- Colorado implements new testing requirements, costly for growers
- Growers aren’t able to take federal tax deductions in exchange for the high cost of compliance
- Michigan growers should expect a similar future
We have all seen the news, wholesale prices are dropping around the country, established markets are watching profits get squeezed to nothing, and illegal exports crossing state lines are at an all time high.
Colorado cultivators are in the same situation, their margins continue to fall with a growing number of producers and an already oversupplied market. Wholesale prices have dropped significantly in the past year, putting serious financial strain on growers.
Adding to the pressure, the Colorado Marijuana Enforcement Division is now requiring pesticide testing for marijuana flower and trim, which costs about $100 per strain. California recently enacted similar requirements, forcing operators to dispose of any product that didn’t meet new testing regulations.
In an interview with Marijuana Business Daily, Colorado grow owner and operator Tim Cullen said the new process costs his business $5,000 per week. Businesses must submit to testing for each strain over a 6 week period, which can be incredibly expensive. These new costs may lead to less diversity in number of strains, as the cost of testing is on a per strain basis.
Cullen noted, “It’s not like you can charge any more for the same product. You’re just paying more (to produce the product).” This new cost is diminishing the already low profits for growers all over Colorado.
Here is the full list of pesticides now tested for in Colorado:
- Abamectin (Avermectin B1 &B2)
- Spinosad A&D
What Does this Mean for Michigan Marijuana?
We are not yet seeing a drastic oversupply here in Michigan, but that will likely change as the market matures and businesses begin to operate.
LARA has already has an extensive list of testing requirements including both pesticide testing and heavy metals, but it is still very likely we will see more regulations implemented to follow suit with the western states. The testing regulations currently existing in Michigan are as follows:
- Moisture content.
- Potency analysis.
- Tetrahydrocannabinol level.
- Tetrahydrocannabinol acid level.
- Cannabidiol and cannabidiol acid levels.
- Foreign matter inspection.
- Microbial and mycotoxin screening.
- Chemical residue.
- Metals screening.
- Residual solvents levels.
- Terpene analysis.
- Water activity content.
With Michigan’s maturing medical marijuana market and the probable inception of a recreational market, growers are likely experience the diminishing profits down the road. This will then lead to the financial struggles seen for cultivators in Colorado and create a “survival of the fittest” scenario.
The True Problem
The true problem is not the cost. Pesticide testing is imperative for the quality of product and the health of both medical and recreational industry. The true problem lies within federal tax law, and the fact that marijuana is still a controlled substance at the federal level. Because of this disparity between state and federal law, growers cannot take tax cuts at the federal level like traditional businesses. In any other industry, these tax deductions would make up for the high cost of compliance.
As the cannabis industry is growing, new regulations will continue to be implemented and costs for growers will continue to rise. In fact, Colorado’s marijuana enforcement division is expected to add more required testing in the coming year, including tests for heavy metals. The high cost of compliance for growers isn’t going anywhere, which means the only viable solution will come with federal legalization. Until growers are able to take federal tax deductions for their compliance, profits will be slim.