Lack of cannabis testing facilities presents bottleneck to sales

  • Pat Marshall, senior chemist and owner of Sunrise Analytical, prepares vials to test medical marijuana at his lab in Wilsonville, Ore. Only two such testing facilities could be operating in Alaska based on license applications so far, which could create a major challenge to getting product to market once recreational sales are legal. Photo/Don Ryan/AP

The Alaska marijuana industry first business licenses will be issued in June, and the most crucial kind have the lowest number of applications.

Testing facilities — one of the four commercial cannabis licenses created under legalization — present a possible industry bottleneck. All cannabis products sold in Alaska must undergo tests in state-licensed labs.

These labs are scarce due to investment and expertise hurdles, and are concentrated in Southcentral. So far, the Alcohol and Marijuana Control Office has only received three applications for testing facilities, only two of which will be operable.

One of these applicants, Nick Braman, applied for a license in the Mat-Su Borough, which passed moratorium on commercial marijuana activity May 3. The other two licenses are located in Anchorage, creating a potential supply chain problem for marijuana markets outside the Railbelt.

According to state records, both Washington and Colorado have 14 licensed cannabis testing facilities. Oregon has six.

Marijuana’s designation as a federal Schedule I controlled substance create the industry’s largest business hurdles, including a lack of access to banking services. The same federal illegality affects testing in unique ways, and together with certain Alaska regulations could limit the amount of qualified testing facility directors.

States in which recreational marijuana is legal have no standard set of best practices for labs to follow. Typically, federal agencies mandate and control testing for consumable products.

Without a similar state program, Alaska testers say the business has little stability.

“There isn’t a federal agency, like the (Food and Drug Administration) or something similar, that issue documentations,” said Jonathan Rupp of Canntest, one of the two proposed testing facilities in Anchorage. “They have organizations that sort these things out at the federal level. States are all on their own. There’s a lot of question marks around the testing requirements.”

Alaska regulation requires testing, but provides no guidance for what specific tests must be performed for microbials, solvents, and potency. Lab investors say there are infinite varieties of testing procedures of varying simplicity and rigor.

Developing a set of best practices could be easier if testers had the ability to learn from established markets in the Lower 48, but without an overseeing federal plan or the wherewithal to bring in experienced Outside testing investors, applicant Brian Coyle of AK Greenlabs said Alaska labs have to “start pretty much from scratch.”

“I’ve reached out to those Lower 48 labs, but nobody’s saying, ‘here’s our policies,’” Coyle said. “We’re reinventing the wheel up here.”

Testing facilities have unique capital problems associated with equipment in addition to the usual marijuana business concerns.

State regulations allow neither direct nor indirect Outside financial interest in Alaska marijuana licenses. These regulations come in part from a desire to avoid federal money laundering charges; keeping capital within the state assures a measure of traceability. Alaska industry members also lobbied for the restrictions to prevent deep-pocketed Outsiders from overwhelming the market.

Testing equipment varies in expense, and refurbished equipment can cost less than new. Jeannine Machon, business director for Denver’s CMT Laboratories, said testers need to invest roughly $500,000 at the minimum for a basic setup for only two of the most necessary equipment pieces.

Alaska’s testing facilities will have a heavy initial investment for equipment. Alaska’s regulations require microbial, solvents, and potency testing from onset.

Unlike Alaska, Colorado staggered the requirements for testing facilities. This allowed testers to develop revenue to put towards additional testing capability, Machon said.

Coyle’s estimates match for his proposed Anchorage lab match. Though he’s still in development, he estimates his startup lab costs at roughly a half-million dollars.

The equipment expense goes hand in hand with salary. Alaska’s regulations require testing facilities to have a lab director with a bachelor’s degree in chemical or biological sciences from an accredited college or university and have at least six years of post-degree laboratory experience, a master’s degree and four years of experience, or a doctorate and two years of experience.

Finding qualified applicants who want to move to Alaska to run a marijuana testing facility can be challenging, he said.

“There’s no Outside money. That doesn’t mean you cannot bring in an employee, but without attractive salaries that’s going to be difficult to bring in supervisors,” he said.  “It’s probably in the six-figure ballpark for someone like that. (My business partner) has some capital, but he doesn’t have unlimited pockets. My impression is we’re all in the same boat, on a shoestring, bootstrapping.”

Without Outside scientific communities to lean on, Alaska’s local market needs to supply qualified lab overseers.

Coyle, Rupp, and Braman are afraid the startup costs and procedural uncertainty prevent qualified Alaskans from entering the testing market.

“There’s certainly a ton of talent in Alaska,” said Braman. “Frankly, I think there’s enough talent in the state that I’m surprised there aren’t more people starting up labs.”

Coyle disagrees that the Alaska has a deep pool of scientists to choose from, or at least, as a deep a pool as it needs to sustain a robust testing segment.

“The pool of chemistry and biological scientists is relatively small,” said Coyle. “I don’t think we have enough experience up here, that’s the bottom line. I think collaboration with people outside the state is the quickest way to get those best practices up here.”

Transport

Within the Marijuana Control Board, one member is concerned the lack of a robust, and accessible, testing system could harm the industry and help the black market.

“You’re going to have two things if we don’t have labs set up,” said Brandon Emmet, a Marijuana Control Board member. “First and foremost, we’ll have a lot of pissed off people. Second, we’ll have an extremely robust black market. There’s literally going to be thousands of pounds of cannabis just hanging around. And people don’t like to sit on product they can sell.”

The two Anchorage locations will be the only ones statewide if no one else applies for a license. For communities off the road system, few legal options exist to transport their product for testing, let alone to get it to market. 

The Federal Aviation Administration has regulations against transporting marijuana even in states where it is legal. Mailing marijuana through the U.S. Postal Service is also prohibited, and private parcel services like FedEx have said they will not deal with cannabis transport either.

Marijuana cannot be transported by land or water across state lines, or in federal lands or waters. All commercial marijuana transportation requires a manifest detailing origin and destination.

Marijuana Control Board chair Bruce Schulte acknowledges that the regulatory structure doesn’t do any favors for rural Alaska.

“We’ve created a regulatory regime that is very difficult to engage with people in rural communities,” said Schulte. “That’s just the reality. We could lower the testing bar, but I think we would get pushback from certain people on that.”

However, Schulte said the board’s position on testing transit is rather lax. During an April 27 board meeting, board director Cynthia Franklin hinted that mailing the required four-gram sample size might fly beneath federal radar, or that a blind eye may be turned.

Schulte said the board only concerns itself with what happens in the testing labs, not how the product arrives there.

“As long as it’s tested, I don’t really care,” said Schulte. “We’re a regulatory board. Our concern is that people are meeting their testing requirements. How they get it to the lab…that’s up to them. That’s a business operation that at this point is kind of outside of our scope.”

DJ Summers can be reached at daniel.summers@alaskajournal.com.

Updated: 
05/11/2016 - 4:36pm

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