Oregon’s Retail Cannabis Industry Suffers Growing Pains

Most new businesses hit headwinds in their first several years. Oregon’s legal cannabis industry is no different. Approved by voters in 2014, it has recently suffered setbacks worth monitoring by other governments considering recreational pot.

News last week reported that Oregon is unintentionally producing twice as much cannabis as it’s selling. Based on current buying trends, Oregon has already built up a six-year surplus of pot.

Suffice to say, that’s suboptimal economics. With supply greatly outstripping demand, Oregon’s retail prices have dropped by half in three years, down from $10 a gram to $5. Consumers likely enjoy these savings, but they’re terrible for anyone trying to turn a profit in this budding industry.

Especially growers. Some are veterans of cannabis who legitimized their farming operations to comply with new Oregon laws, after years (sometimes decades) of selling their crops into the country’s black market.

Now their reward for legitimizing is this economic headache. As prices plummet, and demand in Oregon dips below the state’s production capabilities, what’s stopping these farmers from selling their surpluses through the black market? Consumer demand may be met in their own state, but plenty more people throughout America still want fresh cannabis. Selling the surplus illegally outside of Oregon makes sense for these farmers, economically.

The state lacks an easy answer for this problem. The same report that disclosed the supply/demand issue also recommended potential solutions.

Oregon could limit the amount of land on which a farmer could grow — except farmers could simply buy more land under different licenses. Oregon could hike up the cost of licenses to limit their purchases — except the current cost is so low that such a change might further damage the industry’s economic model. Oregon could slow or halt the sale of future licenses — except this might place too much power in the hands of the government when picking who receives entry into the industry.

All three suggestions are effective answers with risky side effects. A combination of all three is probably the wisest choice. Other states should closely watch how Oregon addresses this economic setback, and whether the continued fallout is significant.

Meanwhile, in an eye-opening week for anyone following legal cannabis, Oregon’s industry suffered another troubling report. An audit from the Secretary of State’s Office found that the escalating number of approved licenses has caused widespread inspection problems.

Namely, only 3% of retailers and 33% of growers have received a compliance inspection. Meanwhile, the state still lacks a verified testing mechanism on the medicinal side. These products made in the state still cannot be officially ensured as safe for public consumption.

To the first issue, the reason for the large number of licenses may be craft beer. Oregon reportedly envisioned its nascent cannabis industry as mirroring its thriving microbrew scene. A craft brewery on every corner, profiting as they serve local clientele.

That meant lots of smaller retailers and producers. Which is fine with microbrews, but not cannabis. The sheer number of marijuana businesses that have opened has put an impossible strain on the time and work of inspectors.

Either Oregon must hire considerably more inspectors, or significantly slow the rate of license approvals. The best answer is likely both.

Regarding holes in the medicinal system, these require immediate attention on a legislative level. Oregon must shore up shortcomings in the safety mechanisms of that portion of the industry. Which is not to say that Oregon cannabis products are unsafe. The state still operates one of the top cannabis laboratories on the planet. The problem seems to be that the industry is so new, and expanding so fast in terms of output, that even legislators have been caught behind the production wave.

It’s an important lesson for other states.

Oregon deserves credit as among the first states to advance headfirst into the new cannabis frontier. They are trendsetters, guinea pigs for the rest of marijuana America, but that also comes with expected bumps and bruises. Here we see serious economic, safety and regulator issues — three years into the birth of the new industry — that require tough decisions that surely will upset parts of the market.

How Oregon handles these problems will set critical precedent for all other states following behind in the legal cannabis movement.

Kyle Swartz is editor of Beverage Dynamics, and Cannabis Regulator, our cannabis-related sister publication. Reach him at kswartz@epgmediallc.com or on Twitter @kswartzz or Instagram @cheers_magazine. Read his recent piece Legal Cannabis Makes (Minor) Headway in Washington D.C.

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