In Wake of Recreational Sales Kickoff, Lab Association Seeks To Hold Off Testing Legislation That Could Damage Industry

This report has been edited to reflect that the Arizona Dispensary Association does not support SB 1646.

As patients and adult-use customers jockey for position in the long lines outside cannabis dispensaries throughout the state, dispensary owners and testing labs are struggling to adjust to the new realities of a market that saw a massive increase in its customer base overnight.

The early, surprise rollout of adult-use recreational marijuana sales has resonated throughout the industry, resulting in massive crowds and threats of product shortages and higher prices as a potentially $1 billion industry seeks to find equilibrium.

Uncertainty has plagued the testing aspect, as the new reality of the marketplace has led to a wild-west interpretation of rules set in place last year, threatening the viability of labs that have invested millions of dollars in their facilities.

Finding a balance between adequate testing and sufficient supplies has come to the forefront of the discussion as the Arizona Cannabis Lab Association pushes the Arizona Department of Health Services to enforce existing laws while new legislation has been proposed that seeks to reduce turnaround times on testing.

Senate Bill 1646, presented by Thomas "TJ" Shope (R-Dist. 8), would replace the current regulations and is intended to streamline the process and reduce wait times for results.

The bill would allow third-party labs to use a single certification as an umbrella for multiple locations, but it would also penalize the lab if it did not process samples within seven business days.

Should the lab miss that window, it would be required to "remit the amount paid for the test by the nonprofit medical marijuana dispensary to the [AZDHS] for deposit in the medical marijuana fund," which would wipe out any profit made in the transaction.

There are currently four fully accredited labs in the state—out of 10 listed on the AZDHS website—with the majority in the Phoenix metro area and one in Navajo County.

While the COVID pandemic and AZDHS's responsibility to deal with the public health crisis have caused difficulties with cannabis regulation, the sudden rollout of recreational sales has added to the problems.

According to Ryan Treacy, co-founder of the Arizona Cannabis Lab Association and owner of C4 Laboratories in Scottsdale, the months since the testing program began have been nothing less than a roller coaster.

After a lackadaisical beginning in November, business spiked when dispensaries were getting up to speed. But since January, business has bottomed out.

"It's been pins and needles," he said. "In November and the beginning of December, we felt on top of the world that there's plenty of volume," he said. "It was an exciting time for the business. And here we are, six weeks later and I feel like the rug was pulled out from underneath us because the market is just flat."

Treacy said that at the moment, a seven-day turnaround is not feasible and that C4 has to retest as much as 25% of the samples it is handling.

"In the beginning, certainly, the main part of it was just a tidal wave of samples; a pure data challenge," he said. "We're also seeing a significant amount of failures. And those failures have to have secondary confirmation, which means we're rerunning 25% of our samples."

The failure rate is particularly high in concentrates, where pesticide residues or chemical contaminants can be seen in higher levels due to the nature of the process.

As to the root of the current crisis, Treacy does not think COVID has had as much of an effect on testing as what has happened in the wake of legalization.

"It may have limited the resources that DHS could dedicate internally," he said. "As to our ability to do the things we needed to do to get ready, I don't know that COVID was to us what it is to restaurants and outdoor venues, and things like that."

Treacy believes that as the market matures, everything will work itself out, but in the interim he believes the solution for his side of the business is for AZDHS to enforce rules he thinks are being circumvented.

"It kind of feels like in general, certain people throughout the market have almost thrown their hands up and said, 'Well, the turnaround times don't work for me and for my business, and they're putting a stress on my business,'" he said. "I understand and have empathy and understanding for the stress and problems, but you can't solve it by ignoring the law, that's for sure."

Moe Asnani, owner of Downtown and D2 dispensaries in Tucson, has been advocating for changes and supports the passage of SB1646.

Asnani says the imbalance in testing site distribution puts Southern Arizona dispensaries at a disadvantage, due in part to the amount of time it takes just to get samples to the labs.

"If you're in Maricopa County, you're OK, you just send a driver on a 20-minute drive: In southern Arizona, we need two or three labs," he said. "We're at the point where AZDHS has to look at it."

Testing times were already long prior to the passage of Prop 207. Asnani said for his dispensaries, test results could take weeks if not a couple of months to get back.

Testing has added huge operational costs as well, since individual tests can cost $800 to $1,000 each and add $20,000 to $50,000 in expenses per month.

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