Experts see cautionary tale in Oregon’s marijuana glut

When Oregon lawmakers created the state’s legal marijuana program, they had one goal in mind above all else: to convince illicit pot growers to leave the black market.

That meant low barriers for entering the industry. As a result, weed production boomed — with a bitter consequence.

Now, marijuana prices here are in free fall, and the craft cannabis farmers who put Oregon on the map decades before broad legalization say they are in peril of losing their now-legal businesses as the market adjusts.

Oregon regulators have announced they will stop processing new applications for marijuana licences in two weeks to address a severe backlog and ask lawmakers to take up the issue next year.

Experts say the dizzying evolution of Oregon’s marijuana industry may well be a cautionary tale for California, where a similar regulatory structure could mean an oversupply on a much larger scale.

“For the way the program is set up, the state (California) just wants to get as many people in as possible, and they make no bones about it,” said Hilary Bricken, a Los Angeles-based attorney specializing in marijuana business law.

“Most of these companies will fail as a result of oversaturation.”

Oregon has more than 453,000 kilograms of marijuana flower — commonly called bud — in its inventory, a staggering amount for a state with about four million people. Producers told The Associated Press wholesale prices fell more than 50 per cent in the past year; a study by the state’s Office of Economic Analysis found the retail cost of a gram of marijuana fell from $14 in 2015 to $7 in 2017.

The oversupply can be traced largely to state lawmakers’ and regulators’ earliest decisions to shape the industry.

They were acutely aware of Oregon’s entrenched history of providing top-drawer pot to the black market nationwide, as well as a concentration of small farmers who had years of cultivation experience in the legal, but largely unregulated, medical pot program.

Getting those growers into the system was critical if a legitimate industry were to flourish, said Sen. Ginny Burdick, a Portland Democrat who co-chaired a committee created to implement the voterapproved legalization measure.

Lawmakers decided not to cap licences; to allow businesses to apply for multiple licences; and to implement relatively inexpensive licensing fees.

Oregon’s Liquor Control Commission announced this week it will put aside applications for new licences received after June 15 until a backlog of pending applications is cleared. The decision comes after U.S. Attorney Billy Williams challenged state officials to address the oversupply.

“It’s a failing of the state for not stepping back and taking a look at where this industry is at following legalization,” Williams told the AP in a phone interview.

But those in the industry supported the initial decisions that led to the oversupply, Burdick said.

“We really tried to focus on policies that would rein in the medical industry and snuff out the black market as much as possible,” Burdick said.

The state has granted 1,001 producer licences and had another 950 in process as of last week. State officials worry if they cut off licensing or turn away those already in the application process, they’ll get sued or encourage illegal trade.

In contrast, Washington knew oversupply could draw federal attention and was more conservative about licensing. The state never experienced an oversupply crisis.

In Oregon, cannabis retail chains are emerging to take advantage of the shakeup.

A company called Nectar has 13 stores around the state — with three more on tap — and says on its website it is buying up for-sale dispensaries too.

Canada-based Golden Leaf Holdings bought the successful Oregon startup Chalice and has six stores around Portland, with another slated to open.

William Simpson, Chalice’s founder and Golden Leaf Holdings CEO, is expanding into Northern California, Nevada and Canada.

Simpson welcomes criticism that his business is to cannabis what Starbucks is to coffee.

“If you take Chalice like Starbucks, it’s a known quantity, it’s a brand that people know and trust,” he said.

Amy Margolis, the Oregon Cannabis Association’s executive director, says capping licenses would only spur more consolidation in the long term. The state is working on a study that should provide data and insight into what lies ahead.

For now, Oregon’s smaller marijuana businesses are trying to stay afloat. A newly formed group will launch an ad campaign this fall to tell Oregonians why they should pay more for mom-and-pop cannabis. Oregon Craft Cannabis Alliance founder Adam Smith believes 70 per cent of Oregon’s small growers and retailers will go out of business if consumers don’t respond.

Most of these companies will fail as a result of oversaturation.