 1st, and so far 169 labs have applied.  Could most of them be so problematic that they cannot be accredited?

Well, no.  As it turns out, ORELAP has given the task of accreditation to their already overworked staff, who were close to 100% capacity to begin with, inspecting and accrediting water and environmental testing labs.  ORELAP’s request for three additional staff members was soundly turned down by the legislature.  While this would have cost the state several hundred thousand dollars a year, its necessity to continuing the operations of an industry netting the state $5 million per month (not to mention the hundreds of jobs it creates), would seem to make this a no-brainer.

Unfortunately, it appears that there are a lot of people in the state house with no brains.

Ohmygosh!! So our water and environmental labs must be endangered as well!!

Again, no.

In addition to our other obstacles, the cannabis industry has been officially accorded red-headed step child status by the state.  Once all of the water labs and all of the environmental labs have received their proper attention, then any time and personnel left over are available for cannabis labs.  Looking at the present rate of progress, that’s not a lot.

The fallout from this decision (on which the state shows few signs of budging) has brought hundreds of businesses, many of them formerly successful, to a grinding halt. If you can’t get your product tested, it can’t be sold, and if it can’t be sold, you don’t have any money.  Given that wait times for the few accredited labs range from three weeks (that’s what counts as a “rush” these days) to several months, responsible business owners are being driven into bankruptcy through no fault of their own.  And several have already made the decision to shut down, costing dozens of jobs.

And if you can get your product tested, be prepared to pay a heavy price.  Between the new tests required by the state, the new equipment required for labs, and the scarcity of laboratories, the price on testing a single sample has gone from about $150 to almost $500.

In the case of edibles and topicals, which require five samples per batch (with an absurdly large sample size), you’re looking at about $2500 per batch.  This becomes problematic if you are, say, a local small-batch topicals maker, and the price for testing your product is suddenly as much as you can wholesale the entire batch for.  The producer in question had gone from $35,000 a month as of October 1st, to two months of no income, as they got their products in line for testing.

The testing process for edibles and topicals would be insane even if there were laboratories to run all of the tests.  Each batch of each product requires five samples to be tested, to prove “reproduceability”.  You must then produce five batches for each product (and we’re talking, for instance, about a single flavor of ice cream) and show sufficient consistency (via five tests per batch) that you can use the same sampling and testing scheme as flower or concentrates.  This comes to roughly $13,000 per product.

A similar level of consistency could be proven in a much more reasonable manner.  If the producer has the input (flower or concentrate/extract) tested for cleanliness and concentration (already required), and a state inspector validates the production process so that the anticipated final concentration can be calculated, it would take no more than three tests on the batch to prove a reasonable level of consistency, and not more than three batch runs to prove consistency between batches.  Even this is probably overkill, but $4500 of overkill is a lot more palatable to me as a business owner than thirteen grand.

Amy Margolis, one of Oregon’s top canna lawyers, has suggested that the OLCC institute a pause on the new testing rules while the availability of laboratories catches up.

As she writes in her blog, “As a result, there are real businesses, good actors and experienced long-time participants trying to do right, who have been forced to shut down. Or are really close. Even those who are well-capitalized are laying people off. The agencies appear to now recognize this and held an “all hands” meeting with stakeholders. That was a few days ago. Now they are calling for widespread solution based input from every industry member. Due on Monday. Like in more days from the meeting. When more people will be shutting down because they can’t get testing or sustain the cost.” (http://www.margolislegal.com/blog/olcctestingrules)

Consequently, dispensary shelves are nearly empty. Collective Awakening’s once-proud concentrates & extracts board, which has gone from dozens of choices to six on a good day, bears the fauxquote, “Oh, baby, baby, it’s a sad board” – attributed to Dab Stevens.  Lots of well run businesses that have been completely cooperative with the state are on the verge of collapse, endangering hundreds of jobs.  And consumers, no longer able to get the products they want or need, are returning to the black market – which ensures nobody’s safety.

As you read this, the situation will have gone on for two months.  Nobody’s reporting a light at the end of the tunnel.

Welcome to The Legislation of Unintended Consequences Part Deux: Regulate Harder.

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Otis Felder – Wilson Elser Moskowitz Edelman & Dicker LLP
Lance Rogers – Greenspoon Marder – San Diego
Jessica McElfresh -McElfresh Law – San Diego
Tracy Gallegos – Partner – Fox Rothschild

Adam Detsky – Knight Nicastro
Dave Rodman – Dave Rodman Law Group
Peter Fendel – CMR Real Estate Network
Nate Reed – CMR Real Estate Network

Matthew Ginder – Greenspoon Marder
David C. Kotler – Cohen Kotler

William Bogot – Fox Rothschild

Valerio Romano, Attorney – VGR Law Firm, PC

Neal Gidvani – Snr Assoc: Greenspoon Marder
Phillip Silvestri – Snr Assoc: Greenspoon Marder

Tracy Gallegos – Associate Fox Rothschild

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Matthew G. Miller – MG Miller Intellectual Property Law LLC
Daniel T. McKillop – Scarinci Hollenbeck, LLC

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Gregory J. Ryan, Esq. Tesser, Ryan & Rochman, LLP
Tim Nolen Tesser, Ryan & Rochman, LLP
Cadwalader, Wickersham & Taft LLP

Paul Loney & Kristie Cromwell – Loney Law Group
William Stewart – Half Baked Labs

Andrew B. Sacks – Managing Partner Sacks Weston Diamond
William Roark – Principal Hamburg, Rubin, Mullin, Maxwell & Lupin
Joshua Horn – Partner Fox Rothschild

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Teddy Eynon – Partner Fox Rothschild