Recall deals blow to California’s marijuana industry

In this Wednesday, Aug. 22, 2018, photo, marijuana samples are organized at Cannalysis, a cannabis testing laboratory, in Santa Ana, Calif. In this Wednesday, Aug. 22, 2018, photo, marijuana samples are organized at Cannalysis, a cannabis testing laboratory, in Santa Ana, Calif. Photo: Chris Carlson / Associated Press Photo: Chris Carlson / Associated Press Image 1 of / 1 Caption Close Recall deals blow to California’s marijuana industry 1 / 1 Back to Gallery

The recall of tens of thousands of pounds of marijuana and other products after a Sacramento laboratory was caught faking pesticide test results has jolted a cannabis industry that has struggled for legitimacy in its first year facing a full-slate of state regulations.

The action against Sequoia Analytical Lab last month was “yet another cut in the death-by-a-thousand-paper-cuts scenario that is playing out for so many producers in the state,” said Hezekiah Allen, the chairman of Emerald Grown, a co-op made up of about 100 licensed growers mostly north of San Francisco.

“The regulated market will only thrive when producers and consumers have confidence in the labs,” he said. “Right now that confidence is something we don’t have.”

According to Allen and other growers and merchants, the nascent industry has been overwhelmed financially by taxes, licensing and a slew of compliance hassles in 2018. The move against Sequoia Labs was just another blow.

The laboratory closed down and surrendered its business license after state inspectors discovered on Nov. 27 that the director, identified as Marc Foster, had for four months been faking test results for 22 of the 66 pesticides he was required under California law to analyze.

Steven Dutra, the general manager for Sequoia Labs, said Foster admitted to the inspectors and company executives that he had falsely marked “undetected” for the 22 pesticides after finding that his equipment was unable to measure the substances at the minuscule levels the state required.

Recall notices from the California Bureau of Cannabis Control went out late last week to 29 cannabis distributors and retailers that had products tested at Sequoia. The notice asked the companies to request the return of all cannabis products that were tested at the lab after June 30.

“All cannabis goods returned by customers or remaining in your inventory from these batches, must be destroyed, or returned to the distributor from whom the batch was received,” it said, adding that all remaining inventory should be destroyed or retested pending approval by the bureau.

It means nearly 850 batches — tens of thousands of pounds of flower, and an equal amount of other products, like oils and vaping material — are under the recall.

Alex Traverso, the spokesman for the Bureau of Cannabis Control, declined to comment while the investigation continues.

“We’re talking about tens of millions of dollars worth of product potentially,” said Lauren Fraser, the executive director with the Cannabis Distribution Association. “It’s just very unfortunate that consumers didn’t have trustworthy results, and everyone in the supply chain has to go back and re-evaluate those relationships.”

Refunds could cost growers, distributors and retailers bundles of money. The situation is likely to lead to lawsuits and could possibly result in criminal prosecution, industry insiders said.

The 30 or so other cannabis testing laboratories in California will be dealing with new testing guidelines for heavy metals starting Jan. 1, and the recall and closure could cause major complications. Many fear a bottleneck as the laboratories add staffing and equipment in an attempt to keep up with demand.

The laboratories now test marijuana for potency, residual solvents, molds, fungus, bacteria and pesticides. In addition, edibles have to be analyzed to make sure they have no more than 10 milligrams per serving of THC, or tetrahydrocannabinol, the chemical compound in cannabis that makes people high.

Pesticide limits for marijuana products are among the most strict in the country, in some cases exceeding state and federal laws governing orchards and crops.

The 66 pesticides that must be tested for include the insecticides carbaryl and malathion, which are commonly used to control bugs that attack fruits and vegetables.

The rules are important, toxicology experts say, because studies have shown that people who smoke or vape cannabis absorb about 10 times more of what is in the pot than those who who eat it. Although there are no long-term studies on the effects of smoking pesticides, a 2013 study published in the Journal of Toxicology found that people who smoked pot from a bong took in about half of the pesticides that were in the weed.

The danger was especially serious for people with diseases or compromised immune systems, according to the study.

There was a furor in 2016 when 75 percent of marijuana samples tested from Bay Area dispensaries came back positive for pesticides. A similar experiment in the Los Angeles area found a 93 percent contamination rate.

As of Nov. 30 this year, only 739 of the 23,864 product batches tested for pesticides statewide have failed.

“We expect product recalls and high testing standards to be a huge issue over the upcoming years for both license holders and a healthy market,” said Ben Bradley, a consultant and former member of the California Cannabis Industry Association, adding that many license holders think the regulations are an unreasonable burden.

Industry insiders have expressed doubts that the laboratories in California are even capable of testing cannabis to the precision required by regulators, a fear borne out by the Sequoia recall.

It isn’t the first time problems have cropped up with testing. Steep Hill Labs, in Berkeley, was suspended for 10 weeks earlier this year after it failed to meet state testing protocols for two pesticides.

Tony Daniel, the chief revenue officer, said Steep Hill has since invested in the most sophisticated equipment available and is “squeaky clean.”

“We’re the biggest lab in the world, the best funded, and if we are having these problems some of these others I would think are in a world of trouble,” Daniel said.

The problem comes as the industry is faced with a host of other problems, mostly due to the cost of compliance and testing. Many growers have gone out of business or turned to the black market. As a result, merchants have seen a drastic decline, in some cases 70 to 80 percent, in the number of brands and products on their shelves.

The problems at Sequoia are frustrating, Fraser said, but it is also an indication that the regulatory system is working.

“It’s a blow, but its also a positive sign that regulation is happening,” Fraser said. “Testing labs are the gatekeeper of what is let into the marketplace. It’s good that regulators are enforcing the rules.”

Peter Fimrite is a San Francisco Chronicle staff writer. Email: pfimrite@sfchronicle.com Twitter: @pfimrite