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Testing and Taxes


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The state of California is in the midst of its first large-scale cannabis testing scandal. Sequoia Analytical Labs, based in Sacramento, was one of just 44 licensed testing facilities in the state until it surrendered its license to the state last week after it was discovered the company's lab director had been falsifying test results, potentially having put pesticide-laced products on the market since July 1.

The laboratory announced the news in an email to clients and postings on its social media sites, saying it was "horrified to learn about this severe breach of a very important safety regulation."

The scandal came to light after a routine inspection by the Bureau of Cannabis Control on Nov. 27 found that of the 66 pesticides the state requires products be tested for, the lab was only testing for 44 due to a "faulty instrument." But a subsequent investigation by Sequoia found that its lab director knew about the problem and was "secretly falsifying results" in order to get products on the shelves for almost five months. (The lab director has been fired and Sequoia says it hopes to get re-licensed by January.)

The BCC has told Sequoia to contact its distributors and alert them of the problem so that affected products can be recalled and re-tested. (The company is offering to retest products free of charge for affected clients, though it's no longer licensed to do so.)

Sequoia General Manager Steven Dutra told Marijuana Business Daily that the issue potentially impacts 700 to 800 batches of products that were improperly tested over the five-month period, noting that many products have likely already been sold through retailed outlets and consumed by customers.

In addition to being a colossal headache for distributors and retailers that handle Sequoia-tested products, and potentially dangerous for those who consumed the products, losing a licensed laboratory can only worsen the testing bottleneck that exists throughout the state, frustrating cultivators, distributors, retailers and just about everyone else in the industry.

It's currently unclear if Sequoia's problems have impacted any cultivators, manufacturers, distributors or retailers on the North Coast.

If you've noticed a bit of a whirring sound emanating from the northwest corner of the first floor of the Humboldt County Courthouse recently, it's not your imagination. The county tax collector's office has had several cash counting machines on its front counters recently and they've been busy.

County Tax Collector John Bartholomew reports that the county sent out roughly $17.7 million in cannabis excise tax bills for 2018, and as of the Nov. 30 deadline, had received about $10.3 million in payments, roughly half of which were made in cash. (To put that number in perspective, the county spends about $9.4 million from its general fund on the sheriff's office operations budget and roughly $3.9 million to fund the entirety of the district attorney's office.)

For those keeping score at home, the county took in roughly $4.6 million in payments last year, about 84 percent of what was billed. This year, the county has only received payments thus far on 58 percent of what it's billed. (It saw about 78 percent of what it billed in the first 2018 cycle paid but the number dropped to roughly 50 percent for second installments and then 55 percent for bills sent out in October to operations that received licenses this year.)

Bartholomew said payments are still trickling in, noting that late payers face a 10-percent penalty — like with property taxes — and, as of Jan. 1, delinquent bills will start to accrue interest.

Asked how all those new cash counting machines the county brought in to deal with the influx of cannabis excise tax payments are working, Bartholomew chuckled.

"We were one of the earlier (California) counties to start using cash counters, just because of the nature of Humboldt County's economy," Bartholomew said, adding that about five years ago, he did an analysis and found that roughly $5 million of the county's $168 million in property tax payments were made in cash, a tidbit that raised a few eyebrows in California tax collector circles.

For the record, the county tax collector's office is on its third generation of cash counting machines, which now also test for counterfeit bills and log serial numbers.

Thadeus Greenson is the Journal's news editor. Reach him at 442-1400, extension 321, or [email protected]. Follow him on Twitter @thadeusgreenson.

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