SC Labs Discusses Lab Shopping and Inter-State Expansions

The 2022 California State Fair kicked off this month, on July 15, under the glorious Sacramento sun. As usual, the event was packed full of competitions and award ceremonies for the best of Californian produce. There were prizes for the best wine, olive oil, craft beer, and… cannabis.

Yes, for the first time in the fair’s history, dozens of medals were up for grabs for the cannabis varieties with the best cannabinoid and terpene profiles.

How were the winning products judged? With a little help from SC Labs, the official testing partner of the awards. Analytical Cannabis caught up with the lab’s co-founders Jeff Gray and Josh Wurzer earlier this year to learn more about this testing process.

Since then, the lab has expanded far beyond the west coast (it has a lab in Oregon as well as California). In February, it announced it had entered into a partnership with Colorado-based cannabis and hemp labs Agricor and Botanacor. And just this month, it announced it had acquired the Michigan lab Can-Lab, bringing a fourth state under its reach.

It’s a bold move for a cannabis lab to take, at a time when many labs are closing due to the pressures of the industry and the nefarious practice of lab shopping (when cannabis companies “shop” a cannabis product around different labs until one provides them with the test results they’re after).

So what’s behind SC Labs’ success? How is it braving new frontiers when other labs are struggling with the one location? We asked the company’s new CEO, Jeff Journey, and co-founder Josh Wurzer to find out.

Leo Bear-McGuinness (LBM): Why did you decide to embark on these recent Colorado and Michigan expansions? And what will it bring to the business?

Jeff Journey (JJ): Well, as a privately owned organization, we are constantly on the lookout for opportunities to expand our network across the US. And we think having a national testing network brings a lot of value to our customers, for both hemp and cannabis, so that they can access a broader range of testing resources and improved data delivery. [We’re] really pushing forward on innovation and science, as we understand this very complex organism.

And I think it’s just a great value proposition for the industry overall. [We’re] focusing on consumer safety, first and foremost, and ensuring that in the industry. So we believe having that mass, that critical scale, across different markets – in this case, different states – is extremely important for us to be able to offer that to our customers.

Josh Wurzer (JW): I’m really excited [about the expansions]. Moving into different markets certainly gives us the ability to approach some of these problems from a different angle. Each one of these markets in the United States is slightly different due to their own unique regulations; no two states are doing it exactly the same [way]. So, while that can be challenging, I think it’s a lot of fun, as a scientist, to try and develop our methods to be as robust as possible, [to the point] where they’re applicable across different markets. And, like Jeff mentioned, I think our customers will really appreciate it because they can work with one laboratory and they’re going to have consistent results across different markets, which is really lacking in this industry because of the different requirements for the different states. And our customers that do operate multiple states have to navigate their quality control specifications across multiple laboratories with different methods. Certainly, you’re going to get similar results, but there’s always some sort of inconsistency when you’re testing – trying to do the same assays across multiple different labs using different performance requirements. So hopefully we can alleviate that for our customers.

LBM: But while all this interstate expansion is happening, SC Labs is still primarily based in California, isn’t it? How are you managing the challenges of that state, such as lab shopping, on top of your new commitments?

JJ: Yes, we still see this today with lab shopping – customers, in some cases, seeking results to be guaranteed. And there are ramifications for that in the long term. At least for SC labs, we will always comply with our methods that are approved; we will not bow to market pressures to compromise at all. And that might hurt us in the short term. It does; we lose business. I think that’s just the reality of our market today. But I think, in the long term, our belief is that the good guys will win, those that are ethical, those that can be trusted with results, that are consistent with the methods that they have approved. I think it’ll sift out in the end, and we’re seeing this in different markets as well. Michigan [for example], their regulatory and compliance is strong. So, we’re seeing some very specific actions in Michigan and other areas in Colorado, as well. When labs are caught doing the wrong thing, then there’s a ramification for that in the market. Maybe not as much as we would like. But I think in the short term, it will likely continue until there’s more enforcement of standards and requirements.

JW: [Lab shopping’s] a big problem. [And] not just in California; it is in multiple different markets and there’s no silver bullet to solve that problem; it’s going to take cooperation from the industry, both the lab testing industry as well as the broader cannabis industry and regulators to try and rein in some of some of these issues we’ve seen in the testing industry. And so, yeah, I don’t know what the answer is. In all cases, I think it’s different for different types of customers. Certainly, our infused product customers aren’t as big of an issue; they’re more looking for the accurate results. Whereas with inhalable products, you still have this extreme pressure to turn on high THC results, because that’s how a lot of these products are valued. And so it’s an ongoing process.

You’ve got the state of California that has a standardized method that they’re releasing and are going to force the laboratories to use to try and rein in some of the THC inflation. But that’s bringing a whole host of problems. It’s not ready for primetime; all the labs have come out against it, and it doesn’t really stop the inflation problem. So, there’s things that people are trying that may not work. I think the long-term solution is to highlight some of these other compounds in cannabis. And we’ve talked about this in the past, like terpenes that really are the quantitative quality indicators and really do demonstrate whether or not cannabis is going to taste tastes good. But there’s no silver bullet; it’s a long slog. I think it starts with educating the consumer on some of this stuff, rather than passing a bunch of new regulations that require labs to test everything the same way.

LBM: At least in the meantime, you’re set up in Colorado and Michigan, which – as you say, Jeff – appear to reprimand bad actors a bit more readily.

JJ: Yes, I think that’s part of our financial strength, and just being able to diversify our business across markets. The dynamic of each state, operating relatively independently from a regulatory perspective, [that] is something we keep on top of as we have various market implications in those states. Having a broader portfolio, diversified across different labs in different states certainly helps us to weather any short-term impact of changes or dynamics in any particular state. And again, what that provides to our customers is that stability, that [idea that] we’re going be here for the long haul, and that’s not always true with labs that are smaller or that compromise or don’t operate in multiple states. We’re going be the consistent partner for them.

JW: [When it comes to] lab shopping, Michigan and the way they’re regulating their laboratory industry is the best model I’ve seen so far. It definitely bears mentioning that they seem to have the best handle on [things]. What they do in Michigan is the regulator’s audit; they’ll audit a laboratory if they notice that the laboratory has a much higher pass rate, statistically speaking, than their peers. There is some sort of investigation. What the regulators will do is they’ll go pull samples off the shelves, send them to all the other laboratories, and do a test. Sometimes you do have little anomalies in the data, but, in general, it leads them to places where there’s room for improvement. They don’t come right in and shut down the laboratories, they’ll go and they’ll investigate and develop a corrective action plan with that laboratory and fix the problem. It’s the most proactive kind of response to the potency inflation issue that I’ve seen in any of the states. I’m really excited to work there because it seems like, of all the places, it’s the most level playing ground. And so there are examples of states that are getting it right.

SC Labs’ CEO, Jeff Journey, and co-founder, Josh Wurzer, were speaking to Leo Bear-McGuinness. Questions and responses have been edited for clarity.

*Update: This article was updated on August 1, 2022. An earlier version omitted that SC Labs has a lab facility in the state of Oregon in addition to its main headquarters in California.