Cannabis Labs Carry on Testing, But Covid-19-disruptions Loom Large
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While many companies have suffered an economic hit from the coronavirus (Covid-19) pandemic, the labs that test cannabis products for impurities and potencies are reporting a steady stream of business.
As the labs perform the bulk of the sector’s safety compliance, their continued work will be paramount to the welfare of consumers and patients throughout the pandemic period.
But, as global economic uncertainty persists, many labs are reportedly preparing for a loss of revenue over the coming months.
Although cannabis retail outlets across the US and Canada recently saw a surge in cannabis sales – mainly attributed to coronavirus-related stockpiling – the cannabis testing sector hasn’t felt the same spike in demand.
“Most labs appear to be operating at what would be considered a normal capacity,” Swetha Kaul, vice president of the board of directors at the California Cannabis Industry Association, tells Analytical Cannabis. “There does not appear to be a dramatic surge in testing but there has not been a dip either.”
“Our clients, when they get a kick in demand like they did last week, they just make a [slightly] bigger batch size,” Aaron Riley, president of CannaSafe, a Los Angeles-based cannabis testing lab, tells Analytical Cannabis. “So we’ve been pretty stable through this.”
But while Covid-19 may not have impacted the labs’ revenues, the virus has still forced many testing facilities to change their daily operations.
“We made a ton of sanitizer,” Riley continues. “We made a sterilizing solution and we’ve just been completely over-compulsive about cleaning – every surface, every keyboard, every doorknob. We balanced out our shifts, so that people aren’t on top of each other [and can stand] six feet apart to be respectful of social distancing.”
“Many businesses have taken measures to limit the number of employees required to be on site and try to clean and decontaminate as often as possible,” Kaul concurs.
But, as workplaces reliant on cumbersome equipment, cannabis labs can only adapt so much to social-distancing restrictions; working from home is not an option for everybody.
“In production environments such as manufacturing and labs, it is difficult to work remotely as there are instruments and equipment that need to be operated and monitored on an ongoing basis,” Kaul adds. “Remote data review is a possibility in some instances, but data analysts have to remain in close communication with lab staff as the quality system and maintenance of instruments is so interconnected with data quality.”
Trouble on the horizon
Prior to the coronavirus pandemic, many large cannabis businesses in North America were struggling to meet their own financial expectations. Within the first few months of the year, cannabis giants such as Canopy Growth, MedMen Enterprises, and Tilray Inc. all announced mass layoffs.
Now, as Covid-19 continues to destabilize the global economy, many cannabis industry experts are anticipating another financial hit.
“As for the cannabis industry itself, it was already experiencing an extremely tumultuous period before Covid hit,” Akwasi Owusu-Bempah, an assistant professor of criminology at the University of Toronto, tells Analytical Cannabis. “As anyone who has been tracking the markets knows, the value of most listed companies declined dramatically throughout the end of 2019 and into 2020. Companies were having trouble reaching their earnings targets, raising capital, and many had been laying off workers.”
“I have no doubt that the damage done to the broader economy by the Covid crisis will have a dramatic impact on the nascent cannabis industry,” he continues. “We will no doubt see a number of bankruptcies in the coming months and perhaps some mergers. It will certainly be a tough time for many – not only the growers and distributors, but also for the ancillary businesses.”
Fortunately, the untapped capacities of some marijuana labs could keep them from becoming another cannabis casualty.
“It does not appear as though labs that are responsible for the bulk of compliance testing are in any danger of shutting down,” Swetha Kaul says. “Labs that may have been struggling already will have an uphill battle similar to many in the industry. But something to keep in mind is that most labs appear to have capacity to take on more testing than they currently perform since the legal cannabis market has had such limited growth.”
“Although there might be labs that fall victim to a difficult economic year, there should not be an immediate impact on compliance testing.”
That reassurance aside, Kaul warns that cannabis labs shouldn’t become complacent. For those operating in California, the state’s licensing rules could still cost labs much needed revenue.
“An additional issue to consider is that many labs that had provisional licenses are due for annual licensing over the last month and through this year, which means that they have to ensure they are ISO accredited, pay a steep licensing fee, and go through [California’s Bureau of Cannabis Control] on their validation packages,” she adds. “It is difficult to predict how the state will handle this issue in light of Covid-19, which could mean some uncertainty for labs that are between licenses.”