Last Friday, the Oregonian published a nice piece by Noelle Crombie about the potential shortage of marijuana testing labs. As a law firm that represents a great number of cannabis growers, we have been monitoring this situation for quite some time. In fact, we have suggested that if you want a nice angle on the local industry, a lab just might be a great place to start. This is partly because the next lab applicant will be only number 9, as compared to 774 recreational producers applicants to date.
The administrative rules specific to lab testing became final last month, and Oregon Liquor Control Commission (OLCC) has been clear that no product will flow through to retail unless that product has been tested and comes up clean. This means that labs will serve captive customers and that lab revenues may be strongly correlated to operational efficiencies, rather than market opportunity. It also goes without saying that with very few labs, the industry could become bottlenecked.
We can think of a few primary reasons people are not applying for the OLCC lab license. First, testing marijuana is simply not as exciting, or even interesting, to most people as growing it. Second, unlike growing marijuana, almost no one has any experience or proven expertise in running a pot testing lab. Third, the road to becoming an OLCC licensed lab is long (though not fraught with peril). And fourth, due to the need for specialized equipment and experienced staff, start-up costs may be higher than in other industry business lines.
As to the process for acquiring a lab license, applicants must first become accredited by the Oregon Environmental Laboratory Accreditation Program (ORELAP), which qualifies state labs for a variety of testing programs, such as the Clean Air Act and Clean Water Act. According to the ORELAP cannabis accreditation website, the “accreditation process takes several months” and for this reason, ORELAP “strongly recommends that laboratories… apply as soon as possible.” Once accredited, a lab must also clear the OLCC application process, which itself takes time (although our guess is that OLCC will hustle on lab applications). The OLCC license cost is $5,000.
While the start-up costs and accreditation processes for labs are not to be taken lightly, this business line appears underexploited at present. And while administrative licensing and start-up costs may seem like high hurdles, the reality is that we have helped many, many clients navigate an evolving thicket of state and local rules for cannabis related activities; and we have aided many others in raising millions of dollars to fund their marijuana start-ups. Certainly, the lab trade is within reach.
So here’s hoping that the supply demand curve rights itself with labs. It seems that anyone who takes this industry approach has a chance to do well.