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Jul 30, 2023

Arizona Cannabis Testing Lab Accused of Tampering With COAs; Owner Calls it Sabotage

A licensed Arizona cannabis testing laboratory that paid its way out of trouble to the tune of $470,000 in early 2022 is back in hot water with state regulators following an unannounced site visit

A licensed Arizona cannabis testing laboratory that paid its way out of trouble to the tune of $470,000 in early 2022 is back in hot water with state regulators following an unannounced site visit earlier this year.

OnPoint Laboratories, of Snowflake, a town of roughly 6,400 people in eastern Arizona, is now being accused of misreporting testing results for Aspergillus, a common mold, among other violations stemming from a May 19 inspection, according to the Arizona Department of Health Services (ADHS). This comes more than a year after the lab paid a nearly half-million-dollar settlement to keep its license after state regulators found it had unreliable THC testing methods and multiple procedure violations.

With a roughly 10,000-square-foot high-throughput screening facility and more than 50 employees, OnPoint is one of the largest among 28 licensed cannabis laboratories in Arizona. The company has performed more than 65,000 compliance samples and 400,000-plus individual tests in the past 3 1/2 years, the owner, Jeff Cardot, told Cannabis Business Times.

But unreported human errors in four specific samples related to Aspergillus testing have now snowballed into a slew of serious claims made by state compliance officials against the company and its executives.

ADHS regulators obtained certificates of analysis (COAs) from dispensaries for the four samples, showing that OnPoint had “misreported” as having negative (not detected) Aspergillus results. On or about April 6, 2023, OnPoint workers realized that these samples had been misreported to the dispensaries yet failed to disclose their error with state regulators, according to a public health preparedness report sent June 30 from ADHS to OnPoint.

This report, a public record signed by ADHS Laboratory Compliance Office Supervisor Mary Cornell, was obtained by CBT through an anonymous tip.

According to the state, a paper trail of communications suggests that CEO Samuel Richard and the company’s former technical laboratory director, Cathleen Cover, were aware of the misreported samples.

CBT reached out to Richard, who declined to comment, but his business partner, Cardot, said Richard was not responsible for the misreported samples, calling it a sabotage attempt by his former lab director.

Cardot said he terminated the employment of his former lab director as well as the company’s chief scientific officer (CSO), Farah Bughio, who headed the microbial department, over integrity concerns following a scheduled ADHS audit April 20, 2023, when at least one misreported Aspergillus test sample came to light.

“They made an integrity error not to be honest when they found out about the human error that happened,” he said. “They could have just been honest. They could have self-reported, and they held that information, and they weaponized it against the CEO and ultimately me.”

But state regulators may not see eye-to-eye with Cardot over who is to blame.

Rather than disclose the misreported samples to ADHS regulators ahead of a scheduled audit, OnPoint’s chief operations officer (COO), whose name was omitted from the report, is accused by state compliance officers of changing the COA during the scheduled site visit to show a positive result instead of the negative result that was actually reported on the original COA—to make it appear as though no error had been made in the first place.

“The COO gave the altered record to the department during the 04/20/2023 inspection with the apparent intent to conceal the misreported result,” according to the June 30 report signed by Cornell.

In Arizona’s adult-use cannabis market, the presence of any DNA of four specific Aspergillus species must not be “detectable in 1 gram.” The presence of any DNA of those four Aspergillus species would trigger a positive test result.

After Cardot terminated Cover and Bughio, he said they went to the state to disclose the four misreported Aspergillus samples and blame the errors on OnPoint’s executives. It wasn’t until compliance officers returned for an unannounced follow-up site inspection on May 19 that they uncovered the altered COA record.

During this May 19 visit, ADHS officials obtained OnPoint’s testing software (Confident Cannabis), which they said showed the COO had tampered with the Aspergillus results on the day of the audit, according to the June 30 report signed by Cornell.

“When the department conducted its unannounced inspection of OnPoint on 05/19/2023, the department obtained the testing software’s (Confident Cannabis) change log for sample 2211OPT3571.15416, which showed the COO had changed the Aspergillus results from negative to positive and printed a new report for the department on 4/20/2023,” Cornell wrote.

Later, the department determined the testing software’s logs for all four samples “do not show that corrected COAs with positive Aspergillus results were ever published and sent to the dispensaries,” Cornell wrote. “When the department contacted the dispensaries about the misreported samples, some of the samples were still being sold, initiating a recall.”

In June, the month after the unannounced site inspection, ADHS issued three press releases for voluntary recalls due to possible Aspergillus contamination in several products on dispensary shelves. The department issued three more such recalls in July and August. But it’s unclear which of these six recalls were in connection with OnPoint or how many retail locations were involved, leaving customers in the dark on this particular public health and safety issue.

Notably, ADHS issued just one recall for possible Aspergillus contamination in 2022 and two such recalls in 2021. That’s three recalls in two years compared to six recalls in the past three months.

Cornell did not explicitly outline how ADHS compliance officers determined that the COO was responsible for the COA entry changes in OnPoint’s testing software. The omission of precise details for this damaging claim against the COO is significant given that Cardot disputes the department’s assessment of responsibility.

“Unfortunately, this was a really sad moment because the lab director tried to sabotage the CEO and the COO,” he said. “You have a CEO and a COO that aren’t in the lab, that aren’t responsible for the testing, aren’t responsible for the certificate of analysis, and aren’t responsible for any of this stuff. And the lab director, I terminated her and the [chief scientific officer] over integrity issues, and the first thing they’re saying is, she’s like, ‘I’m going to take down the COO, and the CEO, and you, and everybody.’”

CBT reached out to Cornell for more details on the ADHS assessment of the violations. Tom Hermann, the department’s public information officer, said the state cannot comment on ongoing administrative or legal proceedings. When asked if OnPoint has had the opportunity to formally make its case in front of the ADHS—whether that be a hearing, appeal or other proceedings available for licensees—Hermann declined to comment.

According to the June 30 report, ADHS was not requesting or accepting a written plan of correction from OnPoint, because department officials found the laboratory’s deficiencies were “committed intentionally” and are:

However, Cornell wrote that ADHS requires OnPoint Labs to immediately correct violations that present a health or safety threat.

“Due to the seriousness of the [ADHS findings], this case has been referred to the department’s Enforcement Team for further review,” she wrote. “The department will issue a separate notice with additional information about the enforcement actions and the process for requesting an administrative hearing and an informal settlement conference.”

While ADHS has many functions, state cannabis compliance officers are focused on two primary purposes: public health and safety, and diversion. The Aspergillus testing and COAs fall under the former purpose.

On the diversion front, the June 30 report does include implications pertaining to what regulators call violations in OnPoint’s inventory control system, including personnel oversight, and disposal policies and procedures.

“OnPoint’s owner and [technical lab director] did not develop, document, and implement policies and procedures and an inventory control system for disposal of medical marijuana and marijuana products after testing, in violation [of state law],” Cornell wrote.

In other words, because OnPoint did not have a well-maintained destruction log, one main conclusion from state regulators would be that suspected criminal activity (theft or diversion) was taking place at the laboratory. For example, if a client provided the lab with 10 grams of flower, and the lab only tested 7 grams, and there’s no record in the destruction log for the other 3 grams, then these 3 grams were hypothetically taken out the backdoor.

Upon its inspections, ADHS officers found that OnPoint did not have a laboratory agent designated by the lab director who was responsible for oversight of the lab’s inventory control system and the disposal of cannabis products, accord to the June 30 report.

“Since disposal had not been performed for about 1 to 1 ½ years, a laboratory agent stated he and others caught up the disposal records and documented numerous significant reductions and discrepancies in the records,” according to the June 30 report.

Furthermore, among 94 sample records contained in OnPoint’s December 2022 to March 2023 disposal records obtained by the department during the May 19 inspection, at least 41 showed that there was zero variance between the amount actually disposed and the expected amount remaining after testing, “which is highly improbable,” according to the report.

For example, an average weight loss study performed by OnPoint to research how much product was being lost during homogenization shows an average loss of 0.3472 gram for flower, 1.1814 grams for edible gummies and 0.7279 gram for edible brownies, according to the report. These average weight losses are supposed to be implemented into an inventory control system, and laboratories are required to have formulas to account for expected product variances.

When ADHS officials requested the disposal paperwork for certain batches in question to see if there was a plausible reason for these “improbable disposal numbers,” OnPoint in a reply email stated that the samples had developed significant mold growth and the lab agent who performed the destruction was “directed not to weight the contents prior to destruction to avoid contact with the fungus,” according to the report.

As a result, OnPoint concedes that, for 41 of the 94 samples with zero variance, the laboratory does not have complete inventory and disposal records, in violation of state law, according to the report.

In addition to requiring OnPoint to make immediate corrections for what the department has determined to be violations that present a health or safety threat, ADHS urged the laboratory to correct all deficiencies “at the earliest possible date,” Cornell wrote.

Cardot maintains that the crux of these deficiencies was the result of incompetence from his former lab director, Cover, and chief scientific officer, Bughio.

“I mean, we’re going to have mistakes,” he said. “We are going to have machines that don’t operate properly. We’re going to have human error. It’s the nature of the business and … we have SOPs in place to mitigate, and we do a very good job of mitigating it. But if somebody doesn’t have integrity, they’re fired.”