Power Players: CannaSafe COO Derrick Friedrich on the Lab Biz’s “Exponential” Growth

For this week’s Power Players interview, we’ve got a very interesting conversation with Derrick Friedrich, COO of testing company CannaSafe. The company, which tests more than 30% of the legal cannabis in California, has seen revenue skyrocket 12,000% in the last three years.

Among other things, we talked about what product companies should look for in a testing lab, how they test for THC and the coming lab consolidation.

This interview has been edited for length and clarity.

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“A Fairly Strong Marketplace”

WeedWeek: What state or states is best for the testing business now?

Derrick Friedrich: We find it really great to be in the state of California.

California continues to lead the country in testing requirements. All of their accreditation requirements, which means third-party confirmation of what you do in the laboratory [are very detailed].

California also really has one of the most extensive lists of contaminants you’re required to test these products against. Obviously, the more information you have about the product, the better. They’re a great partner in all of this.

WW: I saw something the other day that California companies are paying roughly 10% of wholesale for testing. Obviously that’s good for you, but does is it good for the whole industry ecosystem?

DF: It is, but to your point, taxes [are very high]. I’ve seen some taxes up into the 60% range for products that you buy in dispensaries.

WW: You’re not exactly answering the question. I mean do they require too much and is it unnecessary? Of course it’s good for testing businesses, but is it good for the industry? Are some of the requirements superfluous?

DF: They really aren’t. While they do have an extensive list, a lot of the contaminants that we’re looking for we find, and they have applicability for the safety of the product. 

WW: Would you say the testing business in pretty good shape?

DF: It’s a fairly strong marketplace. The growth continues because the requirements around testing and the safety of consumers continues to be on the top of everybody’s mind. 

WW: How has the pandemic changed your business?

DF: The industry continues to be fairly stable, so our workload continues to be solid as it was before. In the workplace, the effect is ever evolving, as people are concerned about their own safety.

We’re a service industry. Most of us can’t work remotely, so that’s been something that’s been an ongoing challenge. But we’re really trying to keep everybody’s safety in mind and doing the best that we can, for both our customers and our employees.

Choosing Your Lab

WW: How should a company go about picking a testing lab? A company picks it’s testing lab pretty much everywhere, right?

DF: Yep. CannaSafe isn’t specifically required. They have to choose. I see four different things when you’re looking for a testing company to work with.

First, is accreditation. All the information that we provide needs to be accredited by an outside agency. It’s a confirmation of your credibility as a lab. Every task that we provide, all the information that we provide needs to be accredited by an outside agency. It’s just a confirmation. It’s a trust that’s gained in what you’re getting.

WW:    Accreditation from a state agency or a professional body?

DF: Both. You must be accredited through two different accrediting bodies; the BCC, the bureau of cannabis control is an ISO 17025 accrediting body. And we also work with PJLA for our ISO 17025 accreditation.

The second one is with ISO accredited companies that work across the country. They check all of our processes and procedures against a set of rules and requirements called ISO 17025, to make sure the information we provide is accurate and accountable.

WW: What are some red flags to look out for when picking a lab?

DF: There are labs that are not fully accredited by the BCC for all the required analytes, along with labs that are not ISO 17025 accredited. Without the accreditation, there is no independent, third party company that oversees their processes and procedures. The data that comes out of these labs have to be questioned.

WW: They can get a license without being accredited?

DF: You can get a license without being accredited for every test. You can be licensed for just certain tests and get a license. And so, people could say, “Yes, I’m licensed,” but they’re not licensed for every test that they provide. The question is whether they’re licensed for what you’re asking for. 

Providing Consistency

WW: CannaSafe has grown really quickly. Are your peers also growing super quickly?

DF: There are absolutely other competitors that appear to be growing quickly, but not at the exponential rate we’ve grown. 

WW: Are you under a lot of pressure from clients to give the results they want? What stops them from going to another lab?

DF: Our customers do their own quality control and have certain expectations of their products. But we have systems and procedures throughout the laboratory in place that give our results complete independence from other outside influences.

That’s also where the accreditation comes from, accreditation and us following all of our standard operating procedures, training and ethics. All of that is put in place so there is no extraneous pressure to provide a specific result.

WW: But the company can just pick up and go someplace else, right?

DF:    We see some customers move from one lab to another looking for the result they want. But after a period of time we typically see them come back. Our rigid processes and procedures ensure a consistent process so they can count on our lab doing the same thing test after test and the only variable is their product.

One big thing that we provide here is consistency. We offer product testing from the R & D stage all the way to the clients, and so they can get that normal standardized kind of response. Everything is scripted. Everything gets expected values.

WW: When customers are looking for a certain value, are you talking more about THC or CBD levels, or about certifying something’s safe when you have concerns about it?

DF: We see most customers looking for an expected potency value, and if they’re not getting it from their lab of choice, they may bounce around. We see more of that in the small, new startup companies.

The more experienced, the solid companies, the [national brands] are our main customers and they’re the ones that are not fly by night. They are looking for us to give unbiased, real value so that if there is a problem they can make changes in their process and procedures and put out a safe product for consumers.

The Coming Consolidation

WW: What are some things to watch in the lab business in the next six months?

DF: I think what you’re going to see is there’s going to be a consolidation. I grew up in the environmental testing industry, where back, oh my gosh, back in the ’70s is when it started, but they were testing contaminants of air, water, and soil.

The cannabis trend line is almost following that identically. There was this gold rush when all the regulations were new. All these new testing labs popped up everywhere and state and federal government was scrambling to create rules and regulations around that.

Then as soon as the states and the rules and the regulations started catching up with them you saw this huge consolidation. Larger companies, more sophisticated companies, investors were coming into this space, and really only the well-run, accredited laboratories survived. That is something you’re going to see here shortly.

WW: To me, testing is sort of a black box.  There are so many  complications, but let’s just talk about THC for now. Is it credible for you to test a bud and then somebody else to test a bud and get a notably different result? How are we supposed to know which is best?

DF: In our world there isn’t a best value. One thing that’s limited in this industry is standardization. With it being illegal federally, the resources of the federal government are not available to the states, and the states are basing everything off of their own experience to create standardized procedures.

 That’s something that the state of California needs to continue to do, to drive standardization. Once that standardization is driven into the industry, then you’re going to start seeing more consistent values from lab to lab. They’re going to become very, very similar.

 When you talk about flower specifically, you’re taking a heterogeneous matrix. The plant by nature is variable and so bud to bud is going to change. When we get a product, one bud, five buds, 10 buds, we grind them all together to make one homogeneous sample and then we test that sample. That’s the best way that you can do it.

WW: Is it the same for toxins and contaminants?

DF: It is. The plant by nature really works as a natural filter for the air, the soil that it’s in. It absorbs nutrients and as it has that uptake, both in the water and in nutrients, it pulls out these contaminants. It can pull it out of the air, the soil, the water that it’s sitting in. It can also have that sprayed on.

This story has been updated to reflect errors made when editing the transcript.