Tag Archives: California

Introducing the Cannabis Quality Conference & Expo

By Aaron G. Biros
1 Comment

An educational and networking event for cannabis safety and quality solutions: Innovative Publishing and Cannabis Industry Journal are pleased to present the first annual Cannabis Quality Conference & Expo (CQC). The conference will take place October 1-3, 2019, hosted at the Renaissance Schaumburg Convention Center in Schaumburg, Illinois.

The inaugural CQC will consist of two separate tracks: The Cannabis Labs track, focused on all things cannabis lab testing, and the Cannabis Quality track, focusing on quality in cannabis product manufacturing.

Sharing an exhibit hall and meeting spaces right alongside the Food Safety Consortium Conference & Expo, the CQC allows cannabis professionals to interact with senior level food quality and safety professionals, as well as regulators. Visit with exhibitors to learn about cutting-edge solutions, explore two high-level educational tracks for learning valuable industry trends, and network with industry executives to find solutions to improve quality, efficiency and cost effectiveness in a quickly evolving cannabis marketplace.

The CQC will be hosted at the Renaissance Schaumburg Convention Center in Illinois (just outside of Chicago)

With the cannabis industry in the Midwest growing at a rapid pace, the CQC offers attendees, exhibitors and sponsors unparalleled access to explore these emerging markets, their regulations, opportunities for business growth and best practices from the more established food industry.

For information on speaking opportunities and to submit an abstract, click here to view the Call for Proposals. The CQC will be accepting abstracts for consideration until June 3, 2019. For information on exhibiting, as well as additional sponsorship opportunities, contact RJ Palermo, Sales Director, rj@innovativepublishing.net, (203) 667-2212.

Take advantage of this chance to connect with cannabis industry and food safety professionals in the Greater Chicago Area. Don’t miss this opportunity to network with hundreds of industry stakeholders, get the latest on regulatory developments and see the newest technology disrupting the cannabis space.

Taxes & Cannabis: 280E, R&D Credits, 199A & Qualified Opportunity Funds: Part 1

By Zachary Gordon, Jason Hoffman
3 Comments

Editor’s Note: This is the first piece in a two-part series delving into tax issues. Part one discusses tax code 280E as it pertains to cannabis businesses. Part two will go into research and development credits, 199A and a discussion of risk as it relates to Qualified Opportunity Zones. Stay tuned for Part two coming next week!

When building a knowledge base in the cannabis industry as a CPA, one’s tax research typically starts with Internal Revenue Code (IRC) Section 280E. For those that are unfamiliar, 280E is only three lines long. With this in mind, we at Janover realized that we needed to understand the context for this highly influential tax section.

The genesis of 280E dates back to 1981 with a Tax Court case: Jeffrey Edmonson v. Commissioner. The decision in this case was that a seller of cocaine, amphetamines and cannabis could deduct most business expenses, cost of goods sold, packaging, home, phone and automobile expenses relating to the seller’s illegal business.

In 1982, 280E was enacted to reverse the Edmonson decision and deny sellers of Schedule 1 or 2 controlled substances the right to deduct business expenses. Under the Controlled Substances Act, the federal government defined Schedule 1 drugs as drugs that have no currently acceptable medical use and a high potential for abuse. Since cannabis is classified as a Schedule 1 drug, cannabis businesses were unable to deduct most business expenses.

To get a better understanding of what the legislators were trying to accomplish, House and Senate reports provided insight into what their goals might have been. Under the Explanation of Provision, the Senate Report reads:

All deductions and credits for amounts paid or incurred in the illegal trafficking in drugs listed in the Controlled Substances Act are disallowed. To preclude possible challenges on constitutional grounds, the adjustment to gross receipts with respect to effective costs of goods sold is not affected by this provision of the bill.

As the Senate Report explanation provides, 280E specifically excluded cost of goods sold (COGS) from the disallowance of deductions. This treatment was affirmed by the Tax Court in 2012 in Olive v. Commissioner (139 T.C. 19 2012).

To date, there are not many cases that have dealt with the tax issues of 280E. In a 2007 decision involving Californians Helping to Alleviate Medical Problems (CHAMP), the Tax Court ruled that a taxpayer may deduct expenses allocable to an affiliated business that was separate from the entity “trafficking in a controlled substance.” In CHAMP, the legal caregiving business, which was a separate business, was able to deduct the allocated portion of shared expenses. This set a legal precedent that allowed a taxpayer engaged in the selling of a Schedule 1 or 2 controlled substance to distinguish expenses incurred on behalf of other non-prohibited business lines and deduct these expenses.

In addition to these court cases, tax professionals can rely on IRS Chief Counsel Memorandum CCA 201504011. The IRS Chief Counsel released this memorandum in January 2015 in order to respond to questions the IRS was receiving from practitioners.

Although Chief Counsel Memoranda, in general, may not be cited by taxpayers as precedent, this memorandum is the current and best authority outlining the IRS’s position with respect to the extent to which a cannabis business may deduct business expenses. The memorandum also refers to IRC Section 162, ordinary and necessary business expenses that would be disallowed, as well as separately identifying certain direct and indirect business expenses that would be allowed. Citing methods in Treas. Reg. 1.471, the memorandum states that a cannabis producer may allocate to inventory and COGS direct production costs, including direct material costs (Cannabis seeds or plants), direct labor costs (e.g., planting, cultivating, harvesting, sorting, etc.), and transportation or other costs to acquire of the cannabis. It also indicates certain indirect costs that may be taken as COGS.

As the industry continues to mature, more cases are finding their way to the Tax Court. On June 13, 2018, the Tax Court issued a ruling in Alterman v. Commissioner that specifically disallowed the use of 263A under 280E and applied only Section 471 to determine COGS. While we need to follow the facts and circumstances of each case, the broad language used might very well disallow capitalizing of inventoriable costs for companies subject to 280E.

IRC Section 471 is the general rule for inventory accounting for tax. IRC Section 263A is the uniform capitalization rules for tax. Most businesses need to utilize both 471 and 263A when accounting for inventory and to properly capitalize costs into COGS.This opinion may have lasting effects on the part of the industry trying to create brands associated with their cannabis products.

Many resellers and retailers of cannabis thought they could use 263A to capitalize more costs into inventory decreasing their tax burden. The Chief Counsel Memorandum disagreed and more recently the Tax Court in Patients Mutual Assistance Collective Corp v Commissioner sided with the IRS and upheld some of the precedents set in Alterman v. Commissioner. In siding with the IRS, the judge concluded that a taxpayer who is subject to 280E can only deduct costs of goods sold under 471 as the IRC existed when 280E was enacted (in 1982). The taxpayer in the case used two arguments that were not new to the cannabis industry, but to no avail. The first argument was that the business was not trafficking in a controlled substance because the government had abandoned a civil forfeiture action. The second argument that was rejected was that a portion of the business involved branding, marketing and the sales of other non-illegal products. The claimant tried to convince the court that deductions related to these operations should not be subject to the same disallowance of deduction as outlined in 280E.

This second argument is very important for structuring purposes. The court used a significant portion of its opinion to address why the entire business is integrated and completely subjected to 280E. This opinion may have lasting effects on the part of the industry trying to create brands associated with their cannabis products.

This case has even more implications given part of the ruling in which the courts stated that being state licensed in no way effected the Schedule 1 determination at the federal level and, therefore, subjected them to 280E. The judge went so far as to separate the Department of Justice, which enforces the Schedule 1 status of cannabis, and the Department of the Treasury, which has full authority and enforcement rights to treat cannabis as a Schedule 1 drug subject to 280E for income tax purposes. This ruling made it clear that even if the Department of Justice is not pursing criminal charges against state-licensed cannabis businesses the IRS is not precluded from fully enforcing the Internal Revenue Code.

Child-Resistant Packaging Designed for Adults

By Pate Gustafson
9 Comments

As the cannabis industry grows so does the crucial need for child-resistant (CR) packaging solutions. There’s a long list of federal regulations that are required for any cannabis product to ensure that the package is both difficult for children to open, yet easily accessible for adults. This formula can often be difficult; add design into the mix and your packaging solution just got extremely complex.

However, brand image and appeal does not need to be sacrificed over packaging requirements. With the use of print effects, interactive elements, and captivating colors and designs, companies can create the ideal paperboard packaging for cannabis products while staying within federal regulations.

Let’s start with the packaging requirements first.

Child-resistant packaging can look aesthetically pleasing with the right design

CR Packaging Requirements for Cannabis Products

Depending on the state you do business in, your cannabis product is subject to a variety of child-resistant regulations that will keep children safe from potentially harmful materials. These regulations create packaging that is unappealing and inaccessible to children. Key elements of CR packaging for cannabis include:

  • Packaging must have resealable features
  • Packaging must exhibit a clear and detailed information label
  • Packaging must have an opaque appearance
  • Packaging must make product unappealing and unattractive to children

CR compliance requires that packaging undergo rigorous tests. The general concept is for the packaging to be difficult for children under 5 to open, while simultaneously being easy for adults to open and close.

These regulations create an immensely safer product for children. However, these same regulations limit the creative opportunities that normal packaging can provide, making most packaging for cannabis unattractive for adults.

CR Regulations & Packaging Challenges

Although CR regulations for cannabis products are vital to keeping children safe, these regulations cause a lot of roadblocks in the creative department.

Follow these tips to create a high-quality, CR-compliant cannabis carton packaging that the market will love.One of the most significant impacts these regulations have made on cannabis companies is the difficulty to align a brand image with these regulations. Every company has a brand image with which they need to align their entire marketing plan, including packaging designs. Add in strict CR regulations, and it becomes extremely difficult to balance the two.

Another key challenge in this process is structural design limitations. Businesses use inventive and innovative structural designs to help differentiate their products in a growing and crowded market. Cannabis products experience a significant disadvantage here. Cannabis companies must incorporate an opaque appearance and resealable features while also attempting to design a packaging structure that is attractive and eye-catching to consumers.

Designing CR-Compliant Cannabis Packaging that is Appealing to Adults

Although CR requirements make it challenging for companies to inject creativity into packaging designs, innovative solutions in the market do exist. These offer the best of both worlds by meeting the necessary CR guidelines, while maximizing branding, structural elements and print effects.

Incorporate Captivating Colors

Since there are no color restrictions for CR packaging, one of the best ways for a brand to express itself is through color. Companies are free to express themselves to tell a brand story utilizing unique colors in their packaging.

Before choosing a color palette, brands should ensure that packaging designs meet overall branding requirements. Consistency across branding, marketing and other avenues, will make any brand more recognizable and memorable. Colors can also set cannabis products apart from the hundreds of other products.

Smart packaging design can be simple with some good printing effects

Get Creative with Structural Design

Although CR regulations seem extremely restricting structurally, there are plenty of ways to still have a structurally appealing cannabis carton packaging while still in compliance with CR regulations. Just remember that cannabis packaging must be resealable and opaque.

In order to capitalize on your structural design process, experiment with different carton structures. Generally, carton packaging is rectangular or square but there’s ample opportunity for a variety of forms. Experimenting with designs, whether a straight carton or cartons with built-in trays, is an important step in finding the best packaging design that protects, promotes and differentiates the product it holds.

Never Overlook Print Effects & Finishes

Print effects and finishes are often an afterthought for cannabis carton packaging. Print effects and specialty finishes can make all the difference when looking for ways to set any cannabis product apart. The perfect finishing can take an average cannabis carton to the next level. Popular print effects include:

EmbossingJust because you have to stay aligned with CR regulations doesn’t mean that packaging should be plain and unattractive. 

Embossing is the art of incorporating a raised image, design, or pretty much any textural component in a packaging’s design. The process of embossing allows for artwork and specific elements to stand out against the background of the paperboard material.

Debossing

Debossing, as its name implies, is the opposite of embossing. Instead of creating a raised pattern, debossing creates a pressed imprint. It’s a great way to create a tactile experience and bring something extra to a packaging design while staying compliant with CR regulations.

Embossing and debossing can be used in conjunction with a variety of foil effects and other print finishing processes.

Making Interactive Experiences

The packaging is only as memorable as the process of opening it. Making packaging memorable requires focusing on creating an experience. Elements such as reveal flaps, tear-aways, doors and more are unique ways to add interactivity to a package design. This is great for increasing engagement and brand loyalty within your target market. Who says adults can’t have fun too?

Just because you have to stay aligned with CR regulations doesn’t mean that packaging should be plain and unattractive. Follow these tips to create a high-quality, CR-compliant cannabis carton packaging that the market will love.

Soapbox

Third-Party Cannabis Safety Audits & How to Prepare in 7 Steps

By Tyler Williams
2 Comments

Unlike the food industry, the cannabis industry is still in its infancy. Which means there is not a push from retailers demanding cannabis farmers, extractors or manufacturers to get third-party audits. In fact, most grow operations supply into their own dispensaries. So why should a cannabis farmer, extractor or manufacturer get a third-party audit? Third-party audits are crucial to maintaining product safety and quality by providing a third set of eyes to verify what is working and what is not. Besides regulatory requirements and customers requiring your facility to get a third-party audit, there are numerous other benefits to receiving an audit. Some of these benefits include:

  • Improvement to product safety
  • Improvement to product quality and consistency
  • Meeting regulatory compliance
  • Eliminating potential risks and possible recalls
  • Marketing advantages over competitors who are not audited by a third-party
  • Improvement to consumer confidence and an increase to brand loyalty

How to Prepare for a Third-Party Audit

Working for a certification body, I am in the unique position to see numerous sites go through the certification process. In this position I have seen both extremes: Sites that spend 6-8 months and a lot of resources preparing for an audit, as well as sites that wait until the day before to even look at the audit standard. Unfortunately, the latter is almost always going to fail the audit. Here are seven steps for preparing for your next third-party audit.“By failing to prepare, you are preparing to fail.”– Benjamin Franklin

  1. Start Preparing Early

Think of your third-party audit as a college exam one month away. You could start studying for the exam now and get a real understanding of the material or you could wait until the day before to start your no-sleep, energy drink-fueled, 24-hour cram session. We all know which preparation method will get a better score on the exam. Now let’s apply that same strategy to your third-party audit. Once you have decided what audit is best for your site and have those specific standards in your hand, the clock starts ticking and you should already be preparing for the audit, whether it is one month or six months away.

  1. Get Management Commitment

It is essential to the entire cannabis safety and quality system to have commitment from top down. Without this, the site will not get the resources (people, equipment, money, time, etc.) they need to pass a third-party audit. Management commitment is so important that it is often seen as its own section in most modern audit standards. It is very easy for third-party auditors to identify when there is a lack of management commitment in a site. Therefore, if you don’t get management commitment, then you are already starting off the audit on a bad note.

  1. Create a To-Do-ListGMP

Think of the entire audit checklist or standard as your long to-do list. Some things, like attaining a certificate of analysis (COA) from a supplier, may only need to be done annually. While other things, such as ensuring employees are following Good Manufacturing Practices (GMPs), will need to be done continuously throughout day to day operations. Go through the audit checklist and separate what needs to be done annually, semiannually, quarterly, monthly and continuously throughout day to day operations. This will give you a list with all of the frequencies of each different requirement.

  1. Teamwork“Teamwork makes the dream work, but a vision becomes a nightmare when the leader has a big dream and a bad team.” – John C. Maxwell

The preparation of an audit should never rest on the shoulders of one person. Yet this is something I tend to see too often in both food and cannabis facilities alike. Your site should establish a cannabis safety and quality team of multidiscipline personnel that have an impact on product safety and quality. Once the team is established, various tasks from the to-do-list can be disbursed among all the members of the team. Collaboration is key to successfully preparing for a third-party audit, especially when the timelines are very stringent.

  1. Training

Training is essential to preparing for your third-party audit. This is what closes the gaps between what the safety and quality department have developed and what your front-line employees are applying. All employees should know what part of the audit standard applies to them. Additionally, employees should be trained on interview questions that the auditor might ask them during the audit. Helping them prepare for these types of questions will help ease their nerves and allow them to answer the questions with self-assurance when it comes time to the actual audit.

  1. Conduct Internal Audits

Conducting internal audits is not only a great way to prepare for your third-party audit, it’s a requirement. You should always use the audit checklist to observe your documents and facility to see where there are gaps. If possible, the person or team conducting the internal audit should never review their own work. Additionally, all issues or non-conformances should be noted, evaluated, corrected and closed out.

  1. Third-Party Pre-Assessment or Mock Audit (Optional)

A third-party pre-assessment or mock audit is the closest thing you can get to an actual audit. This is where a company would come in and evaluate your site to the specific standards and give a formal report over any deficiencies found during the assessment and how to fix them. This is a great way to test your preparedness before the actual audit.

How a Cloud QMS Can Get Cannabis Startups ISO 9001-Certified

By Mike Hansen
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When it comes to compliance for cannabis startups, the ISO 9000 family of standards reigns supreme. Providing the guidelines for the concepts that make up a quality management system (QMS), the ISO family is composed of five standards: ISO 9000, 9001, 9002, 9003 and 9004. Outside of ISO 9001, ISO 9000 is the most important because it creates the foundation that guides all of the other standards.

ISO 9000 is split into two sections: fundamentals and vocabulary. Fundamentals covers the basic principles of quality management and the vocabulary section is a dictionary of quality management terminology. ISO 9000 is crucial because it provides direction on proper QMS implementation that will lead to achieving an ISO 9001 certification.

While the entire ISO 9000 family is focused on quality management systems that aim to help organizations “ensure that their products and services consistently meet customer’s requirements and that quality is consistently improved,” ISO 9001 is the only standard that lists actual requirements and requires certification.Cloud-based quality management software provides the flexibility and scalability, that cannabis startups need to comply with ISO 9001

Quality Management Systems (QMS)

When conceptualizing “quality management,” it is best to think of it as an organization’s definition of how it will meet the quality requirements of customers and other stakeholders who are affected by its work. Implementing this requires an extensive alignment of company processes and procedural governance.

It’s easiest to think of a QMS as the facilitator of outlined processes that are required to fulfill ISO 9001 requirements. For example, if an organization has defined a change request process, it could use a cloud-based QMS to put that process in place. However, the benefits of a cloud-based QMS don’t have to end at ISO 9001. It can also help organizations comply with other regulations like GxP.

ISO 9001 Requirements

ISO 9001 requirements can sound very generic because they’re meant to be applied to any organization, big or small, in any industry. The key to ISO 9001 is the concept of continuous improvement, which is why specific requirements for what “quality” is are not defined. Rather, companies must create objectives and work toward improving processes to meet those objectives. That said, a certified QMS still must do the following:

  • Meet the requirements of other stakeholders, for example, customer requirements and regulatory standards
  • Ensure that employees receive training outlining the quality requirements
  • Determine and document the processes, their interactions and their results
  • Be able to produce records to prove that system requirements have been met
  • Constantly monitor quality management software performance
  • Address any risks that could result from changes
  • Perform internal audits and correct any issues
  • Continuously improve the QMS

From creation to disposal, document protocols must be clear and properly followed.With that in mind, ISO 9001’s purpose is to evaluate whether or not a QMS does a good job of managing processes while also being able to help organizations identify areas that need improvement. In simple terms, ISO 9001 helps companies who were making an excellent product most of the time, make an excellent product every time.

How can cloud quality management software help you get your ISO 9001 certification? Once you create processes that adhere to ISO 9001 quality management standards, you have to put them into practice. Enter: quality management software. But, how exactly does it help?

Optimal Time to Value

First, cloud-based software is the most cost-efficient to implement. Secondly, since a QMS needs to be accessible to every employee regardless of whether they work at HQ or on-site, cloud QMS are built to be mobile-friendly and easily accessed from any location.

Automated Document Lifecycles & Version Control

From creation to disposal, document protocols must be clear and properly followed. As up-to-date documents are an important factor in maintaining high levels of quality, the most recent versions of approved documents should be readily available while previous editions should be hidden away.

With cloud quality management software, workflows can automate the review and approval processes by automatically sharing documents with the right reviewers. Then, after the document has been approved, the changes will automatically be applied to the master document while the obsolete version is archived, helping to remove any chance of it being accidentally used after the update.

Easy Document Location & Metadata

According to ISO 9001, searching through an organization’s documents should be as easy as searching with Google. It’s an added bonus when the quality management software enables users to add custom metadata to documents. Metadata is just extra information that helps to define a document (like file size, type, date modified). With certain cloud-based QMS’, you can add custom metadata fields to make documents easier to find. For example, you can add an “expiration date” field that allows you to look up policies based on when they are set to expire.With the growing number of data breaches happening every year, it’s important to address the security components of a QMS.

Document Traceability

In order to pass any ISO 9001 audit, there needs to be a complete audit trail for every document, including active documents and the earlier archived versions. While this might seem like a big ask, cloud quality management software helps make this simple. Every single change to a document, regardless of whether it’s the current or past version, is tracked. When combined with automated workflows, you’re able to produce a precise log of every change made by every user.

Advanced User Permissions & Central File Ownership

With the growing number of data breaches happening every year, it’s important to address the security components of a QMS. Many of these issues can be resolved with user permissions, which is generally related to managing users’ editing and sharing access. The proper view, edit, and approval rights go a long way to reducing the risk of human error.

Another feature that may seem like common sense is central file ownership. When the organization owns all of its documents, there’s no need to worry that important files will be lost or deleted. With one owner, the damage that can be inflicted by malicious third-parties is also limited.

Cloud-based quality management software provides the flexibility and scalability, that cannabis startups need to comply with ISO 9001. With the cloud as a foundation, these systems will continue to be assets for the cannabis industry as it gains momentum and expands more.

steep-hill-labs-logo

Steep Hill Expands To New Jersey

By Aaron G. Biros
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steep-hill-labs-logo

steep-hill-labs-logoAccording to a press release published today, Steep Hill has signed a licensing agreement with Green Analytics East to open a new laboratory, Steep Hill New Jersey. “We are pleased to announce a licensee partnership with Green Analytics East to bring Steep Hill to New Jersey,” says Jeffrey Monat, chairman of the Steep Hill board of directors. “Since 2008, Steep Hill has developed and now employs cutting edge cannabis testing practices, providing analysis to ensure safe medicine and products. With Green Analytics East as our trusted partner, New Jersey patients and consumers can be confident that all Steep Hill-tested products will fully comply with public safety and regulatory standards.”

They haven’t obtained the local permits yet, but the press release states they expect to be open for business in the third quarter of 2019. Steep Hill began their cannabis laboratory testing business in California. Since their start in 2008, the company has grown rapidly, developing programs for regulatory compliance testing in medical and recreational cannabis markets. They have also ventured into research and development testing, licensing, genetics and remote testing.

The company has a history of expanding into new markets via licensing partnerships, including states such as Washington D.C., Pennsylvania, Maryland, Oregon, Hawaii, among others. As recently as May of last year, Steep Hill announced they will expand their international footprint as well, including opening locations in countries like Mexico, Germany, Spain, France, Italy, Switzerland and the United Kingdom, all through their Canadian branch.

New Jersey Governor Phil Murphy
New Jersey Governor Phil Murphy

The news of Steep Hill moving into the New Jersey market comes at a time when Governor Phil Murphy and lawmakers in the state are in the midst of planning adult use legalization. According to Shannon Hoffman, director of operations of Steep Hill New Jersey, they are hoping lawmakers reach a decision soon. “We are excited to bring our focus of service, accuracy, and scientific knowledge and expertise to the New Jersey market,” says Hoffman. “We look forward to serving the licensed producers, the patient community, and hopefully soon, the adult use consumer.”

2nd Annual Cannabis Labs Virtual Conference Announced

By Cannabis Industry Journal Staff
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The 2ndAnnual Cannabis Labs Virtual Conference is set to take place on Tuesday, April 2, 2019, starting at 12:00 Noon and concluding at 4:00 PM EDT. This complimentary series of webinars will take a deep dive into a variety of subjects related to cannabis testing and the laboratory industry.

The virtual event will help attendees better understand some of the more technical aspects of starting and operating a laboratory. Topics discussed will include pesticide testing, cannabinoid and terpene testing, the new ISO 17025:2017 accreditation and a lesson in starting a laboratory in a new market.

Attendees registering for this complimentary series of webinars will get access to four veterans of the cannabis lab testing industry, who are available for Q&A after each presentation. In addition to getting the opportunity to chat with these subject matter experts on April 2, a recording of the presentations will be made available to all who register.

Charles Deibel, President & CEO – Deibel Labs, Inc.

Here is a snapshot of the agenda:

Pesticide Testing: Methods, Strategies & Sampling
Charles Deibel, President & CEO – Deibel Labs, Inc.

Pesticides represent the number one area for batch failures in the US cannabis market. These are concerns not only for consumers, but are a very big concern for cultivators and manufacturers of cannabis products. remediation of the pesticides, once they are in the product are not always feasible From the lab level, they are also the hardest test to run in the laboratory, even one equipped with state-of-the-art equipment. The best instruments on the market are very expensive and there are no standardized methods, meaning lab to lab variability has happened.

  • What are the pesticides in cannabis and are there any that are the “main concerns” or ones that stand out as particularly damaging?
  • What is a basic breakdown of the testing and methods used for pesticide testing?
  • What are the best strategies for the sampling of cannabis products?

    Chris Martinez
    Chris Martinez, Co-Founder & President, EVIO Labs FL

Building a Lab in an Emerging Market
Chris Martinez, Co-Founder & President, EVIO Labs FL

  • Will present a discussion of the genesis of EVIO Labs Florida, how to start a lab in a new market
  • Challenges in how we navigated changing regulations in a state with newly legalized cannabis
  • Expanding a lab to a second location – logistics, hiring, training, consistency.

Cannabinoid & Terpene Testing: Methods, Strategies & Standardization

Dr. Cindy Orser, Chief Science Officer, Digipath Labs

  • Appreciation of “measurement uncertainty” in cannabis testing

    Dr. Cindy Orser, Chief Science Officer, Digipath Labs
  • Standardization of testing methods is a high priority
  • Terpenes are the distinguishing chemicals in cannabis sensory perception and chemotaxonomy

Benefits of Accreditation to the ISO 17025:2017 Standard
Jane Weitzel, Independent Consultant

  • The ISO/IEC 17025:2017 standard is now being used to accredit cannabis testing laboratories. From this presentation you will learn the key new aspects of the standard. This includes risk-based thinking. Many aspects of this risk approach require the use of measurement uncertainty. This means the measurement uncertainty must be adequately evaluated. You will be introduced to evaluating and using measurement uncertainty.
  • The 2017 standard emphasizes conflict of interest and impartiality. Procedures and practices to achieve impartiality will be shown. This reduces the risk of potentially damaging leaks of information or the risk of people not working to the best interests of the laboratory and its clients.

    Jane Weitzel, Independent Consultant
  • The 2017 standard is a valuable and useful business tool that can save the laboratory resources, effort and money. Are you doing too much testing? Are you doing too little testing? When you evaluate the measurement uncertainty you can use it to learn the steps in your test method that need enhancement to reduce the risk of making mistakes. You can also use the measurement uncertainty to focus on the significant steps and stop wasting time on steps and activities that are insignificant.
  • These benefits of laboratory accreditation will be demonstrated with examples from the cannabis industry.

To learn more about this complimentary series of webinars, click here to look at the agenda and register.

The New ISO/IEC 17025:2017: The Updated Standard

By Ravi Kanipayor, Christian Bax, Dr. George Anastasopoulos
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As state cannabis regulatory frameworks across the country continue to evolve, accreditation is becoming increasingly important. Because it provides consistent, turnkey standards and third-party verification, accreditation is quickly emerging as an important tool for regulators. For cannabis testing laboratories, this trend has been especially pronounced with the increasing number of states that require accreditation to ISO/IEC 17025.

As of 2017 there were nearly 68,000 laboratories accredited to ISO/IEC 17025, making it the single most important benchmark for testing laboratories around the world. ISO/IEC 17025:2005 specifies the general requirements for the competence to carry out tests including sampling. It covers testing performed using standard methods, non-standard methods and laboratory-developed methods. It is applicable to all organizations performing tests including cannabis labs. The standard is applicable to all labs regardless of the number of personnel or the extent of the scope of testing activities.  Developed to promote confidence in the operation of laboratories, the standard is now being used as a key prerequisite to operate as a cannabis lab in many states.

There are currently 26 states in the United States (also Canada) that require medical or adult-use cannabis to be tested as of February 2019. Of those states, 18 require cannabis testing laboratories to be accredited – with the vast majority requiring ISO/IEC 17025 accreditation. States that require testing laboratories to attain ISO/IEC 17025 accreditation represent some of the largest and most sophisticated cannabis regulatory structures in the country, including California, Colorado, Maryland, Massachusetts, Michigan, Nevada and Ohio. As a consequence, many cannabis testing laboratories are taking note of recent changes to ISO/IEC 17025 standards.

ISO/IEC 17025 was first issued in 1999 by the International Organization for Standardization. The standard was updated in 2005, and again in 2017. The most recent update keeps many of the legacy standards from 2005, but adds several components – specifically requirements for impartiality, risk assessment and assessing measurement uncertainty. The remainder of this article takes a deeper dive into these three areas of ISO/IEC 17025, and what that means for cannabis testing laboratories.Objectivity is the absence or resolution of conflicts of interest to prevent adverse influence on laboratory activities.

Impartiality

ISO/IEC 17025:2005 touched on an impartiality requirement, but only briefly. The previous standard required laboratories that belonged to organizations performing activities other than testing and/or calibration to identify potential conflicts of interest for personnel involved with testing or calibration. It further required that laboratories had policies and procedures to avoid impartiality, though that requirement was quite vague.

ISO/IEC17025:2017 emphasizes the importance of impartiality and establishes strict requirements. Under the new standard, labs are responsible for conducting laboratory activities impartially and must structure and manage all laboratory activities to prevent commercial, financial or other operational pressures from undermining impartiality. The definitions section of the standard defines impartiality as the “presence of objectivity.” Objectivity is the absence or resolution of conflicts of interest to prevent adverse influence on laboratory activities. For further elaboration, the standard provides similar terms that also convey the meaning of impartiality: lack of prejudice, neutrality, balance, fairness, open-mindedness, even-handedness, detachment, freedom from conflicts of interest and freedom from bias.

To comply with the new standard, all personnel that could influence laboratory activities must act impartially. ISO/IEC 17025:2017 also requires that laboratory management demonstrate a commitment to impartiality. However, the standard is silent on how labs must demonstrate such commitment. As a starting point, some cannabis laboratories have incorporated statements emphasizing impartiality into their employee handbooks and requiring management and employee training on identifying and avoiding conflicts of interest.

Risk Assessment

Both the 2005 and 2017 versions contain management system requirements. A major update to this is the requirement in ISO/IEC 17025:2017 that laboratory management systems incorporate actions to address risks and opportunities. The new risk-based thinking in the 2017 version reduces prescriptive requirements and incorporates performance-based requirements.

Under ISO/IEC 17025:2017, laboratories must consider risks and opportunities associated with conducting laboratory activities. This analysis includes measures that ensure that:

  • The lab’s management system is successful;
  • The lab has policies to increase opportunities to achieve its goals and purpose;
  • The lab has taken steps to prevent or reduce undesired consequences and potential failures; and
  • The lab is achieving overall improvement.

Labs must be able to demonstrate how they prevent or mitigate any risks to impartiality that they identify.To comply with ISO/IEC 17025:2017, labs must plan and implement actions to address identified risks and opportunities into management systems. They must also measure the effectiveness of such actions. Importantly, the standard requires that the extent of risk assessments must be proportional to the impact a given risk may have on the validity of the laboratory’s test results.

ISO/IEC 17025:2017 does not require that labs document a formal risk management process, though labs have discretion to develop more extensive methods and processes if desired. To meet the requirements of the standard, actions to address risks can include sharing the risk, retaining the risk by informed decision, eliminating the risk source, pinpointing and avoiding threats, taking risks in order to pursue an opportunity, and changing the likelihood or consequence of the risk.

ISO/IEC 17025:2017 references “risks” generally throughout most of the standard. However, it specifically addresses risks to a laboratory’s impartiality in section 4.1. Note, the new standard requires that labs must not only conduct activities impartially, but also actively identify risks to their impartiality. This requirement is on-going, not annually or bi-annually. Risks to impartiality include risks arising from laboratory activities, from laboratory relationships, or from relationships of laboratory personnel. Relationships based on ownership, governance, shared resources, contracts, finances, marketing, management, personnel and payment of a sales commission or other inducements to perform under pressure can threaten a laboratory’s impartiality. Labs must be able to demonstrate how they prevent or mitigate any risks to impartiality that they identify.

Assessing Measurement Uncertainty With Decision Rules

ISO/IEC 17025:2005 required (only where necessary and relevant) test result reports to include a statement of compliance/non-compliance with specifications and to identify which clauses of the specification were met or not met. Such statements were required to take into account measurement uncertainty and if measurement results and uncertainties were omitted from the statement, the lab was required to record and maintain the results for future reference.

ISO/IEC 17025:2017 requires similar statements of conformity with an added “decision rule” element. When statements of conformity to a specification or standard are provided, labs must record the decision rule it uses and consider the level of risk the decision rule will have on recording false positive or negative test results. Like the 2005 version, labs must include statements of conformity in test result reports (only if necessary and relevant- see 5.10.3.1 (b)). Now, test result reports on statements of conformity must include the decision rule that was employed. 

Moving Forward

Because many states require ISO/IEC 17025 accreditation for licensing, cannabis testing labs across the country would be well advised to closely monitor the implications of changes in ISO/IEC 17025:2017 related to impartiality, risk assessment and measurement uncertainty. If you run a cannabis testing lab, the best way to ensure compliance is education, and the best place to learn more about the new requirements is from a globally recognized accreditation body, especially if it is a signatory to the International Laboratory Accreditation Cooperation (ILAC) for testing laboratories, calibration laboratories and inspection agencies.

References

Facts & Figures

ISO/IEC 17025:2005: General requirements for the competence of testing and calibration laboratories

ISO/IEC 17025:2017: General requirements for the competence of testing and calibration laboratories 

PerkinElmer Awarded Five Emerald Test Badges

By Aaron G. Biros
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According to a press release published today, Emerald Scientific awarded PerkinElmer five badges for The Emerald Test, a bi-annual Inter-Laboratory Comparison and Proficiency Test (ILC/PT) program. Awarding the badges for Perkin Elmer’s instruments and testing methods affirms their ability to accurately detect pesticides, heavy metals, residual solvents, terpenes and potency in cannabis.

According to Greg Sears, vice president and general manager of Food, Chromatography & Mass Spectrometry, Discovery & Analytical Solutions at PerkinElmer, they are the only instrument manufacturer to receive all five accolades. “To date, PerkinElmer is the only solutions provider to successfully complete these five Emerald Scientific proficiency tests,” says Sears. “The badges underscore our instruments’ ability to help cannabis labs meet the highest standards available in the industry and effectively address their biggest pain point: Navigating diverse regulations without compromising turnaround time.”

The instruments used were PerkinElmer’s QSight 220 and 420 Triple Quad systems, which are originally designed for accurate and fast detection/identification of “pesticides, mycotoxins and emerging contaminants in complex food, cannabis and environmental samples,” reads the press release. They also used their ICP-MS, GC/MS and HPLC systems for the badges.

PerkinElmer says they developed a single LC/MS/MS method using their QSight Triple Quad systems, which helps labs test for pesticides and mycotoxins under strict regulations in states like California and Oregon. They performed studies that also confirm their instruments can help meet Canada’s testing requirements, which set action limits nearly 10 times lower than California, according to the press release.

Pesticide Testing: Methods, Strategies & Sampling

By Charles Deibel
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Editor’s Note: The following is based on research and studies performed in their Santa Cruz Lab, with contributions from Mikhail Gadomski, Lab Manager, Ryan Maus, Technical Services Analyst, Dr. Laurie Post, Director of Food Safety & Compliance, Andy Sechler, Lab Director, Toby Astill, Senior Business Development Leader at Perkin Elmer and Charles Deibel, President of Deibel Cannabis Labs.

Pesticides represent the leading cause of batch failures in the cannabis industry. They are also the hardest tests to run in the laboratory, even one equipped with state-of-the-art equipment. The best instruments on the market are HPLC and GC dual mass spectrometer detectors, called “HPLC-qqq”, “GC-qqq,” or just triple quads.

As non-lab people, we envision a laboratory that can take a cannabis sample, inject it into a triple quad and have the machine quickly and effortlessly print out a report of pesticide values. Unfortunately, this is far from reality. The process is much more hands on and complex.In the current chemistry lab, trained analysts have to first program the triple quads to look for the pesticides of concern; in cannabis pesticide testing, this is done by programming the first of two mass spectrometers to identify a single (precursor) mass that is characteristic of the pesticide in question. For BCC requirements in California, this has to be done for all 66 pesticides, one at a time.

Next, these precursor ions are degraded into secondary chemicals called the “product” ions, also called transition ions. The second of the two mass spectrometers is used to analyze these transition ions. This process is graphed and the resulting spectrum is analyzed by trained chemists in the lab, pesticide by pesticide, for all the samples processed that day. If the lab analyzes 10 samples, that translates to 660 spectra to analyze (66 pesticides x 10 samples). When looking at the spectra for each pesticide, the analysts must compare the ratios of the precursor ions to the product ions.

Confirmation Testing

If these spectra indicate a given pesticide may be present, the chemists must then compare the ratios between the precursor and the products. If these ratios are not what is expected, then the analyst must perform confirmation testing to prove the precursor mass either is or is not the pesticide of concern. If the ratios are not what is expected, it means the molecule is similar to the pesticide in question, but may not be that pesticide. This confirmatory testing is key to producing accurate results and not failing batches when dealing with closely related chemicals. This process of analyzing spectra is done in all labs that are performing pesticide testing. In this fledgling industry, there are few published cannabis pesticide methods. 

The need for this type of confirmation testing doesn’t happen all of the time, but when it does, it will take longer than our targeted three-day turn-around time. In the picture above, one precursor mass is ionized into several product masses; but only two are large enough to be used for comparison. In this hypothetical situation, two product masses are produced for every one precursor, the expected ion abundance ratio should be less than 30%. When performing any confirmatory testing, if the ion abundance ratio is >30%, it means the original precursor molecule was not the pesticide of concern. For example, if the ion abundance ratio was 50%, then the original molecule broke down into too many parts; it was not the pesticide we were looking for. This ion abundance ratio threshold was established by FANCO, the international organization that sets guidelines for all pesticide testing.

Testing Strategies

Methodology: In this fledgling industry, there are few published cannabis pesticide methods. The identification of the precursor mass and product ions are not always published, leaving labs to research which ions should be used. This adds to the potential for differences between lab results. Once selected, labs should validate their research, through a series of experiments to ensure the correct precursor and transition (product) ions are being used in the method.

Sample Preparation: Beyond the time-consuming work that is required to develop sound pesticide methods, the extraction step is absolutely critical for credible results. If the pesticides aren’t fully extracted from the cannabis product, then the results will be lower than expected. Sample preparations are often not standardized between labs, so unless a given extraction technique is validated for accuracy, there is the possibility for differences between labs.

Getting a Representative Sample

The current California recommended amount of sample is one gram of product per batch. Batch sizes can vary greatly and it is entirely likely that two different one gram samples can have two different results for pesticides. Has the entire plant been evenly coated with exactly the same amount of pesticide onto every square inch of its leaves? No, probably not. That is why it is imperative to take a “random” sample, by taking several smaller samples from different areas of the entire batch.

Sampling Plans: We can learn a lot from the manufacturing and sampling best practices developed by the food industry through the years. If a food manufacturer is concerned with the possibility of having a bacteria pathogen, like Salmonella, in their finished product, they test the samples coming off their production lines at a statistically relevant level. This practice (theory) is called the sampling plan and it can easily be adapted to the cannabis industry. The basic premise is that the more you test, the higher your likelihood of catching a contaminate. Envision a rectangular swimming pool, but instead of water, it’s filled with jello. In this gelatinous small pool, 100 pennies are suspended at varying levels. The pennies represent the contaminates.

Is the pool homogenized? Is jello evenly represented in the entire pool? Yes. 

Is your concentrate evenly distributed in the extraction vessel? Yes. The question is, where are the pennies in that extraction vessel? The heavy metals, the microbial impurities and the pesticides should be evenly distributed in the extraction vessel but they may not be evenly represented in each sample that is collected. Unfortunately, this is the bane of the manufacturing industry and it’s the unfortunate reality in the food industry. If you take one random cup of jello, will you find the penny? Probably not. But it you take numerous 1 cup samples from random areas within the batch, you increase your chances of finding the contaminate. This is the best approach for sampling any cannabis product.

The best way to approve a batch of cannabis product is to take several random samples and composite them. But you may need to run several samples from this composite to truly understand what is in the batch. In the swimming pool example, if you take one teaspoon scoop, will you find one of the pennies? The best way to find one of the pennies is to take numerous random samples, composite them and increase the number of tests you perform at the lab. This should be done on any new vendor/cultivator you work with, in order to help establish the safety of the product.