Michigan Cannabis Processor Sky Labs Faces Allegations Over Massive Hemp-Derived Isolate Transfers

Michigan’s Cannabis Regulatory Agency (CRA) has leveled serious allegations against Sky Labs LLC, an adult-use cannabis processor based in Mt. Morris. This is not the first time Sky Labs has come under scrutiny, but the latest complaint involves over 2,200 pounds of isolate—a hemp concentrate—raising questions about regulatory compliance and the safety of cannabis products in the state.

Over a Million Grams of Questionable Isolate

The CRA’s complaint outlines a troubling timeline. Between April and July 2024, Sky Labs reportedly accepted over 20 transfers of isolate, totaling more than one million grams, according to manifests in Michigan’s statewide cannabis monitoring system, Metrc. The isolate allegedly came from a state-licensed medical marijuana processor. However, the processor denied ever transferring such material to Sky Labs or any other business, according to the CRA.

Adding to the confusion, a Sky Labs employee, identified as “K.S.,” admitted to the CRA that he believed the company could process hemp from a medical marijuana processor. This statement contradicted prior warnings that a hemp processor-handler license was required for such transactions.

Missing Certificates and Unverified Testing

When CRA agents visited Sky Labs in July 2024, they discovered more inconsistencies. On the same morning of their visit, Sky Labs had reportedly received a shipment of 220,000 grams of isolate from the same processor that denied involvement. Additionally, a manager at Sky Labs, identified as “C.W.,” claimed the company had received pure THCA and processed it in their ovens to decarboxylate—a step to convert THCA into THC.

The CRA requested certificates of analysis for the hemp concentrate products, but as of January 9, Sky Labs had not provided them. Compounding the issue, Sky Labs allegedly mixed the isolate with existing batches of distillate without conducting required testing, creating untested final products.

History of Regulatory Troubles

This is not Sky Labs’ first run-in with Michigan’s cannabis regulations. In July 2024, the CRA filed a similar complaint against the company for mishandling large amounts of THCA distillate from out-of-state sources. And in 2023, Sky Labs surrendered its medical marijuana processor license, paid a $100,000 fine, and faced stringent compliance requirements after its vape cartridge concentrates tested positive for banned chemical residues in 2021.

The failed tests revealed myclobutanil, a chemical used to control mildew that converts into toxic hydrogen cyanide when burned. The presence of myclobutanil in cannabis products has been a recurring concern in the industry, leading to recalls in both the U.S. and Canada.

What Happens Next?

The CRA’s complaint is clear about its intent to impose fines or other sanctions on Sky Labs. These could include license suspension, revocation, or refusal to renew the company’s license. Sky Labs has the right to request a hearing within 21 days of the complaint’s issuance.

Key allegations in the current complaint include:

  • Accepting isolate from non-compliant sources.
  • Failing to maintain accurate security footage and timestamps.
  • Misreporting product data in the Metrc monitoring system.
  • Combining and distributing untested cannabis products.

The CRA emphasized that the complaint represents allegations, not proven facts, at this stage.

A Bigger Problem for the Industry?

Sky Labs’ ongoing legal troubles highlight larger issues within Michigan’s cannabis industry. Regulatory agencies face mounting pressure to ensure product safety and prevent bad actors from undermining public trust. For businesses, these cases serve as a reminder of the importance of strict compliance and transparency.

Michigan has one of the most robust cannabis markets in the U.S., but maintaining that position requires vigilance from both regulators and industry players. Cases like this erode confidence, not just in individual companies, but in the system as a whole.

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