California cannabis growers are struggling to profit in the legal recreational cannabis market. While the value of cannabis flower has trended down to $700 to $1,100 per pound, the costs of operation and production remain. While high taxes are frequently cited as one of the main drivers burdening California cannabis growers, it is worth considering additional factors.
In order to sell recreational cannabis to dispensaries, the product must undergo laboratory testing. Cannabis flower needs to be tested for things like cannabinoid potency, pesticides, mycotoxins, microbial impurities, and heavy metals. The paper “Costs of cannabis testing compliance: Assessing mandatory testing in the California cannabis market” examines the costs that cannabis producers incur for regulatory testing. [1] The authors report an estimated weighted average of the cost per sample and translate that value into the cost per pound of cannabis that reaches the market.
The Average Cost of California Cannabis Testing
The cost of testing cannabis can be difficult to pin down. The authors identified factors such as laboratory size and cannabis batch size that influence pricing. They note, “Testing cost per pound of cannabis marketed is particularly sensitive to batch size, especially for batch sizes under 10 pounds.” The maximum batch size in California is fifty pounds, however many batches tested are under fifteen pounds. For the purposes of their study, the research team assumed a batch size of eight pounds. They report the average full cost per sample tested is about $313 for large labs, $537 for medium labs, and about $778 for small labs. This translates into an average cost of lab testing of $136 per pound of dried cannabis marketed, which the authors report as roughly 10% of the average wholesale price of California cannabis. This sum was determined using a 4% rejection rate and a batch size of eight pounds. Larger batch sizes, such as 24 or 48 pounds, can drive the cost per marketed pound to approximately $81 and $68, respectively.
Maximizing Profits with Cannabis Remediation
This study was published in 2020, and utilized data as far back as 2018. It is important to bear this in mind because costs and prices in the cannabis market can change rapidly and fluctuate widely. While the team reports higher costs of testing for smaller laboratories, it is worth noting that smaller laboratories may be more willing to adjust their pricing to acquire new business.
The main point that the researchers truly aim to argue is that growers can save a lot of money if remediation steps can be taken to avoid destroying batches that fail testing. They explain, “The share of laboratory cost from total cost decreases as the rejection rate increases and the value of lost inventory therefore increases. Under an 8% expected rejection rate, the share of lost inventory is half of the total cost for eight-pound batches.” While cannabis compliance testing is expensive, the losses of destroying a batch are much more severe. California has very strict low to zero pesticide tolerance levels that are the main cause of testing failures.
References
[1] Valdes-Donoso P, Sumner DA, Goldstein R. Costs of cannabis testing compliance: Assessing mandatory testing in the California cannabis market. PLoS One. 2020;15(4):e0232041. Published 2020 Apr 23. doi:10.1371/journal.pone.0232041 [journal impact factor = ; times cited = ]
Image: https://pixabay.com/photos/laboratory-medical-medicine-hand-3827738/ by Belova59 via Pixabay
