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Published in Economic Development
‘Lab shopping’ accusations create tough environment for cannabis testing facilities MIBIZ FILE PHOTO

‘Lab shopping’ accusations create tough environment for cannabis testing facilities

BY Sunday, August 14, 2022 06:52pm

Linda Palmatier recently closed her Kalamazoo cannabis testing facility, The Spott Laboratory, hoping state regulators create what she sees as a more level playing field for business owners.

Palmatier, who opened The Spott Laboratory in 2014 while Michigan had only legalized medical marijuana, and others say the state’s business climate for state-licensed safety compliance facilities has run astray. 

These facilities are critical links in Michigan’s nearly $2 billion cannabis market, ensuring commercially grown products are safe for human consumption and free of harmful chemicals.

However, controversy has clouded the sector, including with a key legal dispute between the Michigan Cannabis Regulatory Agency and a single company that has captured a majority of the testing market. Viridis Laboratories’ two locations in Lansing and Bay City test more than 60 percent of the state’s product, according to Viridis executives.

As well, both operators and regulators have accused the company of supporting “lab shopping” in which growers and processors seek a specific lab to yield higher THC results, which typically create higher-priced products. As of June 30, 2022, Michigan had 19 active safety compliance facility licensees.

“When one lab has that kind of percentage of the entire business in the state of Michigan, it’s not because they are better than everybody,” said Palmatier, whose company stopped accepting samples for testing on July 30. “I’m still here, but I refuse to participate in the market where accuracy is not the priority. It’s too expensive to stay open.”

Viridis controversy

The Cannabis Regulatory Agency (formerly called the Marijuana Regulatory Agency) in November 2021 recalled an estimated 64,000 pounds and nearly $229 million worth of Viridis-tested products. In December, a Michigan Court of Claims judge partially reversed the action and limited the recall to half of the initial product. 

More recently, the CRA filed formal complaints against Viridis Laboratories on May 19, raising questions about the THC potency in testing results and the lab’s testing methods. Viridis also filed its own lawsuit late last year against the CRA and multiple agency employees. Litigation is ongoing in both cases. 

“I really can’t get into it, but we’re in the throes of it with (the CRA) right now,” Viridis co-founder and Chief Operations Officer Todd Welch told MiBiz. “Before the recall, we were testing for nearly 70 percent of Michigan’s flower market. The recall obviously impacted us, but immediately after, the judge rolled back half the recall and our customers started flooding back to us, in addition to new customers.”

Responding to allegations that Viridis tests disproportionately yield higher THC levels than other labs, Welch said the company spent months developing a more accurate extraction method.

“We know our results are much more accurate and precise than a lot of other testing labs in the industry,” said Welch, a retired Michigan State Police forensic scientist. “That’s proprietary information, as much as the CRA and maybe some of our competitors would love us to share that method. We have to share that with the state and had to before we had approval.”

However, the CRA claimed in court proceedings that Viridis Labs’ testing methods were not approved.

Operators like Palmatier question why it appears the CRA is struggling to enforce its own rules. 

“The CRA is not treating everybody equally and some labs are getting away with inflating numbers and passing product and basically doing things they shouldn’t be doing in several different ways that I’ve heard,” said Palmatier, whose company also was the subject of a state regulatory investigation in 2019 for reportedly inaccurate THC test results, though the issue was quickly resolved. 

The CRA’s formal complaints against Viridis “speak for themselves,” agency Spokesperson David Harns said via email. 

“The CRA always strives to apply the law and rules consistently to licensees across the industry,” Harns added.

Chris Silva, account manager at Redemption Cannabis, said it’s crucial for cannabis growers and retailers to work with labs that have built public trust. 

“It’s important to us that the lab thing works,” Silva said. “We want to support all the good actors that we can. Most people are doing a good job, it’s just a couple outliers.”

Silva added that a major focus on high THC levels is “one of the worst things that’s happened with mass legalization.”

Palmatier agrees.

“The consumers think that THC is the most important thing on the planet,” Palmatier said. “As long as the entire industry is running on profits that are completely based on high THC numbers, we’re never going to get out of this situation.”

The recent drop-off in cannabis prices in Michigan also is likely exacerbating lab shopping. The average price of medical flower per ounce was $112.30 in June of 2022, compared to $209.87 in June 2021

“In general, there is a problem with the entire industry, with the financial barriers to entry and the capital you need to get into the industry,” Silva said. “Especially getting into the lab side, that is really expensive.”

For safety compliance operators, Palmatier said it’s “very frustrating for someone who is trying to do good here to succeed. The worst thing is the patients and consumers are the ones paying for it.” 

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