Mandatory testing costly for Colorado marijuana growers
Marijuana Business Daily
The added expense is the latest financial blow to hit the state’s cultivators, which are already struggling with falling wholesale prices and a glut of product.
Colorado’s Marijuana Enforcement Division is requiring pesticide testing for marijuana flower and trim, but not concentrates. The new rules took effect Aug. 1.
Other states with recreational marijuana programs such as Oregon and California also require cultivators to submit their cannabis for pesticide testing.
In Colorado, the added cost amounts to $100-$120 to test each strain.
Tim Cullen, CEO of Denver-based Colorado Harvest Company, which grows and retails medical and recreational marijuana, said the process is costing him about $2,500 a week per grow to comply.
“It’s not like you can charge any more for the same product,” said Cullen, who operates two grows. “You’re just paying more (to produce the product).”
However, the new rules have been a boon for cannabis testing labs in the state, which are being flooded with new business — although some company owners and industry groups say the tests don’t do enough to protect consumers from unwanted chemicals in their marijuana, and even more needs to be done.
The state of Colorado’s mandatory pesticide testing requires medical and recreational cannabis be tested for:
— Abamectin (Avermectin B1 &B2)
— Spinosad A&D
ANOTHER FINANCIAL OBSTACLE
Cullen is the middle of the validation process, which requires him to submit samples for testing six weeks in a row. If he passes the validation stage, his operation then must submit one batch for testing once every 30 days.
He grows about 25 strains per cultivation site, and each strain must be tested at a cost of $100 per strain per week. Because he operates two grows, that’s $5,000 a week for his business, or $30,000 for the year given the six weeks of mandatory testing, Cullen noted.
“It’s one more cut among a thousand that’s making this business impossible to run,” Cullen observed.
Until the federal tax structure is changed to allow cannabis companies to deduct the same types of expenses taken by more mainstream industries, these extra financial burdens will be crippling, according to Cullen.
“You can’t have the state government imposing all these new tests every year that come out of the profit margin of the business without giving some relief on the federal tax side that takes all of the profit out,” he added.
The state also is expected to add more mandatory tests in the future, including testing for heavy metals.
That’s not to say Cullen is against mandatory pesticide testing.
“It’s an additional cost that does not generate more revenue for the company,” he said, “but it’s also absolutely necessary that cannabis be tested for pesticide use.”
FEWER STRAINS ON THE HORIZON?
The added cost will likely lead Cullen to grow fewer strains to reduce expenses.
“We’re only growing the best, heaviest-producing strains in-house and then supplementing that with wholesale, which is probably a blessing to the wholesale market because there’s so much wholesale sitting out on the market,” Cullen said.
Many growers are reportedly at rock-bottom prices. Cullen’s purchasing wholesale flower for $600-$800 a pound on average and sometimes for less.
By comparison, wholesale prices for a pound of cannabis flower were $1,800-$2,200 a year ago in Colorado, according to Marijuana Business Daily’s Cultivation Snapshot.
Cullen estimates the cost of production for indoor-grown cannabis, with as many efficiencies as one can put into place, at roughly $500-$550 a pound, with a skeleton crew and no hiccups. It means the margins are very thin for cannabis producers.
After a grower pays the lighting bill and landlord, he noted, “there’s just nothing left there.”
This added financial burden might eliminate some of the competition.
“Some people probably won’t make it through this,” Cullen said.
A BOON FOR LABS
One industry sector that is enjoying this additional requirement: state-licensed cannabis testing labs. There are five licensed labs in Colorado.
Since the state mandated pesticide testing for cannabis, Denver-based Nordic Analytical Laboratories owner Kimia Mahmoodi has been working longer hours, bought new equipment and hired more staffers.
She’s tried to keep her promise to clients that they will get results back in two to three days.
To do that, she’s purchased another liquid chromatography mass spectrometry testing instrument that costs in the $300,000-$500,000 range.
She had one technician in her pesticide testing lab, but she’s hired three more.
“I know the cost is very high for the growers, and they’re not happy about that,” Mahmoodi said. “But it costs us a lot of money to do the testing as well.”
Her lab charges $120 per test for a 2-gram sample and offers a bulk discount of $100 per test for higher volumes.
Mahmoodi said so far she hasn’t had to reject that much cannabis for unacceptable pesticide levels.
“People are following the rules and regulations,” she said. “We don’t have that many failures.
“The consumers are happy that they see the product they’re using is pesticide-free.”
Finding out what’s in the cannabis being grown is a large concern for at least one industry group.
A campaign dubbed #Whatsinmyweed — made up of business owners and industry groups, among others — contends that the state’s list of 13 banned pesticides is far too limited to adequately determine if there are chemicals in cannabis
“This is a really, really small step that does not even begin to adequately create a meaningful consumer health and safety protection,” said Ben Gelt, board chair of the Cannabis Certification Council.
Kirk Scramstad, operations director for Organic Alternatives — a Fort Collins, Colorado, medical and adult-use retail business that also has a cultivation and manufacturing license — said the mandatory tests have increased his firm’s costs but don’t do enough to make an impact.
“Is this a step in the right direction? I think so,” he said. “But is this a big enough step? I don’t think so.”
Information from: Marijuana Business Daily, http://www.mjbizdaily.com
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