Oregon marijuana surplus a cautionary tale for other states
WASHINGTON – Five years after Oregon legalized recreational marijuana, its lawmakers now are trying to rein in production, fearing the state’s big weed surplus will tempt some licensed businesses to sell their products out of state or on the illegal market.
Such diversions could invite a crackdown from the federal government and cast a pall over the legal pot industry. Last year, the U.S. attorney for the District of Oregon put the state on notice when he announced that curbing interstate trafficking was his top cannabis law enforcement priority.
Licensed growers have spent thousands of dollars on compliance and don’t want to risk their businesses by selling illegally, said Michael Getlin, founder of a 15,000-squarefoot cannabis farm in Oregon City. “The flip side of that is, I get cold calls all the time from people out of state looking to go shopping,” he said – often offering two or three times market price in Oregon.
Oregon’s surplus, though legal, is something of a cautionary tale for other states as they try to manage marijuana supply and demand. Enough recreational cannabis sat on dispensary shelves, in warehouses and in processing plants this January to satisfy buyers for more than six years, according to a report from the Oregon Liquor Control Commission, the state agency that regulates recreational marijuana.
Like California, Oregon has a long history of illegal grows. And while some states, such as Colorado and Washington, limit the production licenses people can hold and the number of plants businesses can grow, Oregon has made it easy for people to harvest a lot of weed.
“They underestimated the number of people that would be willing to convert to the legal market or would want to participate in the legal market,” said Beau Whitney, vice president and senior economist for New Frontier Data, a company based in Washington, D.C., that studies the cannabis industry.
To address the pot glut, Oregon this year enacted legislation that allows the regulators to stop issuing new production licenses when supply exceeds demand. The state also approved a measure that, with federal approval, would allow growers to sell their cannabis out of state.
Congressional bills that would legalize marijuana sales at the federal level have so far been unsuccessful. But two Democrats who represent Oregon in Congress, Sen. Ron Wyden and Rep. Earl Blumenauer, last month proposed legislation that would allow for interstate commerce between states with legal cannabis programs.
Oregon marijuana growers appear to have planted less cannabis this year and prices have ticked up, a sign that the market is correcting, said Adam Smith, founder and director of the Craft Cannabis Alliance, a nonprofit trade group based in Oregon.
Still, Smith said, “the fix is open markets.” His group pushed for the Oregon interstate commerce bill and plans to lobby for similar legislation in California and beyond.
The Oregon cannabis glut has raised eyebrows among experts who study marijuana markets. “The biggest policy lesson you can take from this is: understand the existing cannabis market,” said Adam Orens, co-founder of the Marijuana Policy Group, a consulting outfit based in Denver.
His group helps states create an initial estimate of marijuana demand by looking at federal drug use surveys and conducting new surveys of state residents. Once legal sales are up and running, he said, plant tracking systems can help regulators follow market dynamics.
Many states limited marijuana production from the get-go. Washington state, for instance, issued production licenses only during a 30-day period in 2013 and allowed producers to license no more than three businesses each.
Marijuana prices have been dropping in recent years in Washington. But people in the industry disagree over whether that means there’s an oversupply problem and how to address it, said Brian Smith, communications director for the Washington State Liquor and Cannabis Board.
“We’re in a different boat than Oregon is,” he said. The regulatory agency hasn’t completed a supply and demand study yet, but it found in a recent report that most marijuana producers in Washington are planting in less than the total amount of space allowed under their licenses.