Safety and Risk in Marijuana’s Market


Can a Tainted Product Ruin Your Promising Pot Investment?

You bet it can. In the wake of the infamous 1982 Tylenol poisonings, the market value of Johnson & Johnson’s common stock dropped by approximately 29 percent, or $2.31 billion. The pot industry is today’s hottest new investment, but it is far less regulated than the pharmaceutical industry of the ‘80s. Not to be a buzzkill, but lab testing and safety regulation is something you need to examine carefully before backing any marijuana enterprise.

The penny pot stock boom of the first several months of the year seems to have cooled, but we trust you knew this was going to be a wild ride from the outset. It is not purely a game of chance, however.

Because marijuana is still classified as a Schedule I controlled substance, neither the FDA nor the USDA exercises any oversight regarding the safety of products distributed to consumers. That task is left to state and local authorities, who are scrambling to put regulatory machinery in place. It is easiest to look at Colorado because the industry is relatively well developed there.

Colorado has permitted the limited use of medical marijuana since 2000 and began to issue licenses for recreational sales in 2014. Medical sales must comply with a host of regulations dealing with licensing, testing and product safety. Retail sales must comply with labeling, packaging and safety standards. Edibles are subject to local food safety regulation. The underlying structure of safety regulation is there, but the enforcement has apparently been slow to follow. The testing that does occur is often initiated by the buyer and looks only at potency, not the possible presence of contaminants or other hazards.

There are a thousand other risks with pot investing. This one you do not need. Proponents of medical marijuana have long called for better identification and labeling of the potency and cannabinoid profile of various strains, so that doctors and patients are able to measure specific doses and minimize the chance of improper dosage.

In addition to assessing potency, thorough lab testing should check for molds, mildew and filth; microbial organisms; herbicides, pesticides and fungicides; and harmful residual chemicals. Sanitation and workplace safety oversight ultimately contribute to the purity of the product. Marijuana is an agricultural crop. If it is good for cantaloupes, it is good for cannabis.

There is no particular reason to wait for the machinery of state government to catch up to the market. As you listen to pitches, make sure that you ask about the regular testing program. There are relatively few labs, and they also may present an attractive opportunity. The situation seems ripe for organized marijuana industry efforts to standardize, especially for medical uses; self-regulate with respect to safety; and self-insure, to deal with remaining risks.

Although the regulatory vacuum presents some risks for consumers and investors, it presents opportunity for those interested in stepping into the void. For the savvy investor, the prospect of high return is exciting, but as far as risk is concerned, as little as possible should be left to chance. There may be money to be made in risk-reduction itself.

Anne Wallace is a New York lawyer who writes extensively on legal and business issues. She also teaches law and business writing at the college and professional level. Anne graduated from Fordham Law School and Wellesley College.

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