Oregon Cannabis Operators on ‘Brink of Financial Collapse’ as Trade Group Sues Regulators Over Testing

Oregon’s largest cannabis trade association is teaming up with cultivators to sue state regulators over new Aspergillus testing standards the plaintiffs say are unsupported by adequate scientific data or evidence.

Aspergillus is a common mold (a type of fungus) that lives indoors and outdoors, according to the Centers for Disease Control and Prevention (CDC).

The Cannabis Industry Alliance of Oregon (CIAO)—whose members include 41 licensed processors, 111 farmers, 200 retailers and 30 wholesalers—along with Southern Oregon Family Farms cooperative (SOFF) and Eugene-based cultivator Cannassentials filed an emergency motion July 28 in the Oregon Court of Appeals requesting a judge to halt the recently adopted testing rules.

Specifically, the motion is calling for the suspension of qPCR compliance testing and Metrc reporting for Aspergillus, according to a CIAO press release. Quantitative polymerase chain reaction (qPCR) is a laboratory technology used for measuring DNA, and Oregon now requires Aspergillus testing for the cannabis industry to be performed using a qPCR analysis or other certified DNA-based methods.

The plaintiffs in the emergency motion argue Oregon’s cannabis stakeholders will “suffer severe and irreparable harm” long before the court can fully review and issue a ruling on the validity of this new testing standard.

“The current testing requirements are inconsistent, confusing, and exorbitantly costly, leading to disastrous financial consequences for cannabis businesses across Oregon,” the release states. “The industry, unique and invaluable to Oregon’s culture and economy, is being pushed to the brink of financial collapse by these regulations. This situation calls for urgent intervention to ensure survival of this thriving industry.”

The CIAO listed five factors that the alliance believes underline the need for immediate court action:

1.) Scientific Uncertainty: No clear link has been established between the consumption of cannabis products and Aspergillus-related health issues, warranting further research before enforcement of costly and overly restrictive rules.

2.) Prevalence of Aspergillus: Aspergillus, especially A. fumigatus & A. flavus are environmentally ubiquitous fungi that Oregonians inhale every day. The strict pass/fail criterion is leading to random and economically damaging failures for cultivators and requires cannabis to conform to standards that no other agricultural product on the market is currently required to comply with.

3.) Legitimacy of Testing: Growing national skepticism around the effectiveness of Aspergillus testing calls for a comprehensive reevaluation of the rule’s validity, its economic impacts on the industry, and whether there is any appreciable benefit to consumers.

4.) Inconsistency in Testing: Significant inconsistencies in testing results and a stringent rule permitting only a single remediation attempt have added to the financial burden on cannabis businesses.

5.) Financial Impact: The current rules disregard additional costs for compliance, threatening to bankrupt cannabis businesses due to factors including - loss of product, increased number of compliance tests, disincentive of composite testing, post-testing remediation, and facilities upgrades.

Oregon’s new cannabis testing rules were adopted March 31, 2022, by the Oregon Health Authority—with the Oregon Liquor and Cannabis Commission (OLCC) overseeing industry regulations—but the changes related to testing for microbiological containments and heavy metals did not go in effect until March 1, 2023, when cannabis harvests became subject to a more stringent threshold for four pathogenic species of Aspergillus.

RELATED: Oregon’s New Aspergillus Testing Could Be an Inflection Point for the Cannabis Market—But It’s Complicated

This threshold has caused a stir among licensed cultivators in Oregon, with initial R&D flower testing failure rates clocking in at 23% for microbiological contaminants related to Aspergillus content (for the four months following the March 1 implementation). For licensed cultivators, this often means adding remediation costs to their already razor-thin margins that began shrinking in late 2021 and showed no mercy in 2022: The median wholesale price for dried flower dipped from $1,000 per pound in October 2021to $600 per pound in October 2022, where it still hovers, according to the OLCC.

And the remediation services presently available on the market come with their own set of questions. What are they? What happens to the cannabis plant? What do consumers need to know about all this? The team at CIAO, which has held weekly video meetings on this testing subject throughout the year, insists in its brief that there is no clear-cut solution to the alleged problem.

“Because of the difficulties and expenses of mitigating aspergillus risks prior to testing, most indoor producers and all outdoor producers will have to focus on post-testing remediation if any cannabis material tests positive for the presence of aspergillus,” the CIAO wrote. “Even in this, Oregon’s cannabis producers are left with few costly options and no guarantees. Although there are some methods of aspergillus remediation, CIAO is unaware of any remediation option that both (1) guarantees that remediated cannabis will be 100% free of aspergillus or its spores, and (2) does not affect the terpenes, THC content, or otherwise degrade the cannabis. Of the available options, irradiation appears to be the most effective remediation technique. However, CIAO understands from its members that irradiation has a significant negative impact on the remediated cannabis material.”

Myron Chadowitz, who founded Cannassentials in August 2015 with his cousin, Shane Kramer, recently told Cannabis Business Times that the new testing standards are putting his farm out of business.

“The costs involved in the extra testing, the remediation, plus everything we’re doing around the farm to try to beat this Aspergillus thing—plus having to hold flower back—we are in our death throes right now,” he said.

Cannassentials operates its farm using climate-controlled greenhouses with assisted lighting. The structures are intended to provide some of the benefits of indoor cultivation while still cultivating plants in living, natural soil.

In his declaration to the appellate court that complemented the motion, Chadowitz wrote that Cannassentials has exhausted multiple remediation avenues but has been unable to provide 100% certainty of Aspergillus culture and spore removal without significant impairments to either the quality of the cannabis flower produced, or the organic methods used to obtain it.

“No such remediation solutions are currently present on the market,” he wrote. “If Cannassentials is forced to comply with the zero-tolerance Aspergillus testing rule, it will most likely be out of business in a matter of weeks.” While cannabis growers are not required to disclose that they have remediated their flower, Chadowitz has gone so far as to label Cannassentials products to say that they’ve been treated with irradiation. He told CBT that, despite the ethics at play, this disclosure has not helped his products sell in dispensaries.

Chadowitz is one of three licensed cultivators who filed declarations July 28 in support of judicial review in the Oregon’s Court of Appeals. John Neeway, principal at Mill Creek Growers LLC, and Brian Niestrath, principal at Rolling Cascades Farm LLC, also filed declarations.

Niestrath wrote that he began focusing specifically on cannabis cultivation in 2016—after Oregon’s adult-use market moved into full swing the previous year. An SOFF cooperative member, Rolling Cascades Farm is certified by Sun + Earth, an organization dedicated to ensuring outdoor cannabis cultivation uses organic and regenerative methods.

The goal of Rolling Cascades Farm, and any organic method of agriculture, Niestrath wrote, is to encourage a “healthy, natural microbiological biome” that allows plants and soil to regulate themselves without the need of harsh chemicals.

“However, aspergillus is not considered to be a serious agricultural pest, partially because it is endemic and not destructive to the plant’s health, and for cannabis in particular, is not known to grow at relative humidities present in properly dried and cured cannabis,” he wrote. “Because RCF’s cultivation is done under full sun and without any greenhouses, it is impossible for RCF to control whether or not its cannabis plants are exposed to free-floating aspergillus in the air or its spores.”

The OLCC, according to Niestrath, has not provided Rolling Cascades with any guidelines on how to ensure its outdoor crops can be Aspergillus-free. This claim is at the heart of the emergency motion filed last week.

According to the plaintiffs, the Oregon Health Authority is now requiring licensed cannabis operators to ensure their products are free from any trace of four of the most common species of the genus Aspergillus. And, the motion claims, this requirement is singling out the cannabis industry: Similar thresholds are not imposed on any other agricultural producers, including the tobacco industry.

“These four species of Aspergillus are endemic and ubiquitous to Oregon and worldwide, their spores are airborne, multiple scientific studies have concluded that avoiding inhalation of Aspergillus in the air is impossible, and that humans routinely inhale Aspergillus simply by going about their daily lives,” the motion states. “While Aspergillus does pose some risk of infection … the risk is limited to a small number of immunocompromised individuals.”

Most people breathe in Aspergillus spores every day without getting sick, according to the CDC. People with weakened immune systems or lung diseases are at a higher risk of developing health problems—including allergic reactions, lung infections, and infections in other organs—due to Aspergillus. However, aspergillosis, the infection caused by Aspergillus, is not a “reportable infection” in the United States, so the exact number of cases is not easy to determine, according to the CDC.

At Mill Creek Growers in Polk County, a CIAO member, Neeway indicated in his declaration statement that the investments needed to eliminate any risk of Aspergillus present in cannabis harvests would be detrimental to Mill Creek’s cultivation business.

Mill Creek greenhouses are open to the environment and cannot feasibly be converted into aseptic clean rooms, Neeway wrote. Additionally, Mill Creek Growers would need to pour a concrete foundation to ensure its drying and trim space—a metal outbuilding— is free of Aspergillus, a “prohibitively expensive” investment given the cultivator’s “modest revenues,” he wrote.

“I have spoken to representatives of the OLCC, and at no time did any [state regulator] provide any guidance or guarantees of how Mill Creek Growers could continue its organic, sustainable practices in a way that would eliminate any risk of aspergillus present in its harvests,” Neeway wrote.

These concerns come at a time when outdoor and mixed licensed cultivators in Oregon harvested nearly 7 million pounds of cannabis (wet weight) in 2022, representing more than 72% of the market, according to OLCC data. Indoor harvests made up the other 28%. This is an important distinction considering outdoor and greenhouse growers have less control over free-floating pathogens, like Aspergillus spores, penetrating their farms and impacting their crops.

Notably, the motion filed July 28 questions the Oregon Health Authority’s timing for the new testing rules for trace amounts of Aspergillus: why now?

“Oregon now has a nearly eight-year track record to look to for its adult-use marijuana market, and a nearly 25-year history as it relates to medical marijuana,” the motion states. “Despite this long track record, there exists no data linking cannabis consumption to higher rates of aspergillosis in Oregonians.”