Cannalysis raises $22.6m Series A to automate cannabis compliance testing

The legalization of marijuana has created a booming new market, not only for the product but for ancillary services and goods. One of those services is testing. In California, the Bureau of Cannabis Control enforces strict guidelines regarding the testing of medical and recreational cannabis products to ensure that they meet state requirements. 

Meet Cannalysis, a startup that does exactly that. Today the Santa Ana-based company closed a $22.6 million Series A funding round led by CanLab, a cannabis, hemp, and CBD testing laboratory network. The new funds will be used to double the size of its headquarters. It will also expand into other states like Oregon and invest in its robotics and data-automation testing services.

“Cannabis and hemp testing is still in its nascent stages. There’s an enormous market opportunity as legalization becomes more widespread and the utility of CBD products become more prevalent. Cannalysis has set a new precedent for what the standards for cannabis testing should be with its focus on technology and automation,” Gary Hopkinson, executive chairman of CanLab, said in the statement announcing the funding.

The startup provides testing services that meet or exceed state-level compliance standards through the combination of robotics and validated scientific methods, it claims. It tests for chemical residues like pesticides and fungicides, heavy metals, residual solvents, moisture content, water activity, and terpenes.

Robotics to reduce human error

The use of robotics has been critical in its mission to improve the precision and accuracy of testing results, which can suffer serious mistakes as a result of human error.

“When there is human data entry and someone is typing in hundreds or thousands of numbers that make up the data, one missed keystroke has an effect on that supply chain. We have completely eliminated human data entry while also developing a way to transmit data computer-to-computer including our instruments and scales,” Brian Lannon, Cannalysis CEO, told AFN. “A lot of studies show that 80% of lab error is human data entry, so we have eliminated that risk.”

The heavy use of automation also allows users to track the progress of their samples in real-time similar to package tracking services offered by carrier services. It also allows users to access Cannalysis’ APIs to automate the flow of data between third-party platforms like Weedmaps while integrating directly with internal ERP systems. This further reduces the chance that human error will lead to mistakes that could be costly for cannabis purveyors.

Cannabis labeling

In addition to testing services, Cannalysis provides state-compliant labeling tools and Ph.D. consultations to support users with things like testing processes and parameters.

The automation of data entry could also prove useful when it comes to ensuring fair play in cannabis testing. Some labs may see opportunities to fudge test results so that product that isn’t technically up to snuff can still make its way into the stream of commerce.

“If a product doesn’t pass lab testing there are two options. One is to destroy the entire batch and the other is to put together a remediation plan that has to be approved by the state to clean the product. Sometimes the cost of remediation can cost more than producing the product, so a lot of it is destroyed,” Lannon explains. “A lot of rumors suggest that the product is actually going to the black market, however.”

Because lab testing is a gateway requirement, many in the industry were concerned that it would create a massive bottleneck in the industry. Although a number of small-scale labs were coming online, many of them didn’t have the capacity to deliver fast enough turnaround times, according to Lannon.

No bottleneck – yet

The state’s snail-like pace in approving licenses, however, alleviated any bottleneck concerns.

“There are thousands of businesses waiting for licensure, wanting to cultivate, manufacture, and distribute cannabis. They are underfunded and understaffed at the licensing agencies,” Lannon says. “Also, the state won’t issue a license unless the local municipality has signed off on having a cannabis business in its jurisdiction. I think two-thirds of the state has an all-out ban on cannabis businesses, so that helps prevent the bottleneck effect that some people were concerned about.”

Another factor that’s preventing a deluge of lab testing demand is the continued operation of the cannabis black market throughout California. Some people still prefer to buy their product through illegal channels to avoid paying the associated taxes or perhaps to keep their identity as a cannabis user anonymous. 

Some sources predict, however, that the cannabis market could reach $80 billion by 2022, generating countless new jobs – and lab testing demand. 

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