Marijuana industry brought to a standstill by new pesticide testing regulations

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Molly Harbarger | The Oregonian/OregonLive

Once packed with marijuana concentrates and extracts, the Human Collective’s shelves are nearly empty.

Some pot leaf-patterned socks and glass pipes sit scattered among what’s left. A static screen with just 13 flower options has replaced a digital “bud list” that used to scroll through the shop’s options for people waiting in line. The lines are gone, too. Only one or two budtenders work at a time – cut in half from before.

Within months of Oregon’s full recreational marijuana market coming online, the industry has come to a standstill with low supplies and big price jumps for consumers.

Don Morse, owner of the Human Collective in Southeast Portland, and other retailers, growers and processors blame Oregon’s strict pesticide rules for the problem.

The regulations – the first mandatory pre-emptive testing in the country for marijuana – went into effect Oct. 1. But the state has so far licensed only a handful of laboratories to do the tests on thousands of products, including flowers, edibles, concentrates, oils and extracts.

And the tests are expensive – in some cases more than six times what companies used to pay, they report. Then they must wait weeks to get their products back and find out if they passed or failed.

Morse has laid off five budtenders since last month. He’s down to about 10 percent of the concentrate inventory he had before October. He can’t find anyone to sell him enough marijuana to fully restock.

That’s happening in most of the more than 400 marijuana dispensaries around the state.

For Morse, the gridlock is ironic because he pushed for the rules. He helped convince growers and processors that reasonable pesticide limits and testing regulations would be better for them and consumers. But now the fledgling businesses are in jeopardy, he said.

“We don’t want to come off like it’s boohoo and we’re only in it for ourselves,” Morse said. “The people of the state said they wanted this both medically and recreationally. They left it to the state to set the rules and the state has set the rules to the point where it’s no longer available to them. It’s this roundabout way of making cannabis illegal again.”

Megan Hatfield bought a vape pen cartridge of Sour Diesel for $45 at Morse’s store. It’s usually around $30 there, but she still considered it a bargain. She tried two other pot stores earlier in the week, finding only two other options, both at $80 for a gram.

“Honestly, I have been to a couple of places that didn’t have a selection nearly as big as this,” Hatfield said.

The Governor’s Office is expected this week to announce some temporary fixes to address the testing backlog, while the Oregon Health Authority has borrowed inspectors from other divisions to help license labs.

The slowdown is the price of safety, said Jonathan Modie, a spokesman for the  health authority.

“Our goal is to protect public health,” he said, “by making sure that all marijuana products are tested for pesticides and other compounds by an accredited lab and that marijuana products that fail pesticide testing don’t reach consumers.”

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Starting a year ago, anyone 21 and older could buy a limited amount of marijuana flowers, starter plants and seeds. Edibles and extracts were added in June. The state expects to issue 850 recreational licenses for everything from retail outlets to growers by the end of the year.

The state has debated how to handle pesticides for more than a year and came up with the nation’s most stringent rules for chemicals used in legal marijuana cultivation and the amounts that can show up in finished products, be it flowers or edibles.

While other marijuana states such as Washington have pesticide limits on crops, Oregon is the only state to require testing of each product before it hits shelves.

Labs here must test for a longer list of chemicals with stricter limits and in larger batches than before Oct. 1, when the rules didn’t say how to do the tests, who could do them and what happened if products failed. Today, labs must follow state-specified protocol and then state agencies follow up with growers and processors to make sure any products that fail are retested or destroyed.

So far, the state has issued two recalls for tainted marijuana flowers that made it to retail shelves.

The health authority has certified six labs for pesticide testing. It’s a long process that requires extensive proof that the labs are using the correct methods and that the results are consistent before a state assessor shows up to double check the work.

Through the end of the year, the state has three permanent full-time assessors and one full-time temporary assessor working. The Oregon Department of Environmental Quality has loaned three extra assessors – one full time and two part time – to help with the assessments and administrative tasks.

More labs will be certified through the state’s general lab-accreditation program, ORELAP, in the future, Modie said. There are eight more labs that have applied for accreditation, but none are ready for inspection yet.

“ORELAP’s role is to offer lab accreditation services, not to ensure that labs succeed in getting accredited or that there is sufficient supply of accredited labs in the for-profit market,” Modie said.

Rodger Voelker, lab director of one of the pesticide testing laboratories, Eugene’s OG Analytical, said that while some of the pesticide limits might be stricter than necessary, the delays are a temporary growing pain of a new industry.

“I hear this constantly — people saying this is totally unfair, that they don’t expect this of anybody else,” Voelker said. “That’s actually completely wrong. These things are expected of any industry where people are putting things in their mouth.”

Both state and federal agencies oversee food safety regulations that can be rigorous and expensive. Some of the health authority’s cannabis guidelines go above what’s required of food items, including a bigger sample that must be tested from each batch. But there’s also less scientific evidence about the effects of heating and inhaling marijuana products treated with pesticides, so the limits may evolve as research reveals new information.

Voelker was instrumental in pushing the state for the first comprehensive marijuana pesticide testing guidelines.

He acknowledged that the exacting new process created problems that the state and marijuana companies could have foreseen and are now causing pain. For instance, companies that take marijuana flowers and turn them into extracts and then infuse the extracts into other products are dealing with ingredients that are tested at each stage of the process. In the short-term, it brings those companies to a halt while that extract undergoes the lengthy process to get approval.

But Voelker predicted enough supply will soon be available and the system will be running smoothly a year from now.

“The bottom line is regulations are not perfect,” Voelker said. “They are made by humans for humans. In my opinion, although this isn’t fun to go through right now, we should be proud as Oregonians to put in place a system that is arguably better than any out there in regards to cannabis.”

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The uncertainty is causing processors to reconsider their investments.

Sara Lessar and her husband have two plans for the future. The first is to wait until Oregon loosens its rules on pesticide limits for marijuana concentrates so their oils can get back onto dispensary shelves.

Across Oregon, processors and shop owners are saying they can’t get any concentrates through the testing process. Lessar buys marijuana flowers that are tested by state-certified labs and pass. But during processing, the pesticide traces are packed together and creep above the .20 parts per million maximum.

They can keep testing their oils to see if they can get them below the allowable limit, but the cost of testing is straining their ability to keep prices low, Lessar said. Before Oct. 1, they spent about $2,000 every six months on testing, but now they must pay $20,000, she said.

That’s tough because they just bought a new property in Coos Bay to produce Bandit Oils but have no revenue coming in and laid off three full-time employees and five part-time employees.

They’re considering their second option: Moving to California or one of the other states with legal recreational marijuana that doesn’t impose such strict pesticide limits.

Lessar isn’t against testing, she said, but the rules for concentrates seem almost impossible to overcome.

Others are hitting similar barriers.

“I have very few vendors who will sell me any extracts whatsoever and I have two vendors who will sell me edibles,” said Matt Walstetter at Portland dispensary Pure Green. “We used to have hundreds of products and tons of vendors.”

He said he usually has 15 varieties of shatter and five to 10 wax options — both types of concentrates. Now he has six shatters and one wax.

Walstetter stocked up before the transition date and like Morse relied on that to carry him for a while. But that will soon run out, he said.

The only edibles in Brad Zusman’s Cannadaddy’s dispensary are his own product. He created a marijuana-infused chocolate bar that he sold to retail stores around the state. But he decided to close the company, Blaze, when the bars couldn’t pass the pesticide tests.

He laid off his Blaze staff – 12 people — but he was still stuck with $80,000 worth of the bars made before the new testing rules. He was allowed him to “grandfather” the bars into his own inventory. But, because they weren’t state-approved, he couldn’t distribute them to other retail stores to sell to customers.

“That should have gone into all these other dispensaries, but people didn’t have cash to buy product,” Zusman said. “It’ll all be gone probably by the first of the year.”

The bars are almost a blessing in disguise, though, because he is struggling to find any other edible suppliers to sell to him. He lost $40,000 in October alone between slow business at his dispensary and the loss of sales for his edibles, he said, and told his 33 Cannadaddy’s employees that he might have to lay off 30 of them after the holidays.

“I predict you’re going to see 70 to 80 percent of the dispensaries you see today, you won’t see next year,” Zusman said. “If there’s not an emergency way to get products on the shelf, there’s no way to sustain leases or rent or equipment leases.”

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Zusman’s prediction shouldn’t surprise anyone. Industry leaders warned state agencies that the new rules would create chaos.

Yet many were still surprised at the scale.

“We first started the conversation with the Legislature and Governor’s Office in August,” said Amy Margolis, an attorney who represents marijuana businesses. “And in that time we’ve lost good actors, people who have invested their lives and their livelihoods in this.”

The health authority’s accreditation program already had a large caseload before marijuana testing was added. The division also accredits labs that do environmental and water quality testing, as well as air toxics and industrial waste. It works with labs in more than a dozen states and three countries.

The administrator for the program warned that most marijuana labs need significant help shaping up and it can take months to get them there.

A new report says that the delay could cost the state millions.

The state collected $25.5 million in taxes from marijuana businesses by April and projected $44.4 million by the end of the year.

Beau Whitney, an economist for a national cannabis analytics company, doubts those projections will hold up now. He opened an online survey this month that so far is reporting that 80 percent of the responding Oregon businesses report that their bottom line is “severely impacted” by the market’s stall.

More than 22 percent of the 72 businesses that responded as of last week said they were going out of business or in danger of it and nearly all planned to raise prices for consumers if they hadn’t already.

Whitney said the survey shows nearly half of the businesses are losing $20,000 a month or more on average, some with their revenue cut in half. While Portland’s market is often considered oversaturated, Whitney said what’s happening isn’t explained by natural industry fluctuations.

“This is not just settling of the dust of the market,” Whitney said. “This is apparently policies that were put in place that have essentially devastated a market.”

He estimates the state stands to lose as much as $10 million of the projected tax revenue by the end of the year.

— Molly Harbarger

mharbarger@oregonian.com
503-294-5923
@MollyHarbarger

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