Testing Costs Account for 10% of Legal Cannabis Prices in California, Study Finds
Cannabis safety tests cost growers about 10 percent of the average wholesale price of legal cannabis in California, a study has estimated.
Published in PLOS ONE, the paper also found that the cost of destroying cannabis that fails such tests makes up the biggest share of this testing expense.
West coast, test coast
Just over two years into its legality, California’s recreational cannabis market has the most stringent testing laws of any US state. Before any pre-roll or edible can be sold in a dispensary, a sample must be tested for more than 100 contaminants at tolerance levels often far lower than passible levels for other agricultural products.
“In California, our levels of pesticides and heavy metals make some of the cannabis we’re testing safer than fruits, vegetables, and even baby food,” Swetha Kaul, vice president of the board of directors at the California Cannabis Industry Association, told Analytical Cannabis last October.
But more testing means more costs for the producer, as the new study details.
“Testing itself is costly,” Dan Sumner, professor of agricultural economics at University of California, Davis, and the study’s author, said in a statement. “But growers have to destroy the product that doesn't pass the test and that is where the biggest losses occur.”
After interviewing several cannabis analysts and sifting through publicly available data, Sumner and his colleagues ran 1,000 simulations to estimate the cost of testing a typical batch of dried cannabis flower from each of the 49 licensed cannabis labs in California.
Once they accounted the cost of re-testing and destroying failed batches, the researchers estimated the average testing cost to be $136 per pound of dried cannabis flower, which is about 10 percent of the average wholesale price of legal cannabis in the state.
And these high testing expenses aren’t just costly for the cannabis producers, but for the cannabis consumers, too.
“Higher testing costs translate into higher prices in the licensed segment,” Sumner and his colleagues wrote in their study’s conclusion.
“Safety regulations and testing may improve the perceived safety and quality of cannabis in the licensed segment, thus adding value for some consumers. However, price-sensitive consumers move to the unlicensed segment when licensed cannabis gets too expensive.”
High prices, high cost
When trying to establish a legal cannabis market, the balance between costs and prices has been delicate issue. High expenses and taxes can bump up the retail prices of products. And many in the industry think that these prices are driving consumers to the cheaper illicit market.
“The biggest problem that we're experiencing California is the black market,” Aaron Riley, president of CannaSafe, a Los Angeles-based cannabis testing lab, told Analytical Cannabis earlier this month.
Partly due to a lack of retail outlets across the state, it’s estimated that $8.7 billion of the total $12 billion made in California cannabis sales in 2019 went to the illegal market.
To bring customers over to the legal side, Riley and other industry experts have advocated for cost reductions from the state.
“The enforcement and compliance situation is going to be more impactful to this industry” Riley said. “If they gave out more licences and reduced taxes, I think that we would see a kick [in sales].”
But as California only just hiked its marijuana tax on January 1 this year – and the costs of testing remain an unavoidable factor – the expenses of producing legal cannabis look set to stay high.
“No one wants a policy shift away from testing cannabis,” Sumner said in a statement. “But for price-sensitive consumers, the alternative is an illegal market. That means they consume a product with no testing at all.”