November 20, 2013

Q&A With CEO of Steep Hill Halent: US Cannabis Testing Market Could Hit $40M by 2016


Medical marijuana labs are poised for major growth as more states mandate the testing of cannabis for potency and safety.

David Lampach, chief executive officer of Steep Hill Halent in California, estimates that US cannabis testing revenues could rise as much as eightfold by 2016.

“I think we’ll see the industry grow from $5 million-$7 million now to $20 million next year and $40 million within two years,” Lampach said in an interview with Marijuana Business Daily. “You can go state-by-state and sort of extrapolate. Colorado and Washington will probably be about $10 million next year, while California could go to $80 million in pure testing revenue” if it eventually legalizes cannabis for recreational use and implements mandatory testing.

But there’s much uncertainty ahead. Most states have yet to determine the approved processes, equipment and technology that will be used for testing. And the new rules will make it harder for smaller labs – as well as upstart facilities – to gain a foothold.

That means the cannabis testing industry will likely see a wave of consolidation, even as it expands. Some labs will team up via mergers or acquisitions (Steep Hill, for instance,  recently merged with Halent Scientific), while others will be forced to close.

Lampach spoke with Marijuana Business Daily about these trends, what’s in store for the industry in the years to come and what it will take to compete in the testing marketplace of the future.

Q: What does the trend toward mandated testing – and regulations surrounding it – mean for labs?

A: It’s a huge boon to our business. As Washington and Colorado and other states come online, hopefully the challenges for us will be more like the challenges in the rest of business world: competition, expansion, etc.

Q: What will it take to compete in a regulated testing industry?

A: You’re going to have to be bigger. The labs that are going to flourish are the ones that can industrialize. It’s one thing to do testing on a small scale, but it’s another to do it on a large scale for an industry that’s pumping out tons of samples. There will be huge consolidation in general and fewer companies as a result.

Q: Is that why you merged with Halent?

A: To some degree, yes. It was massively important for us. Two prominent names in California merged. There might have been a short list of three or four big names in testing here, and when we merged that list got shorter and we got stronger. We feel we needed to do this to compete going forward.

CannabisAd Q&A With CEO of Steep Hill Halent: US Cannabis Testing Market Could Hit $40M by 2016Q: So you envision more of these of mergers in general among testing labs?

A: Yes, we’re for sure going to see that happen. Several years ago, the industry was small and decentralized and there were labs everywhere operating under no regulations. Now we’re seeing a trend towards consolidation. You’re going to see more testing companies going public, raising capital and making acquisitions.

Q: Will smaller testing labs even be able to survive?

A: I wouldn’t be surprised if the little guys basically don’t exist in the future. I’m not going to say all small testing labs will fail. But I think the odds are stacked against them. Other labs are establishing brands and reputations and have had time to get more key customers.

Small labs are still popping up, and there are a lot of little ones that test a few samples at a time, almost like a hobby. But to grow beyond that – which will be required to compete in a regulated environment – you need other things like insurance, human resources, etc. They will have a hard time doing that. And the logistics of moving around samples is huge.

Q: Won’t there at least be opportunities for smaller startup labs in new MMJ states?

A: Yes. There’s already a lab in Massachusetts. I do think there are opportunities for small labs in unestablished markets.

But keep in mind they’ll be competing against labs like us. I’m pretty confident that I’ve got a good team and in our ability to compete.

Q: Looking even further out, will we see large, mainstream testing labs enter the industry?

A: The big ones won’t touch cannabis yet, but they’re getting there. And when they do get there that will be a real challenge. Cannabis testing isn’t rocket science.

We’re not reinventing the wheel. People who know how to run industrial labs will be able to come in fairly quickly, and they will be able to do it faster and cheaper, and that’s all (patients and consumers) will really care about.

The only thing that will prevent them from being successful on their own is that labs in the space are already establishing a huge presence and are branding. In this case, the labs already operating will become acquisition targets. But whether the big testing companies buy existing labs or move in on their own, they are coming.

Q: Many states are planning to require testing but haven’t yet released details of what will be required. How is this uncertainty affecting testing companies?

A: The risk is that you go too hard in one direction. Maybe we over-invest in pesticide testing, and then Colorado says it’s not going to require that. It really depends on the market. In California, there’s an ongoing risk of dispensaries deciding not to test because they don’t have to. And then obviously in an unregulated model, there are people who are not doing a good job and giving testing a bad name.

As time goes by, though, everyone is going to have to get accredited, probably with ISO 17025.

Q: How much does it cost to start a testing lab these days?

A: For instrumentation, you’re talking in the $500,000 to $1 million range. That doesn’t include things like staffing and the cost of doing business. Then you’ll have to get (certified and licensed), and that will be expensive. We’re putting aside money now for that. The trend is that it’s getting harder and harder and more expensive.

Q: How are you preparing for the new regulated marketplace?

A: Well first we merged, and we’re raising capital. You have to spend capital on validation so that when the spotlight turns on you, everything looks right. That’s a big deal. There hasn’t been validation in cannabis testing, and it’s required in a scientific field.

It’s also important to focus on branding and licensing, as well as in branching out beyond just testing. We’re doing a lot more consulting. The key is to have staying power.

We’re also transforming the company into product research and development, leveraging the fact that we have thousands of samples passing through our lab. Testing will remain the core of our business, but we are ceasing to be just a testing lab.

Q: Aside from the changing regulatory climate, what are the biggest challenges of running a medical marijuana testing lab today?

A: Raising capital has been a long-time industry-wide challenge, but that is changing now. We managed to raise a good amount of money – hundreds of thousands of dollars – recently, which before was impossible for us. Anybody who had the stomach to invest in the industry went straight to grows or dispensaries, not labs. There really was no middle ground.

It’s still a challenge, but we’re seeing more investors look at labs and the sector in general. From an investor standpoint we’ve seen a changing dynamic and we see potential liquidity in the future.


  1. Great interview.

  2. Yes, great interview and great insight into the cannabis testing industry.

Post Your Comment:

Please note:
Comments are moderated by our editors who do their best to approve comments ASAP. As MMJ Business Daily is focused on business, we approve comments that are specifically relevant to industry professionals. General opinions and questions about cannabis may not be posted.

Patient Decries High Cannabis Prices in Connecticut

At least one outspoken cancer patient in Connecticut has been brought to tears by what [click to continue...]

Dueling MMJ Ad Campaigns Hit Florida Airwaves

Absentee ballots have just started to hit Florida mailboxes, and it’s no coincidence that a [click to continue...]

4 More Retail Marijuana Stores to Open in Seattle

Seattle marijuana

The Emerald City is finally about to get its second recreational marijuana shop, while three [click to continue...]

3-D Printing Creates New Cannabusiness Opportunity

The marijuana industry has spawned a seemingly endless number of ancillary business ideas, and one [click to continue...]

Montana City’s MMJ Industry Thriving

Montana medical marijuana image

Montana’s once-burgeoning medical marijuana sector unraveled quickly several years ago due to legal issues, but [click to continue...]

Dozens of New Regulations on Colorado Cannabis Businesses

If you work in the marijuana industry in Colorado, brace yourself. The state’s Marijuana Enforcement [click to continue...]

Legal Hemp Harvest Underway in Kentucky

Remember that 250-pound bag of imported hemp seeds customs officials detained in Kentucky earlier this [click to continue...]

Casino Giant Files Trademark Lawsuit Against Nevada MMJ Company


The company that runs some of the most well-known casinos in Las Vegas has filed [click to continue...]

No Bankruptcy Protection for Cannabis Companies, Judges Rule

Marijuana businesses across the country, take heed: If your venture doesn’t pan out, don’t count [click to continue...]

Attorney General Holder Questions Marijuana’s Classification


U.S. Attorney General Eric Holder, who is resigning from his post later this year, suggested [click to continue...]

Marijuana Conference Accepting Applications for Investor Pitch Event

Cannabis entrepreneurs can now submit applications to take part in an investor pitch session at [click to continue...]

Pennsylvania MMJ Bill Clears Senate, but Challenges Remain

Pennsylvania marijuana

Though a bill to legalize medical marijuana in Pennsylvania won overwhelming support in the state [click to continue...]

369 MMJ Business Applications Submitted in Illinois

Illinois received 369 applications from entrepreneurs seeking licenses to open medical marijuana businesses, according to [click to continue...]

Bogus Texas Marijuana Legalization Story Dupes Thousands

A fake news site duped thousands of online readers into believing – at least for [click to continue...]