Pot Testing Labs: A New Frontier for Fraud

Fast-growing industries tend to attract con artists and carnival barkers. Marijuana is no exception.

As P.T. Barnum said, there’s one born every minute. Want to make profits in cannabis, without becoming a sucker? You must stick to the fundamentals. Look beneath the razzle-dazzle and study the financial statements. The words “cannabis” or “marijuana” in a company’s title don’t guarantee success.

When seeking to buy pot stocks, scrutinize company balance sheets. Make sure there’s reasonable cash flow to cover operating expenses. Too many investors are jumping aboard the marijuana bandwagon without first examining the financial fundamentals.

In addition to dubious penny stocks and pump-and-dump schemes, the marijuana industry also is plagued by a lack of standards. This problem is coming to the fore in the cannabis testing industry. If left unaddressed, doubts about testing veracity could erode consumer confidence in marijuana products.

Regulators warn that some unscrupulous marijuana businesses, e.g. growers, processors, and manufacturers, are shopping around for labs that will give them preconceived results in terms of THC potency and contaminants.

Other cannabis businesses are reported to be sending samples to testing labs of marijuana products that have been illegally adulterated to give the semblance of higher THC content. This ruse is accomplished by spraying marijuana oil or sprinkling THC crystals on the marijuana, among other methods.

On a mounting basis around the country, regulators are fining companies and closing testing labs as reported results don’t match official audits.

Recent case in point: A marijuana testing lab based in Olympia, Wash., in October 2023 was slapped with a sixth-month emergency suspension, during which time the state’s Liquor and Cannabis Board (LCB) will seek to revoke its certification permanently.

State regulators issued the 180-day suspension Oct. 24 against True Northwest Inc., which has been a state-certified cannabis testing lab since July 2014. True Northwest tests cannabis and hemp flowers, extracts, edibles, topical and tinctures, and offers the cannabis and hemp industries comprehensive analytical services.

The state began investigating True Northwest in September, after regulators received documentation suggesting the lab was generating grossly inaccurate quality assurance and quality control test results.

“Despite being aware of deficiencies, the lab continued to submit inaccurate and/or false test results to the LCB and the lab’s clients,” according to an Oct. 25 bulletin from the board. “The lab failed to submit an acceptable corrective action report in response to a deficiency report. In addition, there were multiple serious deficiencies found during a laboratory assessment and proficiency testing.”

The True Northwest incident is just the tip of the iceberg, in terms of marijuana testing improprieties. Corrupt testing labs are proliferating, cheating customers out of the weed they think they’re buying.

The growing need for quality assurance…

True Northwest is a private company but its sudden notoriety underscores the increasing prominence of marijuana testing, which is attracting a flood of venture capital and investor interest.

The increasing legalization of cannabis is generating new growth avenues for legitimate testing laboratories. According to the research firm Global Market Insights, the global cannabis testing market is on track to reach $2 billion in annual sales in 2025, for a five-year compound annual growth rate (CAGR) of 13%. Long known for its excellence in lab testing, Germany is a dominant player in this space.

Increasingly strict regulations and oversight implemented by various authorities to ensure superior quality of cannabis products and consumer safety will further boost the growth of cannabis testing laboratories.

Testing laboratories are “pick-and-shovel” marijuana plays, an investment angle that I generally find appealing.

Read This Story: Profit from Pot’s “Pick-and-Shovel” Plays

Pick-and-shovel plays can be reliable money-makers, because they provide essential value-added services. What’s more, they usually enjoy a diversified roster of clients in several different industries, which buffers them from the inherent volatility of the marijuana business.

Problem is, many of these pick-and-shovel plays are penny stocks with low floats, low volume, and next to no revenue. They’re on the radar now largely because the yakking pundits on financial news channels are obsessed with the cannabis sector. Marijuana investing is a sexy topic that boosts ratings.

As often happens when a disruptive industry is booming, we’re seeing a proliferation of marijuana penny stocks. Some of these stocks are worthwhile plays, but many others are hyped-up scams that prey on the gullible.

That said, many investors who choose wisely are making a fortune with pot stocks. If you ignore the “green rush,” you’ll be leaving money on the table.

Medical marijuana is one of the biggest investment opportunities of a lifetime. Marijuana biotech firms and testing labs are interdependent sectors that are generating synergistic growth. Biotech growth expands demand for testing. By the same token, advances in testing boost biotech.

Cannabis investments, especially in biotechnology, confer market-beating potential and they’re a must for your portfolio. But the key is finding the right pot stocks. You need to conduct due diligence.

I’ve done the in-depth research for you. My publication Marijuana Profit Alert provides specific, actionable advice on the best investments in the psychotropic revolution.

Remember, no one fires a starting gun to announce a new bull market. Don’t waste time; get aboard the marijuana megatrend ahead of the next big leg up. For details about the highest-quality pot stocks to buy for 2024 and beyond, click here now.

John Persinos is the chief investment strategist of Marijuana Profit Alert.

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