In today’s depressed cannabis market, where price compression has become a sobering reality, growers seek competitive advantages wherever they can find them. And as consumers continue to associate high THC levels with quality, licensees have felt little choice but to hunt for cannabis testing labs that will report elevated THC in their products, leading to THC potency inflation.
A number of factors contribute toward the cannabis lab-shopping trend, but misaligned incentives rest at the heart of the issue. A higher-potency product — whether accurately labeled or not — equals more money for retailers, who know they can inflate prices for “stronger” products.
Unfortunately, inaccurate testing (and thus, inaccurate downstream labeling) leads to few consequences, because states rarely audit samples after they have been tested by a state-licensed lab. While potency inflation is a real problem, it should serve as a warning of a much larger issue: fraud and/or ineptitude on an enormous scale. A recent lawsuit prompted by medical cannabis patients exposed to incorrectly labeled products in Arkansas illustrates the depth of the problem. Three patients filed a class action against three Arkansas-licensed growers and a testing laboratory, alleging inflated THC percentages in flower.
Industry insiders claim to know what adult-use and medical cannabis patients want. But does high THC truly represent their desires, or is that simply the lowest hanging fruit for marketing cannabis products? It is becoming increasingly clear that the level of THC is only one component of how cannabis affects the body, and what consumers can expect from their cannabis intake.
The Hub of the Industry
Cannabis testing labs are the link between legal retail markets and state governments. But without oversight and enforcement from governments, issues like THC inflation and fraud can emerge and destroy the industry’s integrity, eroding consumer trust.
Until recently, testing has largely been an overlooked subsector of the industry. It is certainly not the sexiest part of the industry, but it is a required step in all states with a regulatory program. Without federal oversight, though, it is not possible to set universal standards nationwide.
In a perfect world, consumers would reap the benefits of a market where labs are competing based on price, turnaround time, customer service, transparency, subject matter knowledge and experience — but not based on who is delivering “favorable” results.
Beyond Potency Inflation
Potency inflation is the first and easiest problem to spot for regulators. It is also evidence of greater problems: How are these labs run and regulated internally? How does the lab operate at a fundamental level? Is the lab even playing by the rules? Does the lab even know how to play by the rules?
The misaligned incentive structures set up unintentionally by the states, have had a significant influence on unethical behavior. But why is the incentive structure so fraught and how might that misalignment be rectified?
With the bottom dropping out of the market all across the country, including in Michigan and California, and the high number of poorly trained players in the lab space, it’s no surprise that some labs are willing to compromise their integrity by inflating potency, in the face of declining revenues. And as news leaks out about the THC inflation phenomenon, why would any logical consumer trust retailers and continue to shop within the legal market?
If labs continue to enable inaccurately high potency labeling on products, consumers will lose confidence in the regulated market. There are too many options in illicit markets that offer high-quality flower at competitive prices.
What can be done?
There are a few things that can be done to help rectify the safety issues presented by potency inflation, lab shopping and subsequent inaccurate labeling.
Consumers deserve total transparency in the testing data. Neutral third-party data scientists — without any direct or indirect interest in the outcome of a “pass” or “fail” — must be able to scrutinize the wide data set and draw their own conclusions. States should also have an independent, third-party lab (commonly referred to as a “reference lab”) to help run audits, interlab comparisons and serve as an arbiter of truth when testing data between various labs is in conflict. Finally — and perhaps most importantly — states must take swift and decisive enforcement actions against labs that disseminate false data, whether by fraud or ineptitude. A lab in Nevada, for example, is currently facing a loss of license and 10-year industry suspension for potency inflation.
Transparency between labs, along with regular auditing of labs by state regulators to inspect data for inaccuracies and inconsistencies, and an investment by state agencies in hiring experienced data scientists, will remove incentives that lead to potency inflation, and in turn increase consumer confidence in the regulated market.
If the regulators make these investments so they know what to look for, the cannabis industry can operate like the pharmaceutical, agriculture and food industries.