A Better Cannabis Product Testing System

Cannabis product suppliers (cultivators and brands) are required to have their products lab tested before products may be sold to customers. In most states, the process essentially works as follows (see Figure 1):

1. Regulators license independent labs to conduct product testing.
2. Testing Labs send samplers out to suppliers’ sites, where they select product samples from batches presented to them by suppliers. Batches are tagged (that is, identified) with labels from a product tracking system, such as Marijuana Enforcement Tracking Reporting Compliance (METRC).
3. Labs perform product testing on the selected samples, record those results in METRC, and send copies of the lab reports back to the suppliers. Suppliers then remit payment to the labs for performing the lab tests.
4. Suppliers sell their lab-tested products to customers through dispensaries, providing test results (on demand).

As an aside, suppliers cover their costs of having their products lab tested by passing those costs on to consumers in the form of higher prices. So, it’s a bit of a misnomer to say the supplier pays for the testing, because no matter who conducts the testing, the costs of doing so are ultimately borne by consumers. When I say “suppliers pay for testing,” what I actually mean is “suppliers remit payment to labs.”

For quite some time, the problem of “lab shopping” — suppliers finding labs willing to generate inaccurate results, either higher-than-actual levels of tetrahydrocannabinol (THC) or lower-than-actual levels of pesticides, mold, or other toxins — has been identified and discussed in the industry. The problem of lab shopping could potentially be resolved by (somehow) determining which labs were producing inaccurate results and sanctioning or shutting down those labs. In this case, the basic testing framework, that is, the process described above, could potentially be retained.

However, an additional, more insidious, new problem has been identified, as Trent Hancock, legacy business owner and cultivator, explains it: suppliers are sending clean and/or high THC samples to labs for testing, while selling other inferior products under those lab tests (for example, they’re switching out products) (see Figure 2, [1] and [2]). This new problem is worse, because it doesn’t require corrupt labs to participate in the fraud, like the lab shopping problem does. Rather, it can be accomplished using unwitting labs who are generating accurate testing results on decoy or stand-in products.

Unfortunately, trying to address the problem of intentional misrepresentation of the quality of cannabis products by suppliers won’t be solved by using methods that still keep the suppliers in the loop of the lab testing process. That is, the problem won’t be solved using such methods as:

• Mandating suppliers test their products using several independent labs
• Assigning suppliers to labs or randomizing labs
• Using state-run testing labs

With any of these methods, suppliers will still be able to switch out products. The only way to resolve both problems of lab shopping and product switching is to reconfigure the testing process — or at least parts of the process — to take suppliers out of the loop. That is, products must be tested after they leave the control of the suppliers and before they are sold to consumers (see Figure 2, [3]).

Who Should Conduct Product Testing?

This leaves product testing to be conducted either by distributors and/or by dispensaries.

There are two separate sets of information provided by labs when they test cannabis products. The first set of information is the profile of cannabinoids and terpenes contained in the products. Consumers use this information to help them understand the type of health and/or mood effects that products might be expected to generate. The second set of information provided by lab testing is the amount, if any, of contaminants contained in the products. Consumers use this this information to establish that the products aren’t toxic. Products must be labeled with cannabinoid (and in some states) terpene profiles. Tested products are assumed to be non-toxic; labeling products as such is not required.

Given all this, we are left with two potential alternatives:

1. Suppliers aren’t required to conduct product testing. Rather, dispensaries (or distributors) are charged with conducting product testing and labeling products with substance profiles.
2. Suppliers conduct product testing and label products with substance profiles, and dispensaries conduct spot checks to verify the accuracy of suppliers’ tests.

Holding dispensaries responsible for suppliers’ product testing and labeling is not practical, and it would create undesirable outcomes. For example, dispensaries would generally decrease the number of suppliers whose products they chose to stock, which would make it even more difficult for small suppliers to get onto dispensary shelves. Many dispensaries would also integrate backward into supply (many are already integrated), which would increase barriers to entry, increase industry concentration, and make it more difficult for small dispensaries and/or suppliers to compete.

The other alternative is to have suppliers continue to test and label their products but have additional spot checks conducted of products by dispensaries. What would this look like? Hancock suggested using METRC to randomly select products for spot testing. This option frees up dispensaries from having to decide which products to test.

Who Should Conduct Spot Tests?

So, then, who should be responsible for conducting spot checks? One alternative is to have states build and operate “reference labs” themselves to conduct the spot checks. Yet, many in the industry have remarked that this is not a good idea. Constructing government-run labs tends to take much longer and cost much more than privately-run labs. Furthermore, without the profit motive that incentivizes privately-run labs to maximize output, that is, run as many tests as possible, state-run labs would have little incentive to keep up with the demands of the industry. This would likely result in a backlog of tests, which would hold up product sales.

A better alternative is for states to assign licensed labs – different labs from those who conducted the original product testing – to conduct the spot checks.

How Should Spot Tests Be Funded?

These lab tests could be funded from cannabis tax revenue. Since current tax revenue has already been allocated, this would presumably require imposing an additional tax on retail cannabis sales to customers. At the same time, as Hancock suggests, the spot checks could be coupled with increases in batch size limits on suppliers’ product testing, that is, soften the original testing requirement. This would lower first-round testing costs to help offset the cost of the spot checks.

Furthermore, suppliers whose spot checks fail to match original test results could be forced to pay for the spot tests. Moreover, suppliers whose spot checks fail to match their original test results could be forced to pay for additional spot checks of their current and future products. More specifically, they could be required to re-test a larger variety of their current products at their expense, and also be forced to re-test all future batches of their products at their expense for a limited period of time. This would create large disincentives for suppliers to provide test results that misrepresent their products.

Systems of rules and regulations are generally defined to help participants achieve better social outcomes. However, when participants are only interested in serving their own ends instead of having a well-functioning market — even if it comes at the expense of others — then a simple regulatory framework will not necessarily work. This is the situation we currently face in cannabis. In this case, we need a more complex system that will make it more difficult and more costly for participants who are trying to subvert the system. A two-tiered testing system, with initial tests managed by suppliers and additional spot-checks managed by dispensaries, will make it more costly for suppliers to misrepresent products as having higher-than-actual levels of THC or lower-than-actual levels of contaminants.

About the Author

Ruth Fisher, PhD, is a systems design researcher and analyst. She analyzes markets to determine how environments shape outcomes. She is Co-Founder of CannDynamics, and author of The Medical Cannabis Primer and of Winning the Hardware-Software Game: Using Game Theory to Optimize the Pace of New Technology Adoption. Dr. Fisher has worked in the technology, healthcare, and cannabis sectors on behalf of technology.

How to Cite this Article

Fisher, R., A Better Cannabis Product Testing System, Cannabis Science and Technology, 2024, 7(5), 34-37.