A scandal over California’s failure to keep pesticides out of legal cannabis is causing turmoil throughout the industry, with a whistleblower retaliation lawsuit, the departure of a top cannabis official, the state hiring a private investigator, and a race in the private sector to form a shadow regulatory system in the face of crumbling consumer confidence.

Product testing, confidential lab reports, public records and interviews show California regulators have largely failed to address evidence of widespread contamination, after a Los Angeles Times investigation in June found high levels of pesticides in some of the most popular vape brands. Industry leaders fear those revelations give consumers one more reason to opt out of the higher-priced, highly taxed $5-billion legal market, beset by slumping sales and rising business failures as it is out-competed by the larger, unregulated underground cannabis economy.