Yahoo Finance reports:
The expansion of the legalized marijuana industry at the state level has created a diverse array of ancillary businesses, each of them with their own competitive landscape and growth potential. This week, GreenWave Advisors, LLC, an independent investment research and advisory firm serving the burgeoning cannabis industry, published a report titled “Marijuana Lab Testing: An in depth analysis of investing in one of the industry’s most attractive plays,” which projects marijuana lab testing revenues could reach $850 million a year by 2020.
Unlike many other marijuana-related businesses, including 22nd Century Group (NYSE MKT: XXII), which focuses on vaporizer products, Cara Therapeutics Inc. (CARA), which focuses on research, or MyDx Inc. (MYDX), which focuses on chemical sensors, cannabis testing labs address an immediate need from dispensaries and growers looking to meet state-mandated regulations before they can sell to the public. As a result, the market has been rapidly expanding across many states with few public companies well positioned to take advantage.
The report covers each state’s requirements for testing, which vary considerably from state to state, and highlights for investment considerations the leading indicators for what is considered to be a top growth sector within the marijuana industry.
“As individual states debate the efficacy of current legislative statutes or contemplate initial legalization referendums, lab testing requirements of cannabis products has become an increasing subject of concern and attention. Although the current governing statutes regarding legalized marijuana uses vary in great degrees from state to state, one common theme that has emerged is the increased awareness on the part of legislators and health officials, as well as cultivators and laboratories, of the critical importance of product testing and quality assurance.”
Required cannabis testing is relatively new. In fact, Colorado had no protocols in place at the start; the program was only began a year ago after a series of overdoses on edibles made the news. Similarly, Washington State did not begin compulsory testing for potency, contaminants, moisture and microbiology until 2013 when recreational cannabis became legal, even though medicinal use had been in effect since 1998.
While many of the cannabis testing labs are privately owned, DigiPath Inc. (OTCQB:DIGPD), a publicly traded company based out of Nevada, is a potential opportunity for investors to participate in this portion of the industry. The company is one of only two labs operating in the Las Vegas area, and recently inked a one-year agreement with Euphoria Wellness to test for unsafe levels of contaminants such as heavy metals, microbes, mycotoxins, pesticides, and solvents, which can exacerbate patient health issues.
Comprehensive cannabis potency testing is critical for patient care. Cannabis is believed to contain over 400 medicinal compounds, most notably cannabinoids and terpenoids, each of which affects the body differently. One compound, THC, is known to induce cancerous cell death. Another compound, CBD, keeps certain cancers from spreading. Different compounds can reduce tissue inflammation, treat epilepsy, and fight methicillin-resistant Staphylococcus aureus (MRSA) infections.
It is no wonder that so many states are now requiring that lab testing be a step in the seed to sale process. Of the 23 states that permit medical marijuana, eight currently require testing and five additional states are considering testing legislation, which is likely to expand over the coming years as more states pass marijuana laws and state legislators continue to better define what is considered safe.
In a recent article from Smithsonian.com, Andy LaFarte of Charas Scientific, who operates one of only eight labs in Colorado, said “It’s pretty startling just how dirty a lot of this stuff is,” and “There’s a stereotype, a hippy kind of mentality, that leads people to assume that growers are using natural cultivation methods and growing organically…That’s not necessarily the case at all.” Surprisingly, Colorado doesn’t even require testing for contaminants, just for potency. Washington, on the other hand, tests for microbial agents like E. coli, salmonella and yeast mold, and officials there rejected about 13 percent of the marijuana products offered for sale in 2014.
A company like DigiPath Inc. (OTCQB:DIGPD) is well suited to take advantage of this growing industry with their existing lab, trusted scientific team, and experienced management professionals.