As a new industry, cannabis has the opportunity to do business the right way. From day one. Many industries have come before ours, making missteps as well as setting best practices. In fact, we have the Harvard Business Review articles to prove it.
That’s why it frustrates me to no end to see industry players short-cut the right path forward. One of those areas is testing. In every consumer product area, testing is vital to ensuring consumer health and safety, but it is even more dire for products that are consumed or inhaled.
The Dire Need to Detect Microbes
Microbial contaminant testing is a critical step in the supply chain for all food and agricultural products, but it becomes ever more important to ensure cannabis products are verified as free of hazardous contaminants as cannabis-derived products become accepted treatments for various medical conditions.
Currently, the regulatory framework for evaluating the safety of cannabis products differs from state to state, with an abundance of clinical cases to back up the reason for testing, and the availability of technology to meet the safety standards to protect immuno-compromised patients and consumers. Conventional methods such as Petri-dish culturing and qPCR methods are not nearly as accurate or sensitive as commercially available, next-generation technology such as DNA microarray testing. Yet, the continued use of these outdated methods opens up the possibility that dangerous and deadly contaminants can enter the supply chain, and get consumed by millions of consumers.
In a recent study released to regulators and labs across the country, it was presented that plate culturing and qPCR testing was unable to detect the presence of a deadly fungal species, Aspergillus, that is presently common in both recreational and medical marijuana. A different technology, the DNA-Microarray tests not only detected Aspergillus, it also identified the exact species of the fungus, a nuance that requires longer testing times and additional testing steps when using petri dishes or qPCR methods.
Technologies such as sequencing and DNA microarrays can test for dozens of different deadly pathogens multiple times simultaneously from the same sample, whereas plate and qPCR methods test for a single or limited number of microbes. What this means is definitive confirmation when using the Microarray technology. This is where the technology is different and better, and also saves on costs, streamlines the entire testing process and reduces any opportunity for operator error.
In addition to being more accurate, DNA microarray testing is also faster. Plate methods require microbials to be cultured before being tested, which takes a minimum of 24 hours and often closer to a week for slower-growing organisms, such as many fungi including Aspergillus. In contrast, DNA Microarray testing yields results in six hours, and reduces harm to lab technicians by not subjecting them to large amounts of live cultures.
The point here is when technology is available that protects consumers and patients to an even greater level, is faster and more economical to process, and better in terms of performance, then why should the cannabis industry walk down the same path other industries have traversed, and one which they have tripped over multiple times? Why not learn from the lessons of these other industries and set a path that ensures greater safety and quality to the product?
History Not Worth Repeating
We’ve seen what happens when industries and governments turn a blind eye to deadly matters. In the pharmaceutical industry, the FDA came under scrutiny after a study found that excess dosages of the Merck drug Vioxx tripled a patient’s risk of cardiac arrest. In front of a Senate Finance Committee, the FDA was asked why danger signals of Vioxx went ignored. Questioning specifically focused on its relationship with the drugmaker, its expedited review process and the timeliness in conducting and stopping clinical trials when potentially adverse information was found that put the public at risk.
And yet, a similarly concerning matter remains ongoing with asbestos makers. The U.S. began regulating asbestos in the 1970s but has yet to ban the mineral, despite it being the number one cause of work-related deaths in the world. In fact, evidence suggests there is no safe level of asbestos exposure.
Similarly, science shows that there are no safe levels of Aspergillus. All it takes is one spore to kill. Sub-par and outdated testing methods not only risk the health of immunocompromised patients, it also puts consumers exposed over a period of time into the line of fire – as well as the credibility of the industry as a whole. Regulators need to demand cannabis is 100 percent contaminant-free by using testing methods that deliver absolutely proven and reliable results.
A number of stakeholders in the industry and beyond have reason to take up the call. In the recent e-vape crisis over 2,000 people have been hospitalized and 50 people have died due to lung infections. The pathogenic strains of the Aspergillus family would exacerbate this crisis further, and so gives the industry reason to ‘tighten’ the regulatory framework even more so not only with trusted testing methods, but ones that definitively protect public health. Even today in certain states that have not mandated testing of Aspergillus, but only mandating testing of Yeast & Mold, those states are allowing their consumers and patients to inhale Aspergillus ultimately fueling a national pandemic in lung infections. Just reference a peer-reviewed scientific paper by Kagan MD et al in the Journal of Allergy Clinical Immunology published in 1983, where the authors concluded that “[t]he use of MJ thus assumes the risks of both fungal exposure and infection, as well as the possible induction of a variety of immune and infectious lung disorders. Given the extraordinary number of individuals estimated to be MJ smokers, the occurrence of these illnesses may well become more commonplace”.
Sometimes the way things have always been done just isn’t good enough anymore. Technology has changed the way we take pictures, listen to music and even hail a ride. Can you do those things the old way? Sure, but they won’t have as much definition or clarity. It won’t be as convenient or cheap. When there is truly a better way, why wouldn’t you change?
And that’s what we ask when it comes to protecting the supply chain, a place where quality and accuracy cannot be compromised. When it comes to which testing method is the best, there is a clear choice – a choice that literally comes down to life and death. In order to safeguard both consumers and the legitimacy of the industry, cannabis stakeholders should demand labs use rigorous testing methods that pinpoint pathogens and protect public health.
Photos by Michael Chansley Photography, www.michaelchansley.com
Mr. Patel leads the strategic vision, financial health and global growth of PathogenDx, a Scottsdale, AZ based company which provides disruptive DNA-based pathogen testing technology and solutions for the cannabis, botanical, food and agricultural industries.
Previously, Mr. Patel spent over 25 years working with large public, small private and entrepreneurial companies in numerous fields from the life sciences, to biotechnology, to government services and the automotive industry. Milan served as COO/CFO of GMSbiotech. He also was CFO of 2020 Company, LLC, a leading premier professional services firm that delivered business and technology solutions to the government, in the areas of health, education and science.
Mr. Patel also worked at Intel Corporation in Sales & Marketing, Finance and Manufacturing. He has extensive experience in corporate finance, mergers and acquisitions, business strategy and planning, infrastructure and organizational development, and controls, compliance and audit and has led several company exits.
Milan earned his BS in Electrical and Electronics Engineering from the University of Detroit Mercy; a MS in Biomedical/Medical Engineering, University of Michigan; and a MBA in Finance and Marketing, University of Detroit Mercy.
Former FDA Commissioner Calls For Descheduling And Federal Regulation
by Andrew Kline, NCIA’s Director of Public Policy
With uncertainty about the proximate cause of the vaping crisis continuing to roil state regulators, and state governors trying to determine the right short-term solution to protect the public health, the former Commissioner of the FDA has a longer-term plan. Former Commissioner Scott Gottlieb is rightly calling for descheduling and federal regulation in an op-ed in the Wall Street Journal. NCIA made the same argument in our Policy Council’s recent white paperon regulating cannabis post-legalization and in our public responses to the vaping crisis.
While no one yet knows for certain what has been causing these injuries and deaths, it is readily apparent that unregulated and untested products are extremely dangerous and continue to infiltrate the market. Just last week, a mother and her two sons were arrested for allegedly illegally filling over 30,000 vape cartridges in Wisconsin from their home. That burgeoning illicit and untested market poses real risks to American consumers. And the best way to eliminate the illicit market is to create opportunities for consumers to purchase products from legal dispensaries and market awareness of the benefits of purchasing from those regulated markets.
For example, if consumers know that legal dispensaries are selling regulated products that have been tested to improve consumer safety, then they will be more inclined to stop purchasing from the illicit market. People already know that when they step foot into a grocery store, the foods they eat and the drugs and dietary supplements they take are part of a supply chain designed to improve safety. That is because they have placed trust in the USDA and FDA. And no better way to build consumer confidence, than to make sure that trusted federal agencies are in charge of promoting public health in the cannabis industry.
We can’t continue to leave the cannabis industry in a state of uncertainty. It’s time to deschedule, regulate at the federal level, and require mandatory lab testing. We must displace the illegal, unregulated and untested illicit market. There is no plan B.
Andrew Kline is Director of Public Policy for NCIA and Chair of NCIA’s Safe Vaping Task Force
Member Blog: Put Your Cannabis Products to the Test – How Companies Can Work Closely with Labs to Maximize Efficiency and Quality
Laboratory testing regulations for the cannabis industry have been consistently inconsistent, leaving companies struggling to adapt. In the early stages of California’s legal medical marijuana market, labs limited testing to potency, disregarding purity, which put patients at risk. When California legalized adult-use, regulators drastically and rapidly increased testing requirements and purity standards, leaving many producers struggling to adapt.
But despite the frustrations that may arise from convoluted cannabis testing requirements imposed in many states, it is essential that the growing adult-use and, of course, medical cannabis industries ensure that their products across the board are reliable, safe, and pure – free of contaminants such as heavy metals, mold, and synthetic pesticides – and that levels of THC and CBD are accurately labeled.
Companies can prepare for more stringent rules, while being confident in both the purity and potency of their products, by selecting a trustworthy lab to fit their needs, and by developing a lasting relationship with that lab. Once a brand has chosen a lab that they are comfortable with and whose results have proved to be credible, it’s important to stick with that lab rather than play the field.
The first step is to develop a thoughtful selection process to find a lab that best fits your company’s needs and goals. Take the time to meet with various lab teams and have in-depth conversations about their experience, equipment and technology, and operating strategies employed to test for product quality, purity, and safety. This is not the time to take shortcuts, nor should you base your lab choice solely on price and turnaround time. With regards to the latter, a great lab may need a week or more to thoroughly test a product and confirm its purity and potency. The lab is simply doing its due diligence to ensure a company can be fully confident in the products they put forth in the marketplace.
Once you’ve chosen a lab that will work best with and on behalf of your business, consistently stay in touch with the lab team. Build relationships with account representatives so they can fully understand your products, so you can understand the progress the lab is making throughout the testing process, and together be fully prepared to address any issues that may arise. For instance, if there is an expected delay, companies who have stayed in regular contact with their lab of choice can be ready to prevent problems relating to supply chain and inventory.
Fostering a strong relationship with a reputable, objective, third-party lab is another way for brands to distinguish themselves from the pack within the legal market, and to encourage consumers to forgo the illicit market and instead place their trust in high-quality, licensed products that have been properly tested. Companies can add test results to their product labels and their websites for full transparency.
By carefully selecting a lab and learning to seamlessly work together, brands can not only adapt to stricter testing requirements, but can potentially use the increased regulations to their advantage by establishing consumer confidence and by going above and beyond regulatory requirements.
Dr. John Oram, Ph.D., is CEO & Founder of NUG, an Oakland-based, vertically-integrated cannabis company with strong historical growth and performance. Founded in 2014, NUG continues to expand and diversify its portfolio, which includes world-class R&D, state-of-the-art cultivation, extraction, and distillation facilities, one of California’s largest wholesale cannabis distributors, and the new, unparalleled NUG retail store experience. Follow NUG on Facebook,Twitter, Instagram and YouTube.
Member Blog: Advice for Surviving and Thriving in the New Era of Legal Cannabis From Those Who Have Climbed The Mountain (Part 1)
The challenges facing companies pioneering a new industry where each state deals with its own issues are numerous. The importance of strategic business planning and the ability to predict future problems are essential to survival.Colorado, Washington, and Oregon have each dealt with their unique issues and challenges but there are also common problems that every cannabis business experiences: burdensome regulation, unfair taxation, and banking prohibition to name a few. Building your company and brand is dependent on your ability to maneuver your company through the obstacles that will arise in your state market while also planning for a future of legal interstate commerce through a change in federal policy. To place your company in a position to be successful, you should understand the past to predict the future.
Quick Summary of Cannabis History
The history of cannabis is long and distorted, however a few basic points of what brought us to the current state of federal prohibition and individual state markets should be noted for context.
Cannabis use as medicine dates back to 2700 BC in China, and has been used throughout history. In 1850, it was added to the U.S. Pharmacopeia. Prior to state and then Federal prohibition, cannabis was an elixir/tincture used in many common household cough/cold syrups and other medications for stomach-aches, asthma, depression, and many others. In the 1930s, cannabis was regulated as a drug in all states, and in 1937, the passing of the Marihuana Tax Act regulated it federally. Then in 1970, the Controlled Substances Act determined cannabis to be a Schedule 1 drug meaning it has no medical benefit and a high risk for abuse. From 1970 to 1996 the manufacture, use, or possession of cannabis was illegal in all fifty states.
CALIFORNIA
In 1996, California became the first state to legalize the medical use of cannabis through Proposition 215. California was the first domino to fall and further background of the early days of California medical cannabis will be addressed in later blogs in this series focusing on California. Over the next twenty years, 37 states have joined California with medically legal cannabis, and nine states have passed and implemented legal “recreational” (now referred to as “adult use”) cannabis programs.
OREGON
Oregon was the second state to pass medical cannabis in 1998 and that was the start of this author’s journey through the cannabis industry. Prior to 1998, Oregon had been a bastion of black market cannabis cultivation due to its climate and wide open spaces especially in rural southern and eastern Oregon. After 1998, the state “protections” offered by medical cannabis state law allowed the cultivation industry to flourish. However, as opposed to California the state was more focused on growing weed and selling it around the country rather than setting up a distribution system to the medical patients of Oregon. This led to some of the early challenges of the medical cannabis program in Oregon. At this time, the Oregon population was relatively small compared to the state’s cannabis production. Oregon was on its way to being one of the largest cannabis producers in the country. But because cannabis was so easily accessible there was little effort put into a healthy distribution system to Oregon patients. Most patients either grew for themselves or had a designated “grower” and that is where I started in the industry.
OREGON: FORMATION OF RETAIL ESTABLISHMENTS
As a nurse who had self medicated with cannabis for ADHD, I began growing for patients because I wanted to provide others with access to the amazing health benefits of cannabis. This was the common way most patients accessed their cannabis. There were no dispensaries when the program started and patients who didn’t have a grower were relegated to barter trade types of acquisition. In 2005, the Oregon Legislature allowed growers to be reimbursed for the cost of production and in 2010, the first dispensaries began to pop up. However, it wasn’t until 2012 that legal retail entities were allowed. This lack of a retail access point for patients was one of the first impediments to the program and allowed states like Colorado and California to take the mantel on progress of a robust program of medical cannabis distribution.
COLORADO
In 2000, Colorado became the sixth state to allow medical cannabis with Amendment 20. Its medical program remained low key until 2010 when the Colorado Medical Marijuana Code was created, which provided for licensing of production and retail establishments. This change was a giant step to the progress of cannabis legalization.
Colorado followed the early model presented in California and began implementing licensed retail establishments for card carrying medical cannabis patients. Retails stores began to flourish and this laid the groundwork for the establishment of the Adult Use program. In 2012, Colorado became the first state to legalize what was originally referred to as recreational cannabis now called “Adult Use” cannabis, which allowed the sales of cannabis to all adults aged twenty-one and older and the boom began. Colorado’s medical program developed into a rapidly growing Adult Use system and with the new federal guidance of the Cole Memo in 2013 canna-businesses began growing rapidly.
COLORADO: SEED TO SALE TRACKING
The primary language of the Cole Memo highlights a “robust tracking system” of all products produced and sold. The Cole Memo did not provide protections for cannabis businesses but provided guidance that helped assure businesses of some safety from federal interference. With the advent and implementation of a tracking system we could now be assured of where products came from and be able to track them back to their origin.
COLORADO: LAB TESTING
Once tracking was in place, lab testing for the safety of the consumer came to the forefront of industry progress. This was one of the first problems Colorado realized it had with its blossoming industry. As opposed to Oregon which required all products sold through its immature dispensary system since 2012, Colorado had not required lab testing of all its products until 2016 after several large quarantines and destruction of unsafe contaminated products. Many Colorado producers struggled with new pesticide regulations and was an early sticking point to growth of the industry. Over the first years of Adult Use cannabis program, Colorado struggled with the infancy of a brand new industry and how to regulate it and consequently, businesses suffered.
Other early challenges that the first legal state dealt with were allowable dosages and changes to dosing, as well packaging changes and the look of products, specifically how or if the products were attractive or marketed to children. The obstacles of a new industry most directly affect the businesses and their bottom lines. These are important points to consider when strategizing your business model and planning for inevitable changes to regulations. The time spent preparing for a system that will change will go a long way to ensuring for success.
WASHINGTON
Now let’s talk about Washington.
Washington was the third state to approve medical cannabis but had problems with implementation due to legislative issues. As multiple pieces of legislation were offered, adopted, and repealed, the lack of clarity prevented the medical cannabis industry from launching. Washington passed its adult use cannabis program at the same time as Colorado in 2012. In Washington, the two major obstacles the industry faced were licensing issues and taxes. A previously existing strong medical program in Colorado allowed for a seamless transition to an adult use program, but that was not present in Washington and this added to difficulties with implementing an adult use program.
Because the industry was just getting off the ground, both states relied on their medical programs as a foundation to the adult use. However, Washington’s medical program was murky and disorganized which lead to complications, Washington also limited licenses and put unfair taxes on the industry. These two factors aided in keeping the black market as the primary driver of the industry, rather than pulling people or businesses into a controlled, tracked, and regulated system.
280E TAX CODE
This provides a nice segue to one of the challenges all cannabis business face: unfair taxes in the 280E tax code. Internal Revenue Code section 280E specifically denies a deduction or credit for any expense in a business consisting of trafficking in illegal drugs “prohibited by Federal law or the law of any State in which such trade or business is conducted” which translates to only “Cost of Goods Sold” as the only deductible expenses. This means administrative costs, executive salaries, marketing and advertising, banking fees, etc., are non-deductible expenses for any cannabis business and subjects them to much higher taxes as most normal business deductions are prohibited. This challenge is one all cannabis businesses deal with and must be factored into financial modeling.
BANKING
While we are on the the subject of taxes and non-allowable deductions, banking is the other major challenge all cannabis businesses face. Due to federal policy around an illegal substance, FDIC insured institutions force canna-businesses to operate in all cash for fear of prosecution under racketeering and money laundering laws. There are a handful of financial institutions, credit unions, or state banks that offer “Enhanced Monitoring Accounts” for cannabis companies. However, they are highly priced and rare. The average cannabis bank account is likely to run $1,000.00 a month, just to have access to banking services, not including additional fees. This $12,000 a year budget line item, while not only expensive, is not a tax write-off per 280E tax code.
One can quickly see from just these two major hurdles or challenges to the industry, normal operations can be difficult. These obstacles are not to be taken lightly; they can be addressed but it must be factored into operating procedures, financial planning/budgeting, and strategic vision.
NOW BACK TO STATE SPECIFIC ISSUES
As Washington and Colorado dealt with its issues, Oregon voted to approve “Adult Use” cannabis in 2014. Using Colorado and Washington as a guide, Oregon implemented their system with more deliberation and vision based on what had been experienced in the first two states. But as was seen with the unique challenges in the first two states, Oregon encountered an entirely different set of problems. Oregon currently faces a massive oversupply problem which has affected all facets of business across the industry. In normal business and supply and demand economics, if an area is oversupplied, business move their products to where the demand is higher or the supply is lower. However, cannabis remains a federally illegal product and therefore interstate commerce remains illegal.
Oregon’s unique problem originated from two main issues:
Oregon had already established itself as a cultivation mecca
The regulatory authority decided against a cap on licenses
This lack of license caps has allowed the number of licensees to explode and thereby allowed the oversupply issue to occur and continue to grow. As stated, this is not a problem exclusive to cultivator/producers. Because of a 75% drop in value, cannabis attorneys, electricians, HVAC, security companies and other ancillary businesses are not getting paid. The oversupplied market and decreased revenue has reverberated across the industry and driven otherwise thriving companies into bankruptcy.
As you can see, each state deals with its unique challenges when implementing its Adult Use cannabis program, while we all deal with some issues that affect us all. The key to thriving… or surviving is to prepare your company to deal with the current challenges shared by us all and predict the challenges that your business will face in your state while preparation is taken for a national and international market.
James Schwartz RN, BSN, LNC, is an experienced medical legal consultant and CEO of CascadeHigh Organics with 20 years experience cultivating legal cannabis. James is a self-described organic minimalist cultivating in the most sustainable manner. James believes in clean cannabis and its use as a wellness drug. His Oregon licensed cultivation, Cascade High, has been featured in Dope Magazine and on the cover of Oregon Leaf’s Sustainability issue (March ‘18). James was featured as the Inaugural Stoner Owner by OR Leaf in Dec 2018. He has articles published by Dope Magazine about Cannabusiness and the Pharmaceutical Industry (May 2017), as well as a medical cannabis article in the Jan. 2019 Healthcare issue of OR Leaf. James is currently on the NCIA Cannabis Cultivation Committee and has presented Cannabis topics to multiple audiences at conferences including Cannabis Science Conference, PDX Hempfest, Cannabiz Convention, CBD Expo and Webinar series, Cannabis Collaborative Conference(CCC), Cannabis Nurse Conference, NCIA and educational industry mixers. His business, legal, medical, and agricultural knowledge provides a unique perspective on the industry. James has lobbied for Cannabis on both the national and state level with Oregon Cannabis Association and is a fierce advocate for the plant and all who use it.
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James Schwartz RN, BSN, LNC, is an experienced medical legal consultant and CEO of