Several states with legal adult-use cannabis are pushing for greater transparency in lab testing as a means to combat lab shopping, just as the nation’s first medical cannabis testing lab company bows out of what could become a multi-billion dollar industry.
Steep Hill, which was started in California before expanding to numerous other states, seems to be officially out of the cannabis testing business.
The company took a turn in 2018 when Alaska authorities called for an audit of Steep Hill amid concerns of inaccurate test results. About a month later, the company ceased all operations in Alaska after losing their property. The company continued its downturn through the pandemic and faced allegations of inflating THC test results in Arkansas. By April 2023, Steep Hill shut down.
Vermont funds state testing lab
Vermont, whose fledgling adult-use market opened last October, is establishing a state testing lab to set a standard for auditing third-party labs to ensure accuracy. As more states have legalized adult-use or medical cannabis, there has been a growing demand for accurate testing of THC content and contaminants. Vermont is just one of several states currently working on new standards for cannabis lab testing.
Vermont Gov. Scott allowed an omnibus cannabis bill to go into effect without a veto on June 14. The bill set aside $850,000 to establish a state testing lab that could be used to audit testing results from licensed laboratories.
The bill also repealed the sunset for the Cannabis Control Board, increased the total amount of allowable THC in a packaged product to 100 mg, relaxed caregiver regulations, and created a new propagation license allowing growers to sell clones to larger producers.
Vermont’s testing lab follows in the footsteps of California’s testing lab that was established last year at the University of California, San Diego. The lab reportedly struggled to set up concrete testing standards in its first year.
Meanwhile, the Massachusetts legislature is considering a bill that would create a public database of testing results, making it easier to compare rates between laboratories and identify irregularities such as inflated THC content.
MCR Labs CEO Michael Kahn testified in support of the bill before the legislature’s Joint Committee on Cannabis Policy on June 6.
“The selection of labs based on the results that producers want is called ‘lab shopping’ and is widespread here,” he said. “The financial incentives are strong and there are no real discernable incentives for honesty or accuracy.”
The bill, H 105, currently remains in committee.
MCR Labs was founded in Massachusetts in 2013, but has since expanded into Maine and New York. The company was also in Pennsylvania, but Kahn said that the company had to leave the state due to lab shopping.
“In 2021 in Pennsylvania, a large cultivator sent us 113 samples for testing. We only found mold in six of the samples, an excellent test rate,” said Kahn. “Later we were informed that the cultivator chose another lab for future services because that other lab did not find any contaminants in any of the 113 samples. The writing was on the wall. There was no incentive for honesty or accuracy, and pass rates dictated the entire testing markets.”
Colorado on June 2 released new regulatory guidelines intended to crack down on testing shenanigans.
The Colorado Department of Revenue is demanding that testing labs report any samples that show signs of adulteration, such as discoloration, unusual smell or inconsistent texture when compared to other samples from the same harvest.
The memo notes that the agency has identified numerous examples of test batches that were doctored to pass state testing standards for contaminants.
“Adulterating or altering Test Batches is a significant public safety concern because the Test Batch is no longer representative of the Harvest or Production Batch it was pulled from,” said the memo. “If the Division finds evidence of willful or deliberate Test Batch adulteration or alteration, it will recommend the strictest penalties possible to the State Licensing Authority which may include suspension or revocation of license, and fines of up to $100,000 per violation.”
The memo also mandated that labeling should include use-by dates that are no more than nine months after harvest or production, with an exception for cases where shelf-life testing indicates a longer period.
Steep Hill’s precipitous decline
The accuracy of cannabis testing is also before a federal judge in the U.S. Eastern District Court of Arkansas. Jakie Hanan, a senior medical cannabis patient in Arkansas sued Steep Hill. Hanan’s suit, which was filed in February in state court, alleges Steep Hill inflated the results of its THC concentration testing. The case has since been removed to federal court where both sides of the case have filed motions pertaining to the plaintiff’s standing in court.
Meanwhile, Steep Hill announced on March 1 that it was giving up its licenses in Massachusetts, New Jersey and Pennsylvania under a termination agreement with Green Analytics subsidiaries. Those licenses represented approximately $1.29 million, or roughly 83% of Steep Hill’s total royalty revenues, it said.
“As a consequence of the termination of the licenses provided for in the Termination Agreement, the Company expects that future license revenues from Steep Hill US’s remaining business will be insufficient to support Steep Hill US’s continued operations in its current form,” the press release said.
After closing its Canadian lab in 2022, the company announced in early April that it had ceased all testing operations in the United States and was undergoing a corporate restructuring. On June 1, Steep Hill said Chief Financial Officer Raj Ravindran resigned, and Patricia Militello was named interim CFO.
National cannabis testing standards called for
A year ago the National Cannabis Laboratory Council, which was formed by law firm Perkins Coie, called for the standardization of lab testing nationally. The call accompanied a 52-page white paper report on standardization.
“Today, cannabis testing is performed according to the unique regulatory framework within each state that has legalized cannabis,” said the report’s introduction. “In order to protect the public health and safety of consumers, and to realize the full potential of interstate trade, national testing standards must be developed and implemented federally.”
Perkins Coie did not respond to voicemails and emails seeking comment, and the NCLC does not appear to be active since the failure of SAFE Banking last fall in the U.S. legislature. For now, it seems that states have been left to find their own level of standardization and transparency in cannabis testing.
