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The Oregon Trail

Oregon set out to build the most exhaustive system in the nation for testing recreational cannabis, but many in the industry are already calling it a failure.

Eighteen Oregon labs have been accredited to perform some of the various tests required before flower, edibles and other marijuana products can be shipped to retail stores. However, only six labs have been approved to test for pesticides, and several haven’t been certified to measure THC potency.

The situation has created a massive traffic jam of growers and processors trying to get their products tested following the outdoor harvest season. And as of Oct. 1, all medical and recreational cannabis products must be tested by a state-accredited laboratory.

Some cash-strapped businesses have had to lay off workers until they receive test results and have outlets to sell their products.

Christine Smith, the owner of edibles manufacturer Grön Chocolate, felt prepared for the new testing standards. But changes to Oregon’s packaging and labeling standards, which also went into effect on Oct. 1, caught her off guard. Under the new regulations, processors must provide detailed information in a state-mandated format that varies from product to product. Grön has been selling its products to medical dispensaries that have been participating in early rec sales, but the company has been planning for a December transition to the recreational program.

In order to comply, Smith had little choice but to halt most of her normal work to focus on the new labeling standards. To keep the business afloat, she was forced to cut about 75% of her staff for several weeks.

“For the last four weeks, we’ve had zero income,” Smith said in mid-October. “We’re a strong, healthy company, and as far as edible companies in Oregon, we’re one of the larger ones. I don’t know how a smaller company does it.”

Bulk cannabis on sale at the Terpene Station in Portland, Oregon.

Smith said she’s fortunate to have a longstanding relationship with the testing lab she uses, but many of her peers haven’t been so lucky. Some processors have already lost confidence, because the wait is too long.

“I hear stories from people left and right that they can’t even get a lab to return a call or show up or even respond to them,” Smith said. “In my opinion, the state has really failed the industry.”

Expensive testing

Growers have struggled to adapt to the Oregon Health Authority’s new requirement to test all flower in 10-pound batches, which some say is too small an amount to efficiently move from grower to store. Those that were operating under the medical program could test larger batches, allowing them to sell product more efficiently. (However, by comparison, state-licensed growers in Washington have even smaller lot definitions; they’re required to test five-pound batches of flower.)

Processors, meanwhile, argue that the state’s limits for testing THC content in edibles and concentrates are too restrictive — the state doesn’t allow any “wiggle-room” when it comes to potency limits, Smith said.

But the biggest complaint among the two groups is the cost of testing.

Prices skyrocketed after labs received their state accreditations. Processors previously paid a little more than $100 for a test; now some end up with lab bills upwards of a few thousand dollars, said Donald Morse, the director of the Oregon Cannabis Business Council. The high cost and lack of access to labs has pushed some cannabis business owners out of the legal market, Morse said. Recreational marijuana businesses must comply with Oregon’s seed-to-sale tracking requirements, but those in the medical sector don’t have the same regulations.

“The harvest is coming in right now, and because of the restrictions and regulations regarding testing, a lot of people that I know of are saying, ‘To hell with it, I’m just going to sell on the black market,’” he said. “They wanted to do the right thing, but the crop is here now, and they need the cash flow.”

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Cannabis business attorney Amy Margolis said the situation is becoming a serious problem.

“The labs are, in some ways, trying to capitalize on that,” said Margolis, who is also the founder and executive director of the Oregon Cannabis Association. “(Processors) are calling it a total systemic failure, and I stand by that.”

While some have accused the labs of price gouging, Oregon Liquor Control Commission spokesman Mark Pettinger stands by the higher prices.

“The testing prices from before, when it was $100 or $120 a test, those were ridiculous,” Pettinger said. “They aren’t really reflective of what the true cost is.”

Higher lab costs have resulted in higher prices throughout the supply chain — a trend that will likely remain until more receive accreditation for pesticides and other testing requirements, said Brad Zusman, the owner of Canna-Daddy’s, a Portland retail store.

“Now we have a huge issue to where we need to educate the consumer about why prices are going up,” Zusman said.

The Oregon Health Authority’s requirement to test all flower in 10-pound batches has created a bottleneck for growers trying to reach store shelves.

Relief for retailers

With the new rules, dispensary owners transitioning to the recreational program feared they would have to destroy their medical marijuana or send it back to the growers and processors that sold it to them.

Because of the potential to lose so much product, many in the cannabis industry have been asking regulators to delay the onset of the new rules. But the state held firm to the Oct. 1 transition.

“We decided to move forward because there were a number of folks who were ready,” Pettinger said. “So we’ve just been doing our best to accommodate people.”

To alleviate the pressure, the OLCC gave those dispensaries a one-time opportunity to transfer any medical marijuana inventory on hand to the state’s recreational system, as long as the products complied with new labeling and packaging standards.

For now, inspectors are taking a soft approach to the new rules, opting for education rather than strict enforcement, Pettinger said.

“Our licensees are people who want to participate in a legitimate, legalized, regulated industry,” he said. “We’re all trying to figure this out together, and we’re not always going to get it right.”

Many of the packaging regulations are designed to limit marketing toward children. Brands, names and images that might appeal to children are banned. Many popular strain names — including Girl Scout Cookies, Bruce Banner and Skywalker — have been banned, and the state has even implemented specific guidelines on font sizes and styles. New rules also limit serving sizes to five milligrams of THC for edibles, with a 50-milligram cap per container.

Producers and processors are ultimately responsible for correctly packaging and labeling cannabis before it gets to the retail stores. However, retailers are the last line of defense to ensure compliant products are being sold. In order to sell bulk medical product that had been purchased earlier, some retailers have turned to generic packaging and labeling without any company-specific branding. This option gives store owners an opportunity to ensure their products will remain available in the short term, Pettinger said.

These concessions have provided some relief, but not enough to maintain a steady flow of business, said Morse, who runs the Human Collective, a Portland medical dispensary.

“We’re still doing business, but it’s cut down significantly,” Morse said. “Because of the problems, there’s been a significant portion of our clientele — and everyone’s clientele — that has gone to the black market.”

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Aside from lobbying lawmakers for fixes, there’s little industry leaders can do to ease the pressure on business owners through the end of the year, he said.

“What we’re doing is saying hunker down,” Morse said. “Spend as little money as possible.”

In many ways, Oregon’s rec launch mirrors that of its neighbor to the north. Washington business owners cried foul over the painfully slow licensing process, the lack of licensed labs and exorbitantly high prices. Patience seemed to be the best advice, as more business were licensed, labs got up and running and the market leveled out.

The OLCC has already begun looking at possible solutions to overcome testing delays.

More changes coming

If you’re confused by the picture of recreational marijuana in Oregon, you’re not alone, Margolis said.

“The uncertain and constantly changing regulatory environment is the biggest issue facing every facet of the Oregon cannabis industry right now,” Margolis said. “We have so many changes happening so rapidly that it’s nearly impossible for a business owner, small or large, to keep up.”

Rulemakers and business owners agree that major regulatory changes are coming in the next legislative session. Perhaps the most significant of which, Margolis said, is that there will be a push to streamline oversight. As it stands, the OLCC regulates packaging, while the Health Authority oversees labeling and testing.

Those facets should be brought under one regulatory umbrella, Margolis said.

Morse echoed that hope, taking it a step further.

“We’re looking to find a way to meld the medical and recreational sides of things so we only have to deal with one pipeline, one set of rules, one agency,” he said.

Industry leaders, attorneys and business owners are working with state regulators and the governor’s office to sort out some of the kinks by the end of the year. In the meantime, they’re soliciting more and more members of the cannabis community for ideas on how to help business owners through the difficult transition period.

“At least the OLCC is making a good faith effort to make some really necessary changes,” Margolis said. “So we’re getting a second go at fixing this.”

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