One Year in, How's Arizona's Cannabis Testing Program Doing?
Arizona's medical marijuana market has been around for more than a decade, but it wasn't until a year ago that the state started requiring dispensaries to test their cannabis for safety.
Somewhat confusingly, Proposition 207, which legalized recreational marijuana in Arizona, was passed into law by voters on November 3, 2020 — just two days after SB 1494 went into effect. (Proposition has similar testing rules for recreational cannabis written into the law.) Compounding the confusion was COVID-19, which found the Arizona Department of Health Services — the agency that regulates all legal marijuana in the state — distracted by the pressures of a pandemic.
As the November 1 deadline approached, the Arizona Dispensary Association and other stakeholders lobbied the governor and ADHS to hold off the implementation of SB 1494 until there were a sufficient number of labs ready for the challenge and recreational sales were underway.
But the law went into effect anyway, and labs across the state began to see a major influx of business. Two things became clear: the pandemic was making it difficult for labs to get the supplies they needed, and some dispensaries had been procrastinating.
“On Oct. 31, we all started getting inundated with samples and ADHS was still busy trying to formalize the rules,” said one lab owner who did not wish to be identified. “Everybody was doing the best they could, but it was during COVID so we couldn't get supplies: We couldn't get things we needed to test with (such as vials and syringes) because it was the same things they were using for vaccinations.”
The volume of cannabis being tested led to a backlog; in some cases, it was taking weeks to process the results. To address that, ADHS implemented a rule requiring a one-week turnaround; otherwise, the lab would be fined the cost of the tests and the funds would be deposited into the state’s medical marijuana fund.
Soon after that initial rush though, business slowed down to a trickle, leading some lab owners to cry foul.
“We had to deal with that, and got through it, then came Jan. 1,” one lab owner said. “I don't know what happened, but it [business] just stopped dead.”
Then, on January 28, 2021, ADHS shocked the Arizona cannabis industry with its sudden announcement that recreational sales could begin immediately — much earlier than even insiders had suspected.
While most dispensaries were planning on sales kicking off in March at the earliest, a handful, including 15 Harvest shops owned by Tempe native Steve White, had lines that stretched for blocks. There was talk of a major marijuana shortage throughout the state.
As the market leveled out — a few in the testing business believe business dropped because dispensaries were shirking the law and foregoing testing altogether — the fear of shortages went away, but there were still problems with the system as it sought to find equilibrium.
In March, a report by Channel 5 television profiled what looked like an industry in complete disarray, with distributors playing fast and loose with the rules and untested cannabis making its way to dispensary shelves, while state regulators stood by and allowed it to happen.
The piece noted that several labs spent millions of dollars for state certification in the months leading up to the start of mandatory testing. Of the six labs that were listed as certified in May 2020, three labs reported that testing was down 65 percent to 95 percent, one reported that business had leveled out and two did not respond to requests for information. The owners of C4 Laboratories and Pure Labs, Ryan Treacy and Barbara Dow respectively, both reported that testing was down significantly for their labs; Treacy noted that testing had fallen from 200 samples a week in November to 80 in February. They blamed the precipitous drop on vendors taking shortcuts and not testing for everything mandated in the law. There were also allegations that vendors switched labs or simply stopped testing when they did not like the results.
But many on both the dispensary and testing side say that is not an accurate description of what was happening. They say the problems are getting fixed as the market matures and the rules evolve.
“The reality is Nov. 1, 2020, was less than a year ago and our member dispensaries have been operating for almost a decade prior to that date,” said Arizona Dispensary Association Executive Director Sam Richard. “From a regulatory and compliance standpoint, our members have been working with the folks at ADHS for the better part of a decade. So I think there's going to be a lot of frustrations for the lab community. And I think that oftentimes, [lab owners are] taking out their frustrations on the wrong part of the ecosystem.”
The testing side had another apparent setback in June when several dispensaries voluntarily recalled a handful of products tested by OnPoint Laboratories in Snowflake that were suspected of having salmonella and Aspergillus (mold), although ADHS is still investigating the matter.
ADHS Communications Director Steve Elliott would not comment on the OnPoint investigation directly, since it is still ongoing.
“When there are major changes affecting the industry, as has been the case with the recent state law and the availability of laboratory testing, our initial focus is calling attention to deficiencies and providing technical support to help licensees come into compliance,” he wrote in an email. “That is the case here.”
He added that if a dispensary were to continue to be deficient, there could be fines, but it would take “unwillingness to comply with the law,” for a dispensary license to be revoked.
Emails and a phone message to OnPoint were not answered, but in the wake of the May recall, OnPoint CEO Jeff Cardot praised DHS and its testing requirements, issuing a statement reading in part that, “While this recall was issued out of an abundance of caution, it exemplifies the excellent teamwork of the agency, the labs and the cannabis companies that serve Arizona consumers.”
It was the first time the testing program has exposed any problems with Arizona's cannabis supply, but many in the industry believe it is part of the learning curve for the business.
“It’s been really impressive to watch dispensaries mastering their craft while simultaneously toeing the line as rules have been decided upon and rolled out,” said Nate Allen, owner of Delta Verde Laboratory, in Phoenix. “On the rare occasion that we have found something in a quantity that's been potentially dangerous or that indicates a discrepancy with a label claim, I’ve watched first-hand the extent these license holders and industry go to correct it, and not only make sure it doesn’t end up on retail shelves or in a consumer's hands but that they also methodically seek out the origin of it and work to prevent it from happening again.”
Established in 2014, Delta Verde is the oldest testing lab in the state, but getting into that end of the business is not for the faint of heart and costs millions of dollars in facilities, equipment, and very specialized employees. Delta Verde is not fully accredited but is able to provide “full-scope compliance” testing to its customers.
Allen says the rules allow him to contract out for heavy metals testing, which is the only thing he is not able to do in-house.
Testing also costs dispensaries thousands of dollars a month, with tests averaging $500 to $600 each. An average dispensary/licensee requires 100 to 150 tests per month, according to Richard.
Richard says he believes the flow of business to the labs is based in part on building long-term relationships, and that ultimately everyone wants safe product on the shelves.
“Most operators have found a lab partner that they are happy to be working with,” he said. “We do our level best to be compliant and fully lawful participants of a regulated market because that's what separates us from the illicit market.”
Even critics of the system believe ADHS is on the right track, but should be open to input from those in the industry and also more proactive in enforcement.
“I think there's some tightening up that needs to be done for us to have a more reliable and robust program,” said C4 Labs founder and CEO Ryan Treacy. “There is an education, enforcement and normalizing that needs to take place on the people that are testing products, and also for ADHS to people that are responsible for making sure the testing is being executed as it was spelled out in the statute and as intended.”
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