Cannabis Companies in California Have Lost Millions Due To Poor Regulations. California’s New Bill Could Change That.
A $1.9 Billion Canadian IPO Could Make LA the 'Center of the Cannabis Universe'

Cannabis Companies in California Have Lost Millions Due To Poor Regulations. California’s New Bill Could Change That.

When PSI Labs started testing cannabis for THC levels and pesticides in 2015, it entered into an unregulated industry that would soon grapple with the effects of legalization and—perhaps more troubling—was prone to sloppy testing practices that gave varying results on potency and toxicity levels.

“A client comes to you. They don't like the numbers that they see,” said Ben Rosman, co-founder of the Michigan-based PSI Labs, which expanded into California earlier this year. “And they're like, ‘I can find another lab who's going to give me the numbers I like,' or 'I don't like that you failed me. And I know there's another lab that's going to give me a pass.'

What Rosman is referring to is the potency rating on marijuana. The higher the rating, the more powerful the drug.


“A lot of folks sort of test as marketing, not just quality control, and they want to see the highest potency possible,” Rosman added. “Or they just test purely to drive their product to market alone.

But times are finally changing. Five years after California legalized marijuana in 2018, both the state and industry players are wrestling with standardization and varying regulations that have cost cannabis producers tens of thousands of dollars while endangering consumers and the environment.

A law signed by California Governor Gavin Newsom has ordered the state to develop clear and specific guidelines to test cannabis products.

The bill will require California’s Department of Cannabis Control to create a strict set of standards for testing cannabis products, including pesticides, contaminants, cannabis potency and heavy metals. The standards will be established by 2023 and all cannabis labs in California will have to follow them.

“Testing standards provide consumers with confidence about cannabis product safety and accuracy of cannabinoid content,” the DCC said in an email. “These standards are what distinguish legal, regulated cannabis from illicit cannabis. Cannabis sold through unlicensed sources is not tested, may contain unsafe contaminants or undisclosed ingredients, and is often labeled with higher cannabinoid content than the product actually contains.”

What labs test for, and how they test samples, is often at the discretion of the lab itself. The cannabis buds at the top of the plant are often more potent than the bottom-most buds, and some portions of the plant may contain more microbiological contamination than others. Labs claim to strive to collect a representative sample of the entire batch of cannabis (though how they determine what a representative sample is is also up for grabs).

The process has led to “lab shopping”, by which cannabis processors and growers go to labs that will produce more favorable results, even if they’re less accurate.

Kurvana, a cannabis vape pen company founded in 2014, has lost millions of dollars over the years due to poor regulation. Varied results in sample collection has led to contaminating entire cannabis production facilities. Kurvana employees had to travel to pot farms and observe how it was grown and cultivated to make sure it was up to standard. In 2019, a lab they tested with got shut down for poor practices, endangering the company’s reputation, forcing it to recall their products tested in that facility, and burning around $150,000 in testing fees.

“It got a lot more complex, too, because the different testing labs were using different instruments and different sample prep methods and testing methodologies,” Moghaddam said. “So one testing lab made tests for pesticide and says it'd pass and another testing lab made tests for pesticides in it, [and it might fail]...And that was a big challenge at the time.”

But some wonder if further regulating the legal cannabis market may end up inadvertently bolstering the illicit cannabis market.

“The more expensive you make the product for the end use, so the more you tax it and regulate it, the more expensive it is for the user,” said David Wolf, co-founder of the cannabis testing lab maker Greenbox Builders. “And then that's why a black market can crop up. The black market in California is bigger than the legal cannabis market.”

Despite having some of the most lax cannabis laws in the country, California still has a robust underground cannabis market where growers and sellers are not confined to the increasingly strict rules legal cannabis sellers are. The market is nearly double that of the legal pot market in the state and, between having a cheaper product and lax cannabis penalties, it’s nearly ubiquitous.

Large homes for illegal pot cultivation are tucked away in the Mojave Desert and Antelope Valley, where water (already sparse in those areas) is stolen from local residents and toxic pesticides (a few drops could kill a large bear) are sprayed all over the plants, endangering people and wildlife.

In 2020, the California Department of Public Health tested illicit cannabis vape cartridges seized by the state and found additives and harmful dilutants that lead to E-Cigarette and Vaping Associated Lung Injury (EVALI). Almost all cases of EVALI, according to the DCC, come from unlicensed products.

But Rosman is hopeful standards will fully legitimize his industry.

“One of the things that was most exciting about...expanding into California is generally having a bigger platform and having a louder voice in speaking about the importance of data integrity and raising the bar and talking about the importance of standardization of lab tests, cannabis lab testing practices,” he said.

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