Managing the surplus

Matt Miller’s family has farmed pot in Oregon since well before it became legal.

But since the market flooded after recreational use was approved by state voters in 2014, prices have plummeted, putting strain on the operation he runs in Takilma with his wife, Rhea.

Oregon’s lush climate and weed-tolerant culture have long resulted in large and potent harvests. Seeking to fold black market growers into its budding legal industry, the state has distributed licenses liberally, leaving Oregon saddled with an enormous surplus of legal cannabis — more than its population of 4 million would ever be able to smoke.

Oregon lawmakers are hoping to tackle the problem with two bills signed into law in June — one aimed at curbing excess production and the other seeking to establish new markets for Oregon weed.

Senate Bill 218 gives the Oregon Liquor Control Commission more power over issuing new licenses based on an assessment of supply and demand conditions. SB 582 aims to lay the groundwork to eventually divert the state’s over-saturated marijuana market by giving the governor the green light to enter into agreements with other states for cannabis imports and exports.

It is illegal to transport cannabis to other states, and so the export legislation hinges on action in Washington, D.C., in the form of a change in federal law or guidance issued by the U.S. Department of Justice allowing or tolerating interstate transfers.

The Trump administration has been unfriendly to legal weed. Last year, then-Attorney General Jeff Sessions rescinded an Obama-era federal policy called the Cole memorandum, which allowed states to legalize pot without the threat of a federal crackdown. Sessions’ replacement, William Barr, told U.S. senators in January he would not push for this crackdown (which never materialized under Sessions). But his hands-off approach to legal weed does not by any means signal that the administration would allow trade between states.

Adam J. Smith, founder and director of the Craft Cannabis Alliance based in Oregon — which helped push for the export bill — is optimistic that a change at the federal level is around the corner, particularly if a Democrat defeated Trump in 2020.

It just doesn’t make sense, he said, that states legalizing weed are forced to create their own self-contained industry.

“You have people using water in the desert in Nevada to grow mediocre cannabis, or in Florida, where they have to dehumidify giant spaces, consuming twice the energy,” Smith said. “Oregon wouldn’t have an oversupply problem if we could access legal markets like these.”

Recreational marijuana is legal in 11 states; medical marijuana is legal in 33.

Smith and other advocates are exploring the idea of pushing a similar bill — giving officials authority to enter into marijuana trade agreements with other states — through the legislature in California. The end goal is to move cannabis between states by 2021.

Unlike other states that have legalized recreational marijuana, including California, Washington and Colorado, Oregon did not implement tight restrictions on the number of cannabis licenses. (Some of these states also have gluts of marijuana. However, a smaller proportion of the supply is legal and on the books, and their populations are larger, so the supply-to-demand dynamic isn’t as stark as Oregon’s.)

Oregon recognized that for generations cannabis culture has been part of its fabric, and decided to allow the black market growers into the legal market, according to Andrew Livingston, director of economics and research at Vicente Sederberg, a Denver-based law firm that provides legal and policy services to cannabis businesses.

“They put out advertisements, they did a whole ‘go legal’ campaign to attract Oregon cannabis growers to the legal market, and it worked. People jumped on board,” Livingston said. “They wanted to make it as easy as possible to make those businesses become legal and licensed.”

The result was about 2,100 licensed growers as of January, and enough weed that it would take an estimated 6.5 years to sell it all within Oregon without any more production, according to a 2019 OLCC report.

The median price of weed in Oregon fell steadily over two years, from over $10 per gram in October of 2016 to less than $5 in December 2018.

Because the market was flooded, the Millers grew in only half of their 40,000 square feet of permitted space last year, and at the same time, the price of the flower has dipped.

“Those two things really hit us fast and hard. It was pretty scary and intimidating,” Matt Miller said.

Giving the commission more leeway to stanch the flow of new licenses is a practical move on the state’s part, Livingston said. But the law is likely to have limited impact since the state already placed a moratorium on processing new licenses a year ago.

A January audit by the Oregon Secretary of State’s office found Oregon’s regulatory systems were weak, and lacking in adequate inspections.

Oregon and California historically have been the two leading producers of marijuana in the nation — and growers in both states illegally export large quantities (though it’s difficult to quantify exactly how much), said Hezekiah Allen, a cannabis lobbyist and former head of the California Growers Association.

California, like Oregon, struggles with an oversupply of cannabis. Though Oregon became the first state to decriminalize marijuana possession in 1973, the state did not create a medical marijuana program until 1998, two years after California.

Vessel Logistics, a San Francisco-based cannabis distribution company, said in a report that the cannabis industry in California has over-relied on the black market and out-of-state sales, causing producers to over-estimate the state’s actual demand, according to the Sacramento Bee.

In California, a patchwork of rules governs individual jurisdictions. About 75% of municipalities don’t allow retail sales — and many of those likely have illegal operators. California’s Bureau of Cannabis Control has sent some 3,500 cease-and-desist orders to illegal retailers since January of 2018.

California’s surplus is worsened by the fact that the state has limited licensed retail stores, Allen said.

“We don’t have enough places to sell the stuff, so that’s a big problem,” Allen said. “Folks everywhere in the country are consuming cannabis, and very few states produce significant amounts.”

He pointed out Oregon’s legislation would not be helpful for trade with nearby states that also have an oversupply. California has too much; so does Washington, another early legalizer.

“It’s awesome Oregon is trying to do something, but the real solution really will come at the federal level,” Allen said.

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