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High Stakes 

Starting next month, testing laboratories will decide which buds go to market and which get destroyed

For a couple of years now, cannabis growers throughout the state have been taking their harvests to get lab tested. Sometimes they're simply looking to document a potently high THC content they hope will ensure their yield fetches a high price and often they're looking to prove it's clean of pesticides. The thing is, if a batch fails a test, the grower still controls its fate, whether that be sending it to a dispensary unconcerned with contaminants or into the black market.

"Right now, we just give you back your product (after a failed test)," says Mariellen Jurkovich, owner of the Humboldt Patient Resource Center, which has for years insisted on taking incoming products to be tested. "It's disheartening because we often see that same product appearing (for sale) elsewhere."

But this paradigm is about to change drastically, at least for those cultivators and manufacturers looking to exist in California's newly regulated medical and recreational cannabis industry starting next year. Last month, the state set off an industry-wide scramble when it released its emergency regulations — essentially the new rules under which dispensaries, growers, testing labs, manufacturers and distributors must operate.

Aspects of the new regulations have grabbed headlines — like the lack of restrictions on how much land a grower can cultivate or the tight cap on how much THC can be packed into an edible — but the biggest changes the industry will face next month come tucked in the details embedded in hundreds of pages of rules and regulations. Most notably, the regulations set up a framework under which the vast majority of growers and manufacturers — those making concentrates and edibles — will have to depend on distributors to take their products to market.

The new regulations task these distributors with making sure products are laboratory tested with little margin for error, as failed contaminant tests mean products will be destroyed by law. And with labs throughout the state currently reporting pesticide test failure rates of between 20 to 60 percent, the results could be catastrophic, leaving dispensaries worried about whether there will be enough clean product to stock their shelves.

Gordon Griswold, a former International Organization for Standardization auditor who now co-owns Leaf Detective, a cannabis testing laboratory in Eureka, says this sea change stems from the state's decision to streamline medical and recreational pot under one regulatory framework.

"We're in the world of medicine now — this isn't a liquor store," Griswold says. "You may have said all the right things when you were selling to people with 215 cards but we're being monitored now."

Indeed, California's legal cannabis industry, which has operated in the shadows in the 20 years since voters decriminalized marijuana for medical purposes, is now being thrust into the full onslaught of state regulation. Many fear it isn't ready.

On a crisp morning last summer, Terra Carver and Natalynne DeLapp of the Humboldt County Growers Alliance sat in a corner of an Old Town coffee shop and spoke in hushed tones. Growers, knowing full well that lab testing was going to be a part of the new regulatory framework in California, were increasingly getting their harvests tested. And many were failing. Even organic farmers, who were renowned in the community for being thoughtful, ethical and green, were failing. They wanted to make sure that when word got out of the failed tests it came from someone in the industry.

Growers were scrambling for answers and increasingly freaked out. And this wasn't a uniquely Humboldt County problem, either. NBC4 in Los Angeles sent its investigative team out to buy 44 cannabis products from 15 dispensaries in Los Angeles, Orange, Riverside and San Bernardino counties and had them tested. Ninety-three percent came back positive for pesticides.

Steep Hills Labs in Berkeley, meanwhile, published a report that shocked the industry, claiming that 84 percent of the cannabis flowers it tested in a 30-day period contained residual pesticides.

Locally, labs reported more modest but still shocking numbers with fail rates of more than 40 percent. And these were just from farmers voluntarily stepping forward for testing — a subgroup that many considered the cream of the local crop.

Michele Malaret, who co-owns Leaf Detective with Griswold, said when the lab first opened late last year the numbers were shocking.

"When we first started, I didn't even know the numbers could go that high — I didn't know some of the concentrations (of pesticides) we were finding were physically possible," she says. "At one point, 70 percent of samples were failing."

The biggest pesticide offender was myclobutanil — the active ingredient in fungicides like Eagle 20 and Nova 40 that are used to treat black rot and powdery mildew — which was responsible for the majority of failed tests. A systemic pesticide, myclobutanil, if sprayed on a plant, will actually be absorbed into the plant's tissue and remain there, so a plant sprayed when just a tiny start will have concentrations of it in its tissue when it comes to maturity months later. In fact, the pesticide is so strong it has been shown to turn up in subsequent generations of plants that have been treated with it.

And myclobutanil isn't something you want to be smoking. The fungicide is widely considered harmless even in large concentrations when used on wine grapes or produce, which are ingested orally and filtered through the liver prior to entering the bloodstream. But when the fungicide is put to heat — like, say, when smoked — it begins to produce hydrogen cyanide, or prussic acid, a systemic chemical asphyxiant that can be poisonous. Now it's important to note that nobody has studied repeated exposure to small amounts of hydrogen cyanide through marijuana smoking, so it's really hard to say just how harmful it may be, but it's generally agreed it's not a good idea.

When farmers who claimed to be operating fully organically started failing tests for myclobutanil, some thought it must be the dirt. Because most of Humboldt County's farmers — and most cannabis farmers in California, really — bring in soil manufactured by a handful of companies, that seemed a likely culprit. The theory went like this: Soil companies buy green waste to compost from vineyards and orchards, which spray the stuff heavily, and then it winds up in bagged potting soil.

The Journal tested this theory, picking up bags of the five best selling potting soils from a couple of local supply shops, as well as samples from bulk retailers, and sent them to Anresco Laboratories in the Bay Area for testing. Despite a couple of samples that registered miniscule trace amounts, the dirt came back clean.

Vu Lam, co-director of Anresco Laboratories, says there's no way the soil he sampled for the Journal could be a sole source of contamination to trigger a positive test in a harvested marijuana flower. However, he says, because myclobutanil and some other pesticides are systemic, a positive test could result from a number of sources — say trace amounts in the soil and water supply, and some drift from a neighboring farm that's spraying the stuff, which all accumulate in the plant. Lam says farmers need to test absolutely everything if they want to ensure a clean harvest.

If they're taking over an existing farm or buying dirt, that means testing the soil. It also means testing the water supply and the clones used to start a crop. Lam also didn't rule out the possibility that some areas have been so heavily sprayed with the stuff over decades that it's in the water, in the dust kicked up on dirt roads and even the pollen in the air.

"So much pesticides have been used for cannabis in some places that it's really, I would say, contaminated the environment so badly that eventually you see it everywhere at high levels," Lam says.

While that sounds scary, the good news is that local labs report the rates of failed tests have fallen sharply since last summer as farmers become more aware and face rising stakes. Malaret over at Leaf Detective, for example, reports that pesticide fail rates have dropped to close to 20 percent in recent months.

Geoffrey Hoopes is on the move when the Journal catches him on the phone, navigating the busy streets of the Bay Area as he speaks into his speaker phone. The president of UpNorth Distribution, Hoopes is busily getting ready for Jan. 2, when distributors like him will become central figures in the new industry.

Under the state's new emergency regulations, most growers will need to work with licensed distributors to move their harvest to market. Once the cannabis is harvested, dried, trimmed and packaged, it's the distributor who will act as the middle man between farmer, testing laboratory and dispensary.

Hoopes says his business model will be sourcing cannabis in Humboldt County and selling it to dispensaries in Los Angeles and the Bay Area, so he's relying on a network of small local farmers to get him a steady supply of clean, high-grade cannabis. Under the new regulations, distributors are the ones who need to work with testing laboratories. In the new year, Hoopes says he will begin negotiating prices with farmers and sales with dispensaries but everything will be conditioned on testing results. For example, Hoopes says he'll get a general idea of a harvest's quality and characteristics and offer a price contingent on the cannabis passing pesticide tests and hitting a potency bench mark. He'll then take whatever the negotiated purchase amount is — say 50 pounds — and store it in a facility in Arcata's marijuana innovation zone. Then he'll call a testing laboratory in the Bay Area, which will send a technician up to take samples and drive them back to the lab.

Griswold, of Leaf Detective, says this process is going to involve an intense chain of custody documentation system. While distributors are required to video record the sampling process, Griswold says Leaf Detective will also be outfitting its technicians with body-worn cameras to document the process as well, noting that if a poor testing result leads to the destruction of $50,000 worth of product, you're going to want a clean paper and video trail of the entire process.

If the samples pass testing — which will be phased in through 2018, beginning with cannabinoids, microbial impurities, residual solvents and some pesticides, later working up to heavy metals, foreign materials and additional pesticides — it will be cleared for sale and Hoopes will transport it to a dispensary.

If the sample fails, the rules allow the distributor to take it back once for remediation, whether it be through turning it into a concentrate that somehow removes the contaminants or some other unspecified means. But if the sample fails again, the rules dictate it gets destroyed, though they don't specify how or by whom.

If the process sounds intense, it is. Some worry it also places farmers at a huge disadvantage. In addition to facing climbing costs of coming into compliance — some have taken to joking that every time they see someone with a clipboard coming down the driveway they know it will cost them $5,000 — and decreasing per-pound prices in a saturated market, there are also now fees for distribution, testing and packaging. A number of people in the industry tell the Journal distributors are seeking fees of 20 to 30 percent.

For his part, Hoopes says his fees are negotiable and he's totally cognizant that farmers are feeling stretched.

"The way we're looking at it is, if the cultivators don't survive, we don't survive," he says, "so we're trying to pay as much as we can."

But that will depend on a huge unknown — what prices the market will bear.

In the back office of Eureka's first cannabis dispensary, Eco, company manager Ray Markland is leaning back in an office chair with a pile of turkey bags filled with neatly trimmed buds stacked behind him. He's explaining how his business model is about to undergo a seismic shift as it transitions into regulated medical and recreational markets starting Jan. 2.

Currently, Markland says he works directly with farmers and producers. He buys bags of weed that he then breaks down into retail amounts and packages by the gram or eighth of an ounce. In the front room, a couple of Markland's employees roll shake into pre-rolled joints as he talks.

None of this will be permitted under the new framework, which will see marijuana brought in by distributors that has been packaged elsewhere. The added procedural steps, coupled with multiple layers of added taxes, come with increased costs. Currently, Markland says he pays about $2.10 per gram of high-quality out-door bud. He expects that price to jump to $7 under the new framework, which means he'll be selling eighths of an ounce of the stuff for $44, which, after taxes, will cost customers about $54.

It remains to be seen whether consumers will pay that, especially here in Humboldt County, but Markland doesn't sound optimistic. Markland says he plans to launch an education campaign — with postings behind the dispensary's cash registers — to help consumers understand the pricing and why costs will jump in the new market.

But the state's framework allows a transition period in which dispensaries can continue to sell whatever they have in stock come Jan. 2, so long as they label it to indicate it hasn't been produced, tested and packaged under the new rules. This provision has dispensaries throughout the state stockpiling as much product as possible amid the uncertainty of what the new market will hold and how much clean product will actually be available. Farmers seem equally willing to offload what they have.

"People with backpacks are desperate, going down and throwing stuff to dispensaries at really low prices," Hoopes says.

Back at the Humboldt Patient Resource Center, Jurkovich says there's just so much uncertainty in the industry right now that everyone is nervous. Nobody knows how much demand there will be for new recreational sales and what consumers will be willing to pay when the majority of cannabis grown in the state will remain for sale on the black market. Sure, the regulated market will offer a clean, tested product, but what that's worth to consumers remains to be seen.

Griswold, of Leaf Detective, says he thinks it will be months before things level out and folks can start to really determine what this new market is going to look like. And there remain plenty of questions. For example, Griswold noted that Leaf Detective currently tests for 24 pesticides, including myclobutanil, which accounts for the majority of failed tests. The state's regulations don't make myclobutanil testing mandatory until July but if a lab tests for it and a product fails, the distributor still must destroy it. Does that mean Leaf Detective should stop testing for it until it becomes mandatory?

"There's an ethical problem with that," Griswold says, explaining that his lab will continue testing for the industry's most pervasive pesticide, whether it's mandated or not. "I'm sorry, if you're just here to sell crap, we're not going to help you do it."

But Griswold also realizes this will likely lead to some harvests being destroyed, some farmers watching a year's work go down the tubes with nothing to show for it.

"It's not a concern for me personally, but I'm really concerned about the farmer who is going to lose a harvest," he says. "Most can't sustain that loss."

Thadeus Greenson is the Journal's news editor. Reach him at 442-1400, extension 321, or thad@northcoastjournal.com. Follow him on Twitter @thadeusgreenson.

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Thadeus Greenson

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Thadeus Greenson is the news editor of the North Coast Journal.

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