Industry 

Cannabis industry information for businesses including tips, news, and advice for dispensaries.

Oregon Issues New Rules to Respond to Edibles Crash

The Oregon Health Authority today released temporary testing rule changes that will go into effect on December 15 and will be valid through May 15, 2017. The OHA stated in a press release:

The temporary testing rules [are] not intended to overhaul the testing requirements. The intent of the temporary testing rules is to relieve some of the regulatory burden and facilitate the availability of marijuana items to the retail market and to patients. OHA will begin working on a more comprehensive review of the testing rules in the beginning of 2017.”

Some highlights that should offer some relief to the industry include:

  • Batch requirements – Cannabinoid products must be separated into process lots of not larger than 35,000 unit batches, up from 1,000 unit batches.
  • Sampling and Sample Sizes – Samples from batches of usable marijuana of the same strain may be combined for purposes of testing potency regardless of the combined total weight of the multiple batches. In addition, the sample increments required to be collected for cannabinoid concentrates, extracts and products depending on the process lot size have been amended
  • Laboratories have until January 31, 2017, to report certain quality control information on test report results.

The full rule text should be reviewed and may be found at: healthoregon.org/ommprules

Too little, too late?

While these changes are welcome, the fallout from the testing rules that went into effect on October 1 has already been felt across the state. Many cannabis businesses have lost revenue and jobs. For some, the temporary rule relief comes too late.

When the new rules kicked in on October 1, things did not go well. A limited number of labs met the new requirements, which caused a testing bottleneck. Companies had to wait up to 6 weeks to get their adult use products tested and certified. Lab fees skyrocketed. Some charged ten times the pre-October 1 fee.

Some companies have been shut down for seven weeks or more. Many have laid off workers.

Amy Margolis, owner of Margolis Legal and Chair of the Oregon Cannabis Association, responded to the situation with an open letter. “The OLCC and the OHA,” she wrote, “have been fielding concerns from the cannabis business community since before the October 1st deadline letting them know that the labs are simply not ready for the capacity, that the protocols are not appropriate, the process validation doesn’t make practical or economic sense, the batch sizes are off and the absence of an on-ramp to the new system is serious and reckless. At the end of the day those voices appear to have been drowned out by the push to implement at whatever cost.”

A subsequent shortage of products on dispensary shelves showed that her concerns were well founded. Some companies reported that they have been forced to shut down for seven weeks or more. Some have laid off a majority of staff members, and are losing thousands of dollars of revenue.

BDS Analytics recently issued a study illustrating the economic damage. Their work found a July-through-September weekly cannabis sales average of $7.4 million. But then “in October’s first week, cannabis sales totaled $7.6 million. By the final week of the month, that figure had fallen to $6.0 million, a 21-percent decline.”

screen-shot-2016-12-14-at-12-21-48-pm
Click on image to enlarge.

The changes have had an effect on employment as well. One industry official who works with a wholesale distribution company told me: “Our company has spent the last 3 months bringing in close to zero revenue with a $25,000 per month overhead. The Oct.1 deadline, the packaging and labelling debacle, and the new testing requirements ended up essentially rendering 95% of the suppliers we were working with non-compliant, therefore leaving us with no product. Once the OLCC’s packaging and labelling deadline occurred, we saw almost all of the companies we work with come to a halt because they did not have compliant packaging and labelling, and the process to create and produce prototypes, get them approved, and push into full production with the new packaging was not an overnight process. It has been almost 3 months, and just this last week we finally saw two out of our 15 reputable and well-recognized Oregon cannabis brands come back online with new approved packaging. The rest are still waiting.”

RELATED STORY
New Lab Rules Are Killing Oregon’s Craft-Scale Companies

A well-known Oregon processor also weighed in: “In September, we laid off 25+ employees” he wrote in an email. “In October, we lost 300K in revenue, with revenue in November down an additional 20-30%. We have hopes that December will be a better month, but we can only operate till December 31 without our new OLCC processor’s license. If we don’t have that by Jan. 1st, we are back to shutting down until we receive it.”

(Industry officials I contacted asked for anonymity based on business concerns. When a retail products company is perceived as faltering, it can have negative impacts on a company’s finances. Landlords and suppliers sometimes start demanding immediate cash payments. Leafly agreed to quote these official anonymously in order to get a true picture of what’s happening on the ground in Oregon.)

The lab testing crisis 'only benefits the black market,' said one processor.

“This only benefits the black market,” processor added. “With the new testing fees, a gram of concentrate can easily retail for 40, 50 or 60$. That same gram, untested, will go for 10-20$ a gram. People vote with their wallets, and this is hurting processors, Dispensaries and the State, who are losing tax revenue when products can’t reach the shelves. That says nothing about the volume of calls we’ve had from patients needing our products for pain management and other serious health issues.”

An edibles maker, told me she had to shut down completely after Oct. 1st. “I’ve put my money and my family’s money into this, and even though our sales were growing every week, we were still just breaking even. The batch testing fees alone would place me into the red.”

I asked her if a temporary fix would be what she needed to reopen. “Frankly, no – I think I’m fucked no matter what they propose. Our fees went from 150$ to 3500$, and I simply don’t see how that leaves any room for small mom and pop businesses like mine to flourish, much less even operate.”

Lead photo: Brennan Linsley/AP