Exclusive Interview with SC Labs Founder and CEO Jeff Gray
Many cannabis companies see their interaction with a testing lab as a necessary step on the way to selling products in the retail space, but SC Labs strives to create a more meaningful relationship with its customers. Founder and CEO Jeff Gray spoke with New Cannabis Ventures about how his company tries to create a collaborative relationship with clients, SC Labs’ competitive position and the importance of diversity in the cannabis space. The audio of the entire conversation is available at the end of this written summary.
Four Founding Partners
Gray has spent years in the cannabis business. When his partners introduced him to the lab environment, he began to learn much more about the science of cannabis. Gray stepped up to raise money and run the business.
Co-Founder Josh Wurzer, now president of the company, is a chemist by training and has a true passion for understanding cannabis and unlocking more opportunities in the plant. Co-Founder Alec Dixon, now Director of Client Relations, learned much about the industry working in the hydroponics industry. Ian Rice is the only one of the original four founders to move on; he now works with sister company Envirocann.
From those four founders, the company has grown to employ approximately 100 people. The company has invested in recruiting and promoting talent from within its own team.
SC Labs has a 14,000-square-foot laboratory in Santa Cruz, California and a 7,000-square-foot lab in Tigard, Oregon. The majority of the company’s staff and focus is geared toward the California market.
In California, the company has approximately 20 percent of the compliance testing market, according to Gray. Cannabis testing is limited to the states in which any lab operates, but hemp testing can allow a much broader reach. SC Labs has hemp clients all over the country.
Moving into new markets is just a matter of timing for SC Labs. The company has a preference for more mature markets with the regulatory structure to oversee and enforce lab testing. It has a number of key states it is watching for expansion opportunities, according to Gray.
Cannabis and Hemp Testing
SC Labs’ revenue falls into a few different categories: compliance testing, hemp testing and QA/QC or R&D testing.
When it comes to the actual process of testing cannabis and hemp, the approach varies very little. But, the markets for cannabis and hemp do have significant differences. So, SC Labs approaches these two revenue categories differently when it comes to sales, marketing and interacting with customers.
SC Labs approaches testing with the development and progression of standards in mind. It was the first lab to do residual solvent testing, and the first lab in California to do cannabis testing with mass spectrometry, according to Gray. The company also serves on expert panels, like the USP Cannabis Expert Panel, to help set and progress national standards for cannabis and hemp.
SC Labs Customers
The company works with a wide range of customers, including cultivators, manufacturers and distributors. SC Labs serves each of its customer groups differently based on their needs.
Two of the company’s clients, INDUS and Papa & Barkley, are invested in creating high-quality products, and testing plays an important role in that goal. SC Labs has worked with these clients for a long time, and together, they have gone well past regulatory requirements, according to Gray.
SC Labs is trying to change the way people see cannabis. The company is working with other industry players, like Leafly, to create a more in-depth understanding of terpene profiles. The company wants to create a more evolved way of classifying cannabis so consumers can make choices more representative of the chemical components of cannabis products and how they will affect them, according to Gray. The opportunity to change the way people understand and interact with the cannabis plant was really what drew him to the industry.
Operating as an Essential Business
Santa Cruz County was one of several counties that announced shelter-in-place restrictions prior to the state, according to Gray. SC Labs took steps immediately to change its SOPs to protect staff and clients. Normally, the company runs three overlapping shifts to cover operations 24 hours a day. In response to COVID-19, the shifts are separated, and between each shift, the lab is sterilized from top to bottom. Anyone who was able to work from home began to do so as well.
The company is required to pick up samples in-person from its clients. So, the company created a standardized approach to protect both its staff and clients during that process.
Being deemed as an essential business has allowed SC Labs to remain open, but the company has had to reframe how it looks at operations. Instead of prioritizing efficiency and cost-savings, the company is focused on managing people, exposure and expectations to ensure its team and customers feel safe, according to Gray.
SC Labs has largely been bootstrapped. Today, 89 percent of the company is owned by the founders, who continually invest profit back into the business. The company has developed relationships with some capital partners, including Tress Capital and Salveo Capital.
The company is currently well-capitalized, but it will be considering options to raise capital for expansion purposes. SC Labs wants to work with partners that understand the company’s vision and agree with how the leaders run the company, according to Gray.
Diversity in Cannabis
The cannabis industry is on the precipice of explosive growth that will create an incredible amount of wealth, but it needs to make more room for people and communities of color, according to Gray. A more diverse group of people, including those impacted by the War on Drugs, needs the opportunity to participate in the industry at an equity level. Allowing more space for diversity starts with licensing, but established companies can also play a role in creating a more open industry.
SC Labs has hired many people as it has grown, but the company has not seen a high level of diversity in its job applicants. The cannabis industry has a problem with diversity, as does the STEM field. As a science company, SC Labs has partnered with organizations that are dedicated to improving diversity in both cannabis and STEM.
The company has also focused on mentoring its people and promoting from within its team. But, it isn’t just about bringing a more diverse group of people into a company, according to Gray. It is also about investing in and supporting those people, which is why SC Labs offers benefits like free healthcare, 401 (k)s and family leave.
As an ancillary business, the success of SC Labs is linked to the health and success of the industry as a whole, according to Gray. He wants to see tax reform and more licenses for a diverse set of people to help drive the industry forward. These changes will help create a more competitive market.
From 2018 to 2019, SC Labs doubled in size in terms of employee count and revenue. From 2019 to 2020, the company expects to grow an additional 25 percent. As it undergoes that growth, the leadership team will be focused on maintaining the same quality of service. It will need to build, educate and add quality staff members to do so, according to Gray. As the company grows, he is also excited about deepening both customer relationships and technical service offerings.
To learn more, visit the SC Labs website. Listen to the entire interview: